INTRODUCTION The financial crisis of 2007-2008 began in July 2007 when a loss of confidence by investors in the value of US mortgage securities; this resulted in a liquidity crisis that prompted a substantial injection of capital into the financial market by the US Federal Reserve and European central banks. So far, it is estimated that World Bank have had to write down more than $550bn in asset. This crisis as precipitated major sell offs in stock exchanges around the world.
According to bottom line a monthly magazine, the following are the highlights of the chronological occurrence of the crisis; “New century financial corporation stops making new loans as awarding high risk mortgage loans to consumers with problematic credit histories becomes more risky” march/April 2007 “Fannie mea, the largest financial institution in the US home loans report a $3. 55bn loss” Feb 2008 “US govt. seizes control of Fannie Mae and Freddie mac” Sept 7th 2008 “Lehman brother’s investment bank declares a $600bn bankruptcy and Merrill lynch is acquired by bank of America” sept. 7th 2008 “The US federal Govt. seizes Washington mutual (WAMU) in America largest ever bank failure” Sept. 26. “the US senate adopt a massive bailout plan following white house request of $700bn bailout plan” oct. 1st 2008. The above high lights summarize some of the major occurrences that accounted for what we understand as today as the GLOBAL FINANCIAL CRISIS. Following the crisis in the US the Nigerian stock market which has hitherto have been noted as one of the most profitable exchange in the world received the shock when the foreign investors withdrew their investment which account for about 38. % drop of foreign investment in the Nigerian stock exchange, hence the NSE experience a crash of about 70%, all share index feel by about 67%, following a 62% drop in market capitalization between 2008-2009. WHAT ARE THE ROLES OF THE NIGERIAN BANKING SYSTEM IN THE GFC? The new CBN governor highlighted some of these roles in an interview with financial times of London on the 21st of June 2009. Some of these include: 1.
Gross exposure to margin loan: majority of the loan granted by bank were exposed to losses in local stock market, apart from this some of the banks themselves bought some of their own stock through repurchasing. The CBN governor stated that the total loan amounted about N800bn-N1tr and market crashed by about 70%, hence total loss was about N500bn, i. e. 50% non-performing loan. 2. INSIDER ACTIVITY AND MANIPULATION OF SHARE PRICES: most of the big banks in the country made use of share repurchasing, i. e. assive repurchasing of their own share to push their prises up and coming out for public offering. This led to over valuation of share prices of some of these banks, so when the market crashed the funds crashed with it. 3. HIGH NETWORTH BORROWERS: Following the suspension of some bank chiefs last year, the CBN release the list of the biggest debtors to the banks, this list include the names of the individuals in the billionaires club who accepted loan and invested in the oil market, these become non-performing the GFC effect on the world oil market. . POOR RISK MANAGEMENT FRAMEWORK: A major causal factor in the Nigerian version of the financial crisis the exposure to risky financial instrument without the necessary framework to manage the risk involved in the risky dealings. 5. CORPORATE GOVERNANCE FAILURE: recent report have shown that some of the bank chiefs apart from loans exposed to the stock market issue some loans to themselves and friends to set up personally own organisations and to purchase foreign property in DUBAI. Others have misappropriated depositors fund. 6.
FAILURE OF THE REGULATORY AUTHORITY: Besides the operators of Nigerian banking system the regulator also played a role in the crisis, these include failure to properly monitor the activities of these banks, the former governor of CBN was accuse of having a cosy relationship with some of this bank chiefs among other accusations on the regulators. HOW HAS THE MONETARY AUTHORITY MITIGATED THE EFFECTS OF THE FINANCIAL CRISIS Following the 2008 crash in the world market, the then CBN governor, Professor Charles Soludo took some drastic action these include policy actions such as: * The monetary policy rate was reduced from 10. 5% to 9. 75%, * The cash reserve requirements for commercial banks was reduced from 4% to 2%, * Cutting the liquidity ratio from 40% to 30%. * The CBN issue a directive to bank with respect to restructuring of their already crystallised margin loans up to 2009 to expand interbank lending rate and extend it up to 360days, the discount window facility were expanded. * Other policy instruments were put in place to ensure the economy is on cause and improve the liquidity of the economy.
However following the appointment of the new CBN governor Mallam Lamido Sanusi in June 2009, the following reforms have been put in place in other to sanitise the banks. * Audit of banks financial positions, in to ascertain the magnitude of risk they expose to, the amount of performing and non-performing loans. * Change of management and huge bail out of about N800bn granted to the eight most affected banks that are considered distressed by the audit report. * Establishment of the Asset management company to manage the funds injected into the distressed banks. Issue regulation to all the deposit money banks to establish their risk management unit. * The CBN has since manage the interest level that is low enough to stimulate the level of economic activity in the country. * The CBN also issue a regulation to ensure that no single bank control majority of the market share, this include directive that limit the tenure of banks CEOs to ten years of their appointment, following this about five or more bank chiefs (i. e. the MDs of UBA, Zenith bank, Skye bank etc. ) will have to resign mid this year. Apart from the all the above, the CBN also plan to possibly reverse the universal banking policy and recently recapitalisation and reconsolidation of banks to about fifteen is in the news. CONCLUSION From the forgoing, one might be forced to deduce that the effect of the GLOBAL FINANCIAL CRISIS on the Nigerian economy was partly due to the crash in the foreign market and partly due to the activities of our financial operators and regulators, though effort must be taken to commend effort of regulatory authority so far. However the Nigerian economy is yet to really feel the impact of the various reforms.