NIGERIA'S CENTRAL BANK GOVERNOR ON THE DEFENSIVE

C O N F I D E N T I A L LAGOS 000359 SIPDIS CORRECTED COPY FOR LAGOS 358, SEE TEXTUAL CHANGES THROUGHOUT DEPT PASS TO EX-IM KVRANICH AND BUBAMADU TREASURY FOR ASEVERENS AND SRENENDER USDOC FOR 3317/ITA/OA/KBURRESS PASS OPIC FOR ZHAN AND MSTUCKART PASS TDA FOR NCABOT PASS USTR FOR ASST USTR FLISER E.O. 12958: DECL: 09/10/2019 TAGS: ECON EFIN PGOV NI SUBJECT: NIGERIA'S CENTRAL BANK GOVERNOR ON THE DEFENSIVE Classified By: Consul General Donna M. Blair for reasons 1.4 (b) and (d ) ¶1. (U) SUMMARY: Governor Sanusi of Nigeria's Central Bank (CBN) has been defending himself in the National Assembly over his sacking of five Managing Directors. National Assembly members questioned Sanusi's use of CBN funds to prop up the five banks, and expressed a desire to be more involved in the process. Business leaders in Enugu and Lagos expressed concern about Sanusi's actions. END SUMMARY. Governor on the Defensive -------------- ¶2. (U) Summoned before the House of Representatives Committee on Banking and Currency on September 2 to explain the current banking reforms, Governor Sanusi promised to resign if fundamental errors were discovered in any of the bank audits. He defended his decision to travel to the United Kingdom and hold a town hall meeting to assure creditors and investors about the Nigerian economy and financial stability. Pushing back on critics who allege he is too eager to sell the banks to foreign investors, he affirmed his priority is for the banks to have stable investors, foreign or domestic, who could effectively run the banks. Sanusi pointed out that Nigerian law does not prevent a foreign bank holding 100 percent ownership of a Nigerian bank. ¶3. (SBU) The House of Representative Committee on Drugs, Narcotics and Financial Crimes criticized the CBN's decision to inject 40 billion Naira (USD 2.7 billion) into the five banks, demanding that the funds be withdrawn until they are appropriated by the National Assembly. Sanusi defended his decision, stating that the CBN Act gives him control of the money supply and 420 billion Naira is a loan, not bailout money, that would be paid back by the banks. Some observers are not so confident. While speaking at the Nigerian Chamber of Commerce's (NACC) meeting in Lagos on September 2, Chief Ajibola Ogusholat, Chairman of Punch Newspapers, raised the possibility that the loans would eventually be turned into equity. ¶4. (U) Meanwhile, the Economic and Financial Crimes Commission (EFCC) reported the repayment of 45 billion Naira, USD 290 million),from 90 accounts as of September 3. This represents roughly 41 percent of all outstanding accounts and 6 percent of the outstanding loan value. Union Bank has received the highest percentage of payback at 14 percent, representing 10.6 billion Naira. Finbank and Oceanic were the lowest, recovering 3 percent of their loan value representing 1.5 and 9.5 billion Naira, respectively. Not Impressed in Enugu -------------- ¶5. (SBU) Reaction was negative at a September 1 Chamber of Commerce meeting in Enugu, the region of former Governor Soludo, which Lagos Econoff attended. Both the President of the Chamber, Olisaemeka Jideonwo, and Director General (DG) of the Chamber, Emeka Okereke, expressed their disappointment over CBN actions. Nigeria's problems should not be publicly aired, according to the Chamber. Although there was recognition that the banks were in trouble and something needed to be done, the CBN's failure to abide by "due process" was not endorsed. Okereke thought that Soludo had done an excellent job by building relations with banks that Sanusi was now ruining. Lagos Concerned About Impact of CBN Action -------------- ¶6. (SBU) Chief Ogushola, in his presentation to the NACC, spoke of his concerns about the misuse of bad loan information for blackmail or manipulation. There is a need for transparency and clear rules as to how to use this information. Ogushola went on to say that Northern businesses were taking advantage of the shake-up to establish themselves in the banking industry. At the end of the day, Ogushola predicted a long, bitter dispute played out in the courts and the legislature. ¶7. (C) Mazi Sam Ohuabunwa, CEO of Neimeth Pharmaceuticals, formerly Pfizer, spoke with FCS at the NACC about his concerns of credit lines constricting due to CBN measures freezing available credit. He predicted that not only will business lending be affected but the financing of fuel imports could potentially be affected, thereby causing a fuel shortage. The naming and shaming of those not servicing their loans will lead to long and bitter disputes in both the court and legislature, he added. ¶8. (C) IMF Country Director David Nellor informed Econoff on September 3 that the CBN has accepted the IMF's offer of technical assistance and a small IMF team would be be arriving early in the week of Spetember 7 to sort out complications arising from the recent CBN actions and develop contingencies to counter possible negative ramifications. According to Nellor, criminal action against defaulters is likely to be challenged by the defaulters and draw the affected banks into lengthy litigation, making the banks unattractive for investors. He added that although the EFCC's action against the criminal activities of the former managing directors of the affected banks could be proper, he doubted that criminal actions against defaulters were proper. Nellor said that the EFCC seems to have seized on the banking crisis to prove its worth following recent criticisms from Secretary Clinton. ¶9. (C) COMMENT: Legal or technical merits aside, Sanusi's actions continue to evoke strong reactions. Supporters hail his aggressive steps as unprecedented blows against against fraudulent backroom bank dealings, and note that the EFCC's quick recovery of large sums of cash shows that many defaulters owed their status to a deliberate choice, not an inability to pay. Critics, however, including local media associated with dismissed bank heads or defauters, object that Sanusi is criminalizing indebtedness, and that wittingly or not he is advancing a Northern agenda to dispossess five major banks of their Southern ownership. Despite criticism from detractors, Sanusi has generally elicited praise for identifying and publicizing malfeasance within the banking sector. Whether GON officials, particularly the Attorney General and the Economic and Financial Crimes Commission, follow through with proper investigations and prosecutions will indicate whether such efforts mark a positive turn in anti-corruption efforts or a return to business as usual. END COMMENT. ¶10. (U) This cable has been coordinated with Embassy Abuja. BLAIR