Cablegate: Nigeria After the Central Bank Audits

VZCZCXRO1555
PP RUEHMA RUEHPA
DE RUEHOS #0388/01 2890711
ZNR UUUUU ZZH
P 160711Z OCT 09
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC PRIORITY 0983
INFO RUEHZK/ECOWAS COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 0565
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 LAGOS 000388

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DEPT PASS TO USTDA-PAUL MARTIN, EXIM-JRICHTER AND KJACKSON
DEPT PASS TO USTR-AGAMA
DEPT PASS TO OGIC
JOHANNESBURG FOR NAGY
TREASURY FOR TONY IERONIMO AND ADAM BARCAN
DOC FOR 3317/ITA/OA/BURRESS AND 3130/USFC/OIO/ANESA/REED

E.O. 12958: N/A
TAGS: EFIN ECON PGOC NI
SUBJECT: NIGERIA AFTER THE CENTRAL BANK AUDITS

REF: SENSITIVE BUT UNCLASSIFIED DO NOT DISTRIBUTE OUTSIDE USG

1. (SBU) SUMMARY: At September 29 Bank Directors Association (BDAN)
of Nigeria forum bank directors received advice from Central Bank of
Nigeria (CBN) Governor Sanusi and former Chairman of Diamond Bank
Pascal Dozie on how to form and run a proper board of directors.
Sanusi's remarks were delivered by CBN's Deputy Governor Lemo. The
CBN will appoint two independent directors to bank boards if the
banks are unable to identify suitable candidates. Reaction to the
now finished audits is relief. The CBN wants to encourage lending
and needs a mechanism to buy up the toxic assets. END SUMMARY

Bank Boards Must Be Independent
-------------------------------

2. (SBU) BDAN held a forum of bank directors on September 29 and
Deputy Governor Babatunde Lemo delivered a speech on behalf of CBN
Governor Sanusi. Sanusi's speech stated that poor board oversight
was the cause of the global financial crisis. This was borne out in
the recent audits of Nigerian banks which confirmed the failure of
boards to check the activities of management. Bank financial
performance and solvency of the overall system relies on the board
discharging its duties effectively, per Sanusi.

3. (SBU) Sanusi's speech offered suggestions on good board
composition and responsibilities. First, the board must understand
risk management. He opined that Managing Directors (MDs) of
troubled banks did not know to what extent their banks had been
exposed to the capital as well as oil and gas markets. There was a
lack of parameters for effective reporting, leading banks to go
beyond their risk tolerances. Second, a system of checks and
balances between the board and management must be in place. All
important issues must be brought before the board for deliberation.
The board must be subservient to management and the MD, but they
should still be able to voice their views. Third, those on boards
must have relevant banking skills as many board members lack
competence and banking experience. Boards must also have the right
mix of accountants, lawyers and other professionals. Fourth, a
board must be in sync with the times. Growth is good but not in
excess. The board must recognize changing environments and adapt.
If a bank is not able to appoint experienced, independent board
members, the CBN will step in and name up to two for them.

4. (SBU) Former Chairman of Diamond Bank Pascal Dozie gave a similar
presentation at the same September 29 event. Dozie stated that the
MD is the appointee of the board, not the other way around, and that
board members must not use their positions to conduct personal
business with the bank. This last comment generated a good deal of
debate as many thought there was no problem in leveraging their
positions as board members to obtain loans for private projects.
Others made the point that if other banks do not want to finance a
pet project, perhaps it is not a good project.

Bankers More Relaxed After Audit Results
----------------------------------------

5. (SBU) Pol/Econ Chief, EconOff and ConsOff attended a Deutsche
Bank event October 6 to welcome the new local director.
Representatives from AfriBank, Fidelity, First Bank, and PHB all
seemed relieved that the CBN had finished up its audits the prior
week. PHB representative Uzoma Okoro did not seem concerned at the
least that his bank's MD had just been fired and new management was
most likely on the way.

Next Steps for the Banking Industry
-----------------------------------

6. (U) Financial Derivatives CEO Bismarck Rewane gave a presentation
before the Lagos Business School October 6 where he made the
following statements: What has happened in the Nigerian banking
sector is very similar to the Southeast Asian banking crisis of
1997-1998. Banks must be wary of politicians' tendency to spend
with abandon in the upcoming elections. The CBN has two options
with the banks, either a controlled liquidation or a conversion
where the GON acquires a majority of the equity in the banks. The
CBN now wants to motivate banks to resume lending. A mechanism is
needed to purchase toxic assets and free up credit.

7. (SBU) COMMENT: Hearing speeches by Sanusi's representative and
Dozie to bank directors was like taking a class in "Banking 101."
The topics covered were remedial yet necessary. Bankers, however,
seemed to have a surprisingly relaxed attitude about operating in

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their new environment, and there was a palpable sense that this
blood letting of banking leaders was long overdue in Nigeria.

8. (U) This cable has been coordinated with Embassy Abuja

Walsh

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