Cardoso: Don’t let my people go, By Abdulrahman Abdulraheem

CBN Governor, Olayemi Cardoso

It is difficult, if not impossible, to fix a long-lasting rot within a few months. But with its commitment and consistently strict adherence to the rules, local and foreign observers, and even potential investors, can see what the Cardoso-led CBN is doing to gradually reset the economy and cleanse the system in such a way that sharp practices that have far-reaching effects on the country’s peace and stability are not allowed to continue.

The famous “Let My People Go” phrase originated from the Holy Bible, in the Book of Exodus. One of the iconic verses reads: “Then the LORD said to Moses, go to Pharaoh and say to him, ‘This is what the LORD, the God of the Hebrews, says: Let my people go, so that they may worship me.”

According to a time-tested interpretation, that was God reaching out to Pharaoh and giving him the opportunity to free the Israelites of his own free will, so they can worship Him in peace. It was more or less a subtle warning for Pharaoh to stop oppressing God’s people and save himself the fatal consequences of the impending wrath of the Almighty.

Apparently because it was mentioned up to seven times in the Bible and the story surrounding it remains one of the memorable moments in the evolution of Christendom, the phrase “Let My People Go” has endured across generations up till today and served various purposes in different parts of the world.

In Nigeria, “Let My People Go” is deployed to serve a situation whereby a group of people are not deserving of promotion to the next level, class or grade but for some other unofficial considerations, they are allowed to move. It is also used in situations whereby a group of people or an organisation is supposed to be clamped down on for breaking the rules of its existence but for some corrupt or unethical reasons, the people in charge turn a blind eye and let the status quo remain.

Emefiele: Let My People Go

As part of its mandate to promote a sound financial system and ensure monetary and price stability, the Central Bank of Nigeria (CBN) sets rules and standards, and supervises the operations of Deposit Money Banks (DMBs) and other privately owned financial institutions in the country. And when these banks flout the rules repeatedly in a way that can tamper with depositors’ funds or put the economy in jeopardy, the CBN is empowered by law to wield the big stick on them, either by fine or withdrawal of license or any other form of sanction.

But when the former CBN governor, Godwin Emefiele, held sway, he adopted the “Let My Go” policy and gave the banks the license to do as they wished. For reasons best known to him, he condoned the unethical practices of the banks and didn’t summon the political will to rein them in.

Emefiele consistently preferred to rescue banks that had been mismanaged by their owners, instead of allowing the bad managers to face the consequences of their bad choices.

When shareholders and owners used all manners of sharp practices to drive their banks to the edge, instead of being punished for their bad behaviour, Emefiele used tax payers’ resources to rescue the banks and let the perpetrators off the hook.

During Emefiele’s leadership, several banks, including Skye Bank (later Polaris Bank), Keystone Bank, Union Bank, and Heritage Bank, faced severe financial challenges but were bailed out. These banks continued operations until they were eventually sold off, with one currently distressed bank still operating despite ,negative shareholders’ funds.

Emefiele’s strategy of preventing bank failures under the guise of protecting shareholders created significant moral hazard and bad precedence. Many directors and major shareholders who contributed to the banks’ failures escaped major prosecution and did not return most of the lost funds. This is a big incentive for bad behaviour and is bad precedence, which should not be sustained.

To send the message to all and sundry that it is no longer business as usual, Cardoso’s CBN recently revoked Heritage Bank’s operating licence, effectively closing down the institution. This represents the first time a Nigerian bank has had its licence withdrawn in this manner in over a decade.

A New Dawn Under Cardoso

I once did a character analysis of the incumbent Governor of the CBN, Olayemi Cardoso, reminding readers that he was nicknamed ‘Headmaster’ when he served in the cabinet of Governor Bola Tinubu of Lagos State due to his no-nonsense approach to governance. In the piece titled “Old headmaster, new taskmaster,” I observed Cardoso’s tendencies to be strict with the rules, procedures and standards and how he was using that to fix the rot in the country’s foreign exchange market, banking industry and the monetary side of the economy at large.

After dealing decisively with currency speculators, round tripping experts and other unpatriotic elements, whose illicit activities kill the naira and drive-up inflation, Cardoso is now focusing on DMBs and microfinance banks, whose tendencies to break the rules threaten the safety of depositors’ funds and pose danger to the economy at large.

He has set new rules for them in terms of recapitalisation, Know Your Customers and many other aspects. He has tightened the noose on MFBs as part of efforts to ensure people are not using their accounts to launder money, take ransom for kidnapping or sponsor terrorism.

To send the message to all and sundry that it is no longer business as usual, Cardoso’s CBN recently revoked Heritage Bank’s operating licence, effectively closing down the institution. This represents the first time a Nigerian bank has had its licence withdrawn in this manner in over a decade.

According to the CBN, the licence revocation was part of its mandate to promote a sound financial system in Nigeria and was executed under its powers granted by Section 12 of the Banks and Other Financial Institutions Act (BOFIA) 2020.

In a statement by the CBN spokesperson, Hakama Sidi-Ali, it was noted that the bank had violated Section 12(1) of BOFIA 2020. She added that the bank’s Board and Management had failed to improve its financial performance, posing a threat to financial stability.

Despite various efforts to stabilise the bank, it “continued to suffer with no reasonable prospects of recovery,” making the revocation a necessary step.

The CBN stated that it took action to bolster public confidence in the banking system and ensure that the soundness of the financial system remained intact.

The apex bank then appointed the Nigeria Deposit Insurance Corporation (NDIC) as the bank’s liquidator under Section 12(2) of BOFIA 2020. This appointment, which will ensure that all 2.3 million depositors are paid, also highlights the CBN’s dedication to orderly resolution processes that prioritise depositor’s protection and financial system integrity.

This action sends a clear message to the financial sector that the current CBN administration will not hesitate to let failing banks exit the market, so that sanity, probity and certainty can reign supreme.

Cardoso’s willingness to let market dynamics prevail, in contrast to Emefiele’s emphasis on preventing failures through capital injections and managerial changes, highlights a broader commitment to regulatory rigour, financial stability, and depositor protection.

Cardoso’s CBN had earlier appointed a new management for Polaris Bank, another institution that was pampered by Emefiele, indicating a commitment to enforcing regulatory compliance and market discipline.

This change in approach will definitely bolster public confidence in the banking sector by demonstrating the CBN’s commitment to a healthy and stable financial environment. Banks will become more circumspect about their lending practices and handling of non-performing loans (NPLs). They will also likely adopt more stringent lending criteria and ensure that bad loans are recovered promptly.

The only potential disadvantage of Cardoso’s tough stance is that bank customers may become concerned and anxious about which institution might be next. That was why Hakama quickly issued a statement to reassure Nigerians that the remaining banks are financially sound and healthy.

This new stance aligns with global best practices where regulators allow market forces to play a more significant role in the survival of financial institutions, provided that robust resolution frameworks are in place.

Cardoso’s willingness to let market dynamics prevail, in contrast to Emefiele’s emphasis on preventing failures through capital injections and managerial changes, highlights a broader commitment to regulatory rigour, financial stability, and depositor protection.

This sets a new tone for the Nigerian banking sector, emphasising that regulatory compliance and financial soundness are non-negotiable.

The apex Bank has also recently tightened the noose on MFBs and fintechs to make sure their activities do not pose any danger to the financial health, security and stability of the nation.

The CBN had on 29 April directed fintech companies to pause the enrollment of new customers in an effort to address illicit foreign exchange transactions in the country, as well as the operations of Binance and other cryptocurrency exchange platforms. The ban affected OPay, Moniepoint, Kuda, Palmpay, and Paga and it was recently lifted after the companies fixed the loopholes in their KYC requirements.

In a ruling delivered on 24 April, a Federal High Court in Abuja granted an interim order to the Economic and Financial Crimes Commission (EFCC) to freeze at least 1,146 bank accounts belonging to individuals and companies over “unauthorised foreign exchange” transactions. An analysis of the 1,146 accounts blocked by the EFCC shows 90 per cent of the accounts affected are operated by commercial banks, while 10 per cent are operated by fintechs. This justifies CBN’s decision to beam its searchlight on fintechs.

Last Line

It is difficult, if not impossible, to fix a long-lasting rot within a few months. But with its commitment and consistently strict adherence to the rules, local and foreign observers, and even potential investors, can see what the Cardoso-led CBN is doing to gradually reset the economy and cleanse the system in such a way that sharp practices that have far-reaching effects on the country’s peace and stability are not allowed to continue.

Abdulrahman Abdulraheem is the author of eNaira Revolution: A Peep into Nigeria’s Cashless Future.