The Central Bank of Nigeria earlier in the week took the reigns at embattled Etisalat, forcing a resignation of the current board and appointing a Deputy Governor of the CBN, Dr Joseph Nnana as Chairman of the company. It is an unprecedented move not even seen in the banking sector, where not less than 5 banks have been nationalised in the past.

Drawing from the experiences of bank failures in Nigeria, the CBN has also designated some banks as “Systemic Important Banks” a financial term for “too big to fail”. These banks are under the close watch of the CBN and on paper may never be allowed to fail provided there is a government in Nigeria. Despite the moral hazards this creates, the CBN will rather keep this option in place than allow the financial sector to collapse. It appears though that the CBN has now extended this policy to the telecoms sector.

In a recent media publication, possibly sponsored by the CBN, the deputy governor has attempted to explain why Etisalat was taken over by the bank and also why it considered this company a “systematically important bank”

Here is Dr Nnana

On being systemically important

“Although it should ordinarily not be the role of a regulator to decide how individual bad loans are resolved, the CBN believes that Etisalat is a systemically important telecommunications company with over 20 million subscribers that if not well handled, may have domino effects on the banking system itself.

On avoiding downsizing

According to the Vanguard which carried the article he further explained that

the CBN and NCC, sensing that banks may go ahead in the usual way and downsize the company’s over 4,000 staff, reached an agreement to intervene and implore the consortium of banks to reassess its position in dealing with Etisalat.

Here is more (receiver manager)

Okorafor explained that the collaborative move by the regulators was aimed at foreclosing the outcome of job loss and asset stripping and to ensure that Etisalat remains in business and is able to pay back the loans. According to him, the CBN and the NCC, in the coming days, will meet with the syndicate of banks and the IHS, the tower managers and the equipment suppliers, in order to achieve what he termed “a win-win outcome” for all stakeholders.

You could not have scripted this ever. Let’s address them one by one;

On being systemically important

The CBN has now gone from deciding which bank is too big to fail to which telco is too big to fail. So which industry could be next, considering the dire economic situation in the country? Cement Companies? Consumer Goods? Brewery? Oil and Gas Companies? Does the CBN have a hidden list of companies that are too big to fail?

On avoiding downsizing

The CBN is basically stifling the natural process of insolvency where a company that has failed to pay its debt is allowed to take hard decisions in the hope that its future will be better. Whilst we do not want to see jobs go, how is it the business of the CBN and its cohorts on the board of Etisalat to decide who stays or who gets sacked. Why should the CBN instruct private businesses on how they should operate, except the company has been nationalised like we alluded to in a previous article.

On being a receiver manager

The CBN has now gone from being a regulator to being a receiver manager or at best a corporate restructuring company. You would think that the private sector is best positioned to resolve its issues be it funding, dealing with creditors or recovering from insolvency. But no, the CBN is now incorporated.

Typically, what is obtainable in other climes is that a crisis such as is brewing in Etisalat is an opportunity for another industry leader to be birthed. This is what capitalism is all about. This is what drives innovation all over the world and allows new smaller, nimble players to emerge out of the ruins of bigger, slower ones. But no, the CBN will not have it this way. It must intervene!!

Worrying pattern

The current leadership at the CBN may have won plaudits for its recent handling of the exchange rate but it will always be remembered for adopting uncanny and unorthodox means towards resolving economic and financial crisis.

There has been a pattern in the last few years and as it gets away with it, the apex bank becomes emboldened. The recent financial crisis at Skye Bank comes to mind. The CBN injected billions in tax payers money into the distressed bank without explaining to Nigerians why another bank needs to be bailed out. This is despite over N3 trillion poured into buying toxic loans from banks via AMCON.

This CBN will likely go down as one that has soiled its hands the most in activities that are miles away from setting monetary policy and reducing inflation rate. From loaning money directly to farmers to funding developmental projects, we are increasingly witnessing a CBN that is more socialist in its methods.

We have seen the current CBN Governor parley with CEO’s and top executive of companies, openly expressing support for their businesses either via promises of grants, access to forex for import of raw materials or even bail outs. It’s a pattern that is now getting institutionalized. What else can we expect now that Etisalat is too big to fail?

Just be in an industry that caters to millions of Nigerians and you might just be designated too big to fail.

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