Tuesday, June 09, 2009

Expectations of the CBN Governor

Looking in the eyes of Government on national television and saying some home truths as the new Central Bank of Nigeria Governor, Mr. Sanusi Lamido Sanusi, did last week, may not be the right way to start a job.
Reeling out a long list of goals on the same day, thereby giving people the rope to hang him for poor performance, could also be a dangerous way to start a job.
But courage and a dose of experience in banking as displayed by Sanusi during his screening give an indication of a strong central bank governor.
With the ongoing global economic crisis and the problems of the capital and money markets in a challenged national economy, a weak governor at the central bank could have sent wrong signals to various sectors of the economy. Already Sanusi must have shaken the money market with the clear signal that changes are in the air.
While we deplore the high drama surrounding the succession at the CBN, we agree that Sanusi took the baton from a Governor who did well for banking in Nigeria. Professor Chukwuma Soludo, like all humans, has some weaknesses, but he has a presidential commendation for a job well done.
The President said at the silver jubilee celebration of CBN, “As you evaluate the past, I believe that one conclusion any unbiased observer of the CBN over the last 50 years will reach is that despite the constraints and challenges of the political, economic and social environment of Nigeria, the CBN has performed creditably well in delivering on its core mandates”.
It was also evident from Sanusi’s outing that the CBN has a good successor in him. We believe strongly that a good central bank governor must have sterling qualities.
This follows from the fact that the CBN is especially crucial for our macroeconomic stability and growth because unlike some other central banks, the CBN is tasked with multiple missions of maintaining the stability of the naira, general price levels (low inflation) and supervising the banking industry.
We believe the qualities of the Governor are of particular importance to the success or otherwise of the institution. And that to fit the independent nature of central banks, a good governor must be courageous as Sanusi has shown, and have impeccable integrity, technical competence and strong leadership qualities. In addition, he must be an able chief executive and an international diplomat.
But beyond these qualities and showing so much understanding of the industry is the real challenge of walking the talk. As he noted, the industry may not have been thoroughly and effectively supervised recently. And for bankers who may have taken advantage of that, Sanusi may not have a free, easy sail. How he handles such initial opposition will certainly reflect on his performance.
Sanusi, for example, showed discomfort with the bank’s exposure to non-performing loans and for those who believed it was affecting the capital market he provided some relief.
He said, “When people talk about stock market and confidence, we all know that there is N1 trillion out there. That number has to show up as non-performing loans; if they are not showing up, people do not trust the numbers. We need to ask: where are those non-performing loans and we need to enforce provision and if banks need more capital, then we should recapitalise those banks”.
He promised to deploy his years of experience as a risk manager into the task of regulating the banking sector, stressing that “the advantage of being a risk manager historically is that the risk manager has always been an internal regulator”.
On a broader scale, Sanusi has come in at a time major macro-economic indicators have been destabilised by the global financial crisis. Despite the CBN’s spirited efforts, the exchange value of the Naira and soaring lending rates have continued to challenge the economy. Stabilising these macro-economic indicators is obviously an immediate challenge for Sanusi.
The good thing about him is that he seems to understand his challenges so well, and the soundbites from him are encouraging. It is hoped that the bank will build on its achievements and set higher standards for macro- economic management.