CBN “Too Big to Fail” By Abubakar Kasimu Abdullahi
On Monday 11th November, 2013, The Deputy Governor (Operations) of the Central Bank of Nigeria, Mr. Tunde Lemo listed about eight banks that are “Too Big to Fail”. These Banks include; First Bank, Zenith Bank, Guaranty Trust Bank, United Bank for Africa, Ecobank, Access Bank and Diamond Bank.
“The CBN believes that failure of any of the eight banks which account for 75% of the banking sector (in terms of earnings, profitability, assets, customer deposits and branch network) could pose a systematic risk to the banking industry and the larger economy.”
Now, aside downright de-marketing of other banks which make customers to lose their confidence, reliance and tenacity, there is no such thing as “Too Big to Fail”. There is NO bank in Nigeria that has the liquidity ratio or the capital base of the Great Washington Mutual Bank, yet it folded up.
As at 30 June, 2008, Washington Mutual Bank had total assets of over $30billion with 2,239 retail branches operating in 15 states with 4,932 ATMs and 43,198 employees. It held liabilities in the form of deposits of $188.3 billion and many more funds in mortgage loans and other receivables.
On 15 September, 2008, the Holding Company received a credit rating agency downgrade; from that date through September 24, 2008. WaMu experienced a bank run whereby customers withdrew $16.7billion in deposit over those 9days and in excess of $22billion in cash outflow, both conditions which ultimately led the Office of Thrift Supervision to close the bank.
On the double, this was the same kind of downgrade ratings by the Apex Bank that made customers lost confidence and withdrew their monies from the 10 “Troubled” Banks out of which 8 were recapitalized and 3 (Afribank, BankPHB & Spring Bank) had their licenses revoked.
The Apex Bank need to critically monitor these said “Too Big to Fail” Banks as the profit they pose are of seventh heaven with no equal staff euphoria. To buttress my point; take for example Bank A – posted a PBT of N100billion in the last financial year and sacked 100 staffs (assumably, the laggards) yet fail to promote or encourage the transcendent(s).
Deposit Money Banks are still battling to survive the Cash Reserve Ratio(CRR) for public deposits which began in August 7.Essentially, this policy means that banks have to warehouse 50% (One of the highest globally) of deposits from government agencies with the CBN which leaves DMBs with less cash to do business.
Conclusively, the Apex Bank should cease from marketing and/or de-marketing banks in the industry as this will only pose more dire straits, lost in customers’ confidence and uncertainty in the industry. The CBN’s CRR and reviewed bank charges alone is purging off banks’ new feathers to fickleness. Let’s not cause more impairment to emerging markets.
Abubakar Kasimu Abdullahi.
(@abubakar47i) – twitter.
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