Background

1. Background • August 14, 2009 will remain indelible in the annals of banking reforms in Nigeria. The date marked a turning point in the nation’s banking sector as the new CBN Governor, MalamSanusiLamidoSanusi, in one fell-swoop, sacked the MDs/CEOs of five top banks, namely Oceanic Bank Int’l Plc, Intercontinental Bank Plc, Afribank Plc, Union Bank Plc and Fin Bank Plc, in the first phase. • The second phase of the gale on October 2, 2009 hit three more banks whose MDs/CEOs were equally removed. The banks are: Bank PHB, Equatorial Trust Bank Ltd and Spring Bank Plc. Two other banks – Wema Bank and Unity Bank Plc which escaped by the whiskers were asked to recapitalized by June next year. The affected banks whose chieftains were removed have since been replaced by caretaker boards. • Moreover , whilst the first five banks that fell under the CBN hammer were bailed out to the tune of =N=420 billion, the other three banks that suffered the same fate, including Wema Bank that was also adjudged to be facing liquidity risk , were also bailed out to the tune of =N=200 billion. In addition, the legislation for an Asset Management Company (AMC) to soak up bad loans is expected to be in place by the end of the year, according to the CBN helmsman. • In the words of the CBN Governor, the reform became necessary “on account of complicity in granting of non-performing loans and gross unprofessional practices”, amongst others. • Whilst the stress audits of the banks appear to have come and gone, the shock waves and the reverberating effects of the CBN induced tsunami in the sector will remain with us for a long time to come.

2. The aftermath of the banking reform had seen not only the affected banks’ shares and fortunes plummeting to an all time low, but other banks which were given clean bills of health were also affected as their share prices and overall fortunes nose-dived as they declared severe losses in profits having made billions of naira provision for bad / toxic loans. • Whilst the reform had since been supported by the Federal Government and also endorsed by the International Monetary Fund (IMF), majority of Nigerians who have invested considerably in stocks and shares of banks and other sectors have been biting their fingers and regretting investments in these sectors, having suffered and continuing to suffer diminishing returns. • It is in the light of the predicaments of the banks vis-à-vis the overall effects on the economy that this study was undertaken. • Principally, the study sought to examine respondents’ perception of the recent banking reform in Nigeria. • The study was carried out in the first two weeks of January, 2010.

3. Sample Design • We utilized the modified, multi-stage random probability sampling approach for this study. The rationale for this is to obviate any known form of bias that may affect the accuracy of data collected. • The sample selection involved a 5-stage design as depicted below: Stage 1 - Delineation of each area to be sampled into smaller units of near equal proportions known as sectors. Stage 2 - Random selection of sectors. Stage 3 - Random selection of dwelling structures. Stage 4 - Random selection of household units (i.e. residential units within each dwelling structure). Stage 5 - Finally, random selection of individuals to be interviewed.

4. LOCATION (LAGOS) • Ikeja/Ojodu– 97 • Surulere– 78 • Yaba/Ebute Meta – 77 • V.I/Ikoyi– 63 GENDER • Male – 168 • Female – 137 • 16 – 25 – 64 • 26 – 35 – 95 • 36 – 45 – 81 • 45 + – 75 Achieved Sample Structure (Respondents’ Profile) 315 Respondents AGE

5. SOCIAL CLASS • AB – 56 • C – 172 • D – 87 EDUC. BACKGROUND • OND/Dip. ,, – 107 • HND/BSc. ,, – 159 • MSc./PHD – 49 Achieved Sample Structure (Respondents’ Profile) 315 Respondents • OCCUPATION • Self Employed – 73 • Professionals-Lawyers, Engineers, Doctors, Bankers etc – 115 • Company Managers/ Directors – 91 • Others – 36

6. Executive Summary • The current banking reforms were largely seen as timely to address the low capital • adequacy of banks. • Some however canvassed for caution by the regulators in handling the exercises • as doing otherwise may worsen the already beleaguered economy . • Poorly enforced regulations were perceived to be the bane of the rot in the banking • sector. • CBN and the NDIC were also berated for indirect complicity in the crises facing the • sector. • In the short run, the exercises may engender lull in banking/savings/investment • activities and may heighten fears of the collapse of the real sector. • The long run however promises regained confidence in the banking sector, restoration • of strong corporate governance and the emergence of strong and formidable banks, • leading to a robust banking sector. • Strict financial discipline is strongly recommended as a panacea to restore public • confidence in banks.

7. How to Restore Public Confidence in Banks Financial Prudence… Keep close watch/ Clamp down on gluttonous CEOs 63% Increase capitalization Restore strict corporategovernance Develop the real sector that is presently comatose Ensuring that caretaker Boards/CEOs are not there to milk the banks dry 47% 38% 25% 22% 17% • Strict financial discipline / closing down non-profitable branches / cutting down on large overheads of • these banks, were canvassed, so were keeping close watch / clamping down on gluttonous CEOs and • recapitalization of the affected banks, as panaceas to restoring public confidence in the banking sector.

8. In conclusion, from the findings of this study, it becomes clear that though the • effects of the banking reforms appear to be bitter pills to swallow, the economy may • have been the worse for it if the reforms, though thought to be rather belated in some • quarters, were not carried out • The salutary effects may not be immediately evident, but promised to hold a better • future, not only for the banking sector, but for the entire economy as a whole.

9. DETAILED FINDINGS General Thoughts on the Banking Reforms • Quite a sizeable proportion (42%) were taken aback by the revelation of the pitiable size of the • capital available in the distressed banks to stay in business, hence the reforms were seen as timely • exercises to address the low capital adequacy of the indicted banks. On the flip side, 31% were • worried about the ominous signal the reform agenda is sending to the already stressed economy , • Moreover, (27%) berated the CBN for not showing enough discretion in the wholesale sacking of • the indicted banks’ top guns.

10. Factors Responsible for The Rot in the Banking Sector • The regulatory agencies, namely the CBN and the NDIC were roundly berated for their • indirect complicity in the crises rocking the banking sector in “poorly enforced • regulation…”. Some (20%) actually surmised that the NDIC and CBN are undeniably parts of • the crises rocking the financial industry due to their lackadaisical attitudes. They themselves • need one form of reform or the other”.

11. Things Done Rightly or Wrongly By the CBN Things Done Rightly… Things Done Wrongly… Self Employed & Others (N=109) • Low risk on savings and • investment … 56% • Currying some level of • public sympathy … 44% • Promoting fiscal stability • and strong financial system … 52% • Frantic restoration of • foreign investors’ confidence … 48% • . • Unprofessional ways of publishing the names of debtors … 52% • Poor debt reconciliation before publication … 49% • Piecemeal sacking of CEOs & • Boards … 54% • Allowing other banks to put their • houses in order against the ‘evil • day’ … 46% Professionals - Lawyers, Doctors, Engineers, Bankers, etc (N=115) • Timely intervention to avoid • fatal / total collapse … 41% • The bail out/stimulus package • for banks … 34% • Restoring the health/ confidence • of the banking sector … 25% • Unprofessional / selective • approach … 58% • Giving the banks’ fraudsters • ample time to run out of the • country …32% • Erosion of confidence in the • banking sector/capital market … 18% Coy Managers / Directors (N=91)

12. Likely Effects of the CBN’s Actions on the Economy … In The Short Run Self Employed & Others (N=109) • Veritable lull in banking/savings/investment activities … 37% • Palpable fear/foreboding fear of the unknown/distressed banks • may ultimately collapse due to customers apathy to them … 25% • Guard against collapse of banks … 23% • High retrenchment / unemployment in the sector … 21% • Fear of the collapse of the real sector … 31% • Destabilized business activities/shock waves here and there • in the economy … 27% • Difficulty in accessing loans / cynicism by investors … 22% • Deliverance from banking destruction … 15% • Disincentive to savings and fund mobilization … 35% • Retrenchment across the banking sector … 31% • Difficulty in financing imports and meeting other financial • obligations … 26% Professionals - Lawyers, Doctors, Engineers, Bankers etc (N=115) Coy Managers / Directors (N=91)

13. Likely Effects of the CBN’s Actions on the Economy … In The Long Run Self Employed & Others (N=109) • Regained assurance in the banking sector … 41 % • Buoyed confidence of both local and foreign investors … 32% • Tight fiscal policy / no longer business as usual … 23% • Stability/in-built mechanisms against future collapse … 21% • Restoration of strong corporate governance … 33% • Divestment of local investors for foreign ones … 29% • More transparency/accountability in the sector … 22% • Probable emergence of regional banks … 20% • Merger with/take over of smaller banks by bigger ones … 17% • Emergence of strong formidable banks … 46% • Robust banking sector … 31% • Banks that lack ideas and strategy will step aside … 21% • Men will be separated from the boys ultimately … 15% Professionals - Lawyers, Doctors, Engineers, Bankers etc (N=115) Coy Managers / Directors (N=91)

14. Borrow and pay back as at when due (10%) The fear of Sanusi is the beginning of banking operation wisdom / no hiding place for banking operation rules’ defaulters (33% ) Strict accountability (16%) Playing by the rules / no longer business as usual (25%) Lessons to Be Learnt Good corporate governance 13% Professionalism should not be compromised (15%) Clear dichotomy of family / personal interest from overall public / national interest / customers interest first (17%) • Aside from the aforementioned, other veritable lessons to be learnt, according to them, are that “not all that • glitters is gold, in terms of spurious capital base, profit before and after tax, etc. being declared by virtually all • the banks”, and “the exposures of bogus millionaires who lives on poor people’s funds”; calling all millionaires / • billionaires and pretenders alike to live within their means.