Social Costs of the CBN Reforms in Nigeria

Mr. Wale Osho, a fine young ex-banker died as a result of a brief illness after returning from a business trip from China. He was some months back before his death a staff of one of the acquired banks before he lost his job. I visited his residence somewhere in Ojodu-Berger an outskirt town in Lagos to commiserate with his family members and mourn his death. It is likely that the pressure of meeting up with the huge cost of living (house rent, school fees, fuel for generator/car etc) after the bank job loss contributed to his illness and subsequently his death. Mr. Caleb Ogbonnaya also slumped during work hours due to health complications and pressure in a new consolidated bank. He was also a staff of an acquired bank. There are so many others that are passing through same stress, economic turmoil and financial pressure occasioned by sudden job loss, salary cut, demotions, redeployments etc.

The Central Bank of Nigeria (CBN) has as its major function the overall supervision of the Nigerian banking system. Based on the statutory returns send from the Banks and special examination conducted, financial statistics are compiled and used to monitor compliance with policy targets. From this stress audit to assess the financial health of these banks, weak banks are identified and remedial actions are articulated for implementation to protect depositors’ funds in these ailing banks. These remedial actions are articulated in a reform programme. The critical goals most times are to correct perceived institutional problems and protect depositors’ funds in banks that are identified as weak. A weak bank(s) may be merged or acquired by another bank or outrightly liquidated and taken over by NDIC.

These noble objectives are most times welcomed by both the local and international media for the value these reforms intend to create as they also puts the country’s economic landscape on the spot and projects the anchor of such reforms.

Historically there have been 2 major banking reforms in the country in the last decade and I have personally witnessed the two – the Professor Charles Soludo reform programme of 2004 and that of Malam Sanusi Lamido Sanusi of 2009.

While the former pursued the reduction of banks in 2004 from a perceived high of 89 to a moderate 25 (75 banks merged while 16 were liquidated) and raised the capital base to N25 billion for all the emerging banks for competitiveness and improved capacity, Mallam Sanusi s reforms aimed at instilling discipline in the management of banks through best practice risk management framework to avoid bank failures and protect the entire banking system from collapse during the global economic crisis of 2007 – 2009 and capital market crash of 2008 which actually trended downwards by 70% in Nigeria. In 2009 , 5 Bank CEOs were initially sacked from the intervened banks and a whopping N620 billion was injected into the system. 3 bridge banks (Enterprise bank, Mainstreet bank and Keystone bank) were established as resolution options by NDIC for 3 ailing banks (Afribank PLC, Bank PHB PLC and Spring Bank).

Earlier in 1998 , 30 banks were liquidated out of 120 banks.

Sarah Alade (2012) in her paper in the CBN Journal for applied statistics posits that banking reform has been an integral part of the country wide economic reform programme undertaken to reposition the Nigerian economy to achieve the objective of sustained macroeconomic development stability. For the banking sector to be among the global players in the international financial market, it must effectively perform its intermediation role.

In as much as these reforms are necessary as confirmed by International economic agencies e.g. the World Bank, there are enormous social costs whose implications are a direct effect on the already tensed economic lives of Nigerians. The social costs pointed out above include mass retrenchments that results into loss of many jobs, demotions, outright salary cut etc which are not really given much attention to by the drivers of these reforms.

Consequent upon this distress syndrome, bank workers usually bear the brunt. Over 15,000 bank workers were said to have been displaced aftermath of the 2004 consolidation in the sector which saw 89 banks shrink to 24. Apart from the fact that all the workers in the liquidated banks were made to join the labour market, the consolidated banks also embarked on staff rationalization, down-sizing, right-sizing , restructuring etc . All amounts to sacking staff en-masse. It was actually a competition in the surviving banks when workers were off-loaded in their thousands suddenly.

More so, over 7,500 persons lost their jobs after the CBN takeover of eight banks in 2009. The number has increased as banks continued to sack. Expressly, the current CBN governor, Lamido Sanusi had, at the beginning of the current reform process admitted that there will be job losses but the issue then was how will the economy absorb the shock created by these huge unemployment numbers?.

Many industry observers also believe that the negative implications of these reforms might have been buried in media lingo by the drivers to prove to the world that the intention behind the reforms are beneficial to the country while discounting the terrible , detrimental economic loss and demeaning of human value through income erosion.

One of the beneficiary banks of the present reforms even gave staff of its legacy acquired bank options of choosing ‘ the higher between gratuity or severance pay’ to entice them to leave the system. This strategy of ‘weeding out’ shows clearly that acquired staff are not wanted by the acquiring banks. This bank subsequently got an ‘award’ for its seamless transition after massive lay-offs of the staff of the acquired bank.

A friend of mine also told me of a new vogue in the industry which is referred to as e-sacking. A particular staff on resumption for the day’s job who cannot log into the bank’s intranet is expected to report to the human resources department for his termination letter. This novel approach does not attract any form of negotiation or noise.

Mr Samuel Nzekwe, former President, Association of National Accountants of Nigeria (ANAN) says that the reforms exercise has resulted in massive job losses in the sector, and compound unemployment problems in the country. Nzekwe says that this will increase the level of poverty, with a resultant negative multiplier effect on the Gross Domestic Product (GDP) of the country.

He notes that the CBN could have put in place effective framework in the course of the banking reforms that would prevent people from losing their jobs en-masse.

Another social cost is that careers of some of the brilliant bankers of the acquired banks are cut short by this attitude of weeding out. Just few of the affected bankers might be lucky to scuttle back into any available bank while others will take up anything outside their banking careers, losing their core area of knowledge and competence for survival or run away to UK, Canada or USA to do menial and unskilled jobs to make a living.

Kunle Adetiba, an erstwhile staff of Bank PHB said he left the country because having lost his job; he could not afford to stay behind in search for job that is not available. “I have to run away from the country because I cannot afford to stay around looking for what is not there. As a matter of fact, I have almost finished my savings when an old friend came to my rescue by facilitating my leaving the country. I think this is the best decision.” Kingsley Omankhalen, a brilliant banker in a corporate communications department did not even wait for too long in a new consolidated bank before jetting away to the United Kingdom with his family.

Before these bank failures and distress crept into the system, bank work was very attractive and bankers were the toast of the public. Every young adult loved to work in the Bank. Recalling on how bank workers were treated in those days, a former chairperson, Association of Professional Women Bankers of Nigeria (APWB), Mrs Taiwo Ige, said they were treated next to clergy men.

According to her, apart from the fat salary, they were held in high esteem. “Everybody wanted to be associated with bankers. They were treated with respect and dignity. And it was commonly regarded as a noble profession. Every young graduate was eager to join the profession”. This story was replicated by several retired workers in the industry before these CBN reforms and the resultant massive job cut.

Today, it has now become a matter of regret. Statistic of young men that have fled abroad principally to UK, Canada, United States and elsewhere in Europe in the last few years are young bankers who were either prematurely sacked or escaped abroad which is considered a safety net before the big axe of Management could fall on them. A lot of young graduates are sceptical to apply for jobs in banks because of the general job insecurity and uncertainty associated with bank work nowadays. Something (an elaborate CBN reform) can just crop up due to no fault of theirs and suddenly a cherished job will be on the line. Bankers have been advised severally to have a plan B so that they can quickly re-integrate into the economy and earn a decent living after a job loss.

In conclusion, industry watchers believe that the CBN can do more to benefit the country using its vantage position as a critical agency of Government and impact the people positively. It is expected that the CBN should more importantly put a human face behind its reforms and ensure that job losses are reduced to the barest minimum in the acquired banks. Banks should be compelled to provide data to the CBN on number of staff retrenched relative to a benchmark to be set by it. This will reduce the resultant uncontrolled mass retrenchment and by extension the humongous economic woes that face young vibrant Nigerian bankers cut in the web of these Banking reforms.

Mr Faisal Bidmos is a Fellow of Institute of .Chartered Accountants of Nigeria and a former Senior Manager in a commercial bank. He runs a business consultancy outfit and is a Director in a number of companies in Nigeria . This was first published in Financialnigeria magazine , a monthly finance publication in Nigeria in May 2009