[Suleimana]

Sir,
There was another party-one not widely spoken about. I will tell you the story of this party but due to time constraints, I will not be able to provide the data to support my points. When the decision to recapitalize our banks was made in 2004, there was a scramble. As you might expect, people did not have a trillion Naira under their mattresses but somehow they brought it out. Twice! If you are wondering who provided the famous trillion in new capital, the answer is 'nobody'. Think about it- where did the capital come from?

Ok. I will let you in. First, we asked our customers to invest (the famous dancing on the street with tee shirts). They took their deposit from BANKS, filled a form and gave it back to BANKS. Magic number one (convert deposit to equity).

Secondly we met our politicians and asked them to invest. Some took out of their stash abroad and sent it home - magic number two.

Thirdly, we asked foreign investors (private equity, venture capital etc) to buy our dreams and some did-magic ingredient number three

When we counted our cash and found that we were short- far off the professor's mark. We met people who had no money to invest and did abracadabra. This involves creating money by lending to them to invest in our shares (when your license is at risk, you become creative). Magic number four.

How does this translate into a melt down? With your new capital, you set out to fund the famous developmental projects (Transcorp, Tinapa and virgin Nigeria are examples). Nigerian banks were desperate to lend in line with their newfound status as world-class banks. Many of them made global top 1000 by capital. To service this capital, they had to take risk-plenty of risks. Add this new appetite to the challenge of growing your network across the country, across many jurisdictions and many new businesses and you find yourself stretched(people went from managing N1billion to N100billion). After that, we went into a 'drinking binge' with our lending to the stockbrokers. We created billionaires by the dozens as people whose knowledge of the economy barely existed betted a trillion Naira of bank's money. Our dear Ndidi went all over the world to tell people about NSE-the best performing exchange in the world. A certain financial institution traded at 15 times its book value!

And then the bubble. Among the first people to smell the coffee were the portfolio investors who did their numbers and figured that the companies could not service their market capitalization. Besides, falling oil price meant inevitable devaluation and so they started to sell. As they sold, the market collapsed and money that was waged by the super brokers become- almost nothing. As they also bought dollars and ran, our currency devalued and panic set it. Between November 2008 and February 2009, a whooping $10billion was repatriated out. This, amongst other things, led to withdrawal of N1.4trillion from the banking sector (as investors bought dollars, they paid CBN Naira) and precipitated a liquidity crisis. As 'smart' bankers, many of these activities were smartly reported and the profits continued to be declared.

Sir, it is this party that is responsible for our toxic asset. I forgot to mention that the new global Nigerian banks also took to financing importation of diesel to fuel our comatose industries and our dreadful existence. When oil prices crashed, they found themselves proud owners of tank farms with $140 based fuel when market had settled at sub $50. Now, that is toxic.

When you buy a trillion Naira worth of stocks and suddenly it is worth a quarter, you have toxic asset. When you bet that oil will go to $200 dollars and it opted for $40, you have toxic assets. When you lend money to people to buy your shares and the prices drops to a fifth, the loan becomes toxic.

As with everything Nigerian, not everybody went crazy. Most of the banks did good business and kept their cool. The craze to be biggest (as represented by the second round of capitalization-which was a response to Profs decision to allow only banks with $1billion in capital to manage Nigeria’s reserves) spelt the beginning of this crisis. What is the size of the balance sheet of Nigeria? Why should a single bank have $10billion in balance sheet size to be considered worthy? Anyway, big meant speedy growth and nothing bubbles like that. It is time we deflate quietly and maybe blame the noise on our neighbors’ party.