It was recently reporting season for Nigerian banks and they trotted out, one after the other, to tell us how they had performed in the first 9 months of 2017. While performance varied from bank to bank, there was one unmistakable theme common to all of them – what I like to define as Shashe Banking.
Let’s take the 5 biggest Shashe Banks – First Bank, Zenith, UBA, GTBank, Access – as our reference point. Combined, they earned N452bn from the ‘innovation’ in the first 9 months of the year, a rise of 62% compared with what they earned in the first 9 months of 2016 (N280bn). There is nothing else in the Nigerian economy that grew by 62% over the last year so this Shashe business is clearly operating at a completely different level from the rest of the economy.
But what is Shashe Banking?
The principle that expenses always rise to match earnings is as true for individuals as it is for governments. Thus, when Nigeria earned $100 per barrel of oil it sold for about 4 years, the country found a way to spend (and steal) all of the money. But there is another principle to the way expenses behave – they can go up like a rocket (quickly) but will only come down like a feather (slowly).
So here we are, more than 3 years after oil prices crashed and Nigeria is still living the champagne life of $100 per barrel while earning a non-alcoholic wine salary of $50 per barrel. The government is finding it incredibly hard to cut expenses so it either manufactures fictitious revenues or…it borrows heavily to plug the gap.
It is this borrowing to fill the gap left open by the crash in oil prices that has given us Shashe Banking in its present manifestation. Given that the Nigerian government is desperate for funding and technically cannot default on its naira borrowings, it ends up paying eye watering interest rates of up to 20% to borrow from local banks.
If you’re a bank, this is a no brainer – it makes perfect sense to divert all the naira you have into Shashe where you can earn decent returns from a guaranteed gold-plated borrower. Why will you take the risk of lending to one random SME who might run into problems and not repay you?
To make it even sweeter (and to be fair to the current government), all profits from Shashe are tax free based on an exemption signed into law by former President Goodluck Jonathan in 2011. The banks probably lobbied for this exemption but the idea was to encourage banks to lend more to government (is it not interesting that the government was writing laws to make borrowing easier at the time Nigeria was earning $100 per barrel of oil?)
In other words, Shashe Banking is a process whereby the government borrows trillions of naira from Nigerian banks and pays them billions of naira in interest for the privilege. One should never refer to any business from afar as ‘easy’ but for Shashe, the tag is justified – it is easy and straightforward.
But not only is it dangerous, it is sad. Given that the government simply uses the money to pay salaries, we can say that all of this movement of trillions benefits less than 3 million Nigerians directly when you add government workers to bank staff. It is a sad state of affairs.
Nothing illegal has been done by the banks or the government here (who needs illegal stuff when you can make billions legally like this anyway?). But this whole arrangement speaks to a deeper malaise in Nigerian banking that goes beyond the latest Shashe Banking fad. Before Shashe, there was forex (there is always forex). Consider the excerpt below from the communique of the CBN’s monetary policy committee meeting in November 2014 (page 14):
However, available data indicates that banking system liquidity has been lavishly deployed in pursuit of speculative foreign exchange trading at the short-end of the market. While the Committee remains fully committed to the goal of promoting inclusive growth through lower interest rates in the medium- to long-term, banks as agents of financial intermediation have a critical role to play in the nation’s development process. A banking system with an overly high profit motive negates the core tenets of banking and purpose of a banking license
It was after the CBN chased them away from forex that they piled into Shashe. This is the most worrying aspect of all this. It is as if the industry is always chasing the latest get rich quick scheme. Cast your mind back to any time in history and you will almost certainly find the Nigerian banking industry taken in by the one frenzy or the other. When oil prices were high they went to town lending huge sums to oil companies, most of which is now sitting with AMCON.
Shashe is not just about what you do, it is about what it prevents you from doing. When you are permanently geared towards the short term and quick profits, it is not possible to compartmentalise another part of your brain for long term lending that the Nigerian economy so desperately needs – it really is one or the other.
In 2005 after Soludo’s consolidation exercise, Nigerian banks were flush with so much cash. It was a once in a lifetime opportunity for them to get out into the economy and deepen banking and financial services in the economy. But what did they do with all that money? They went on a branch building spree that did nothing but rapidly inflate property prices especially in Lagos.
They were even chasing themselves around town – once a bank moved into one street, others soon followed and God help you if you had been renting there before they turned up because your cost of living was guaranteed to go up. A most damning indictment of Nigerian banking is that the telcos who got to Nigeria after them have way more customers than they do combined. Nigerian banks really have not cracked what banking actually is.
The government has now signalled that it wants to switch from local to international borrowing. Part of the recent $3bn Eurobond is to be used to pay down some local debt as well. It is safe to say that the era of Shashe Banking is now coming to an end. But given what we know about Nigerian banking, you can bet your last bitcoin that they will simply move on to the next short term quick profit scheme. Maybe Nigerian banks don’t owe anyone anything. Maybe they are simply a reflection of the society they operate in. Maybe it is unrealistic to expect them to rise above a wider culture that is overwhelmingly short term.
But what is unmistakable is this – the Nigerian banking industry is wired for Wire Wire