Are Nigerians Banks Repeating History?

If you doubt that history does repeat itself, Nigerian banks would make it easy for you to believe. This is because in Nigeria today, the banking sector may be heading down a road we’ve traveled before and this is definitely not a good one.

Recent reports highlight the banking industry’s enormous earnings. Nigerian banks have reportedly increased their earnings by a staggering 132%, reaching a total of N11.7 trillion. Meanwhile, their profits have also soared by 101.9%. At first glance, this sounds like great news. Many Nigerians are celebrating, believing this shows our banks are thriving. But is that really the case?

Past lessons not learned?

If you pay attention to the Nigerian banking sector over the years, you can easily spot the patterns. Nigerian banks have been through this cycle before. They declare impressive profits, everyone celebrates, and then suddenly, disaster strikes.

This isn’t just theory—it has happened before. In 1997, Nigerian banks were making similar headlines with their supposedly fantastic profits. But many of those profits were based on misleading figures, and when the truth came out, numerous banks failed. 

The government had to intervene with the Failed Banks Decree to deal with the fallout. Back then, many banks were in distress and most of them ended up failing. This should remind us to be cautious when things seem too rosy.

If you believe everything that’s being announced today about the state of Nigeria’s banks, then you might believe anything. It reminds me of a quote from P.T. Barnum, the famous American showman: “There’s a sucker born every minute.” And if one fool is born every minute in the United States, only God knows how many are born in Nigeria during that time. Here’s why we must be cautious.

Governor Charles Soludo’s consolidation reforms of 2006

Another historical example of banks falling into trouble came after the banking consolidation reforms of 2006, led by then-Central Bank Governor Charles Soludo. Soludo promised Nigerians that their deposits were safe and that they could sleep peacefully. 

But by 2008, it became clear that his reforms hadn’t been as effective as promised. Several banks were in distress again, and by 2010, many of them had failed.

The worst part was that the financial mess left behind from those failures still haunts us today. The Asset Management Corporation of Nigeria (AMCON) is still trying to clear trillions of toxic debts from that era. 

Had Soludo stayed on for a second term, we might never have known how deep the problems ran. Fortunately, Sanusi Lamido’s appointment as Central Bank governor exposed the cracks in the system.

Even during the 2008 global financial crisis, when the world was reeling, many Nigerians were told that all was well. Those who believed in that false optimism suffered significant losses, while those who sold their shares early managed to save their investments. This pattern of banks declaring unrealistic profits and the public believing them is all too familiar.

Bank Directors Association of Nigeria’s advert on GTCO

Once again, there are warning signs that not all is well in Nigeria’s banking sector. On October 9, 2024, the Bank Directors Association of Nigeria (BDAN) ran an advert defending Guaranty Trust Holding Company (GTCO) against accusations made by a civic group. 

The group claimed that GTCO had manipulated its profits and violated regulations in several countries. While we don’t yet know if the allegations are true, the fact that such a large and influential bank is under scrutiny should raise alarm bells.

In past crises, rumors of distress in banks were often dismissed as unfounded. But soon enough, those “rumors” turned out to be true. Today, Nigerian banks are again posting high profits and paying generous dividends. But we should remember the lesson from the past: sometimes those profits are just illusions, masking deeper problems.

The effect of these incessant bank failures

When banks fail, the consequences aren’t limited to just shareholders or account holders. The entire economy can feel the impact. The bigger the bank, the bigger the fallout.

GTCO is one of Nigeria’s largest and most important banks, so any potential issues within it should be of concern to everyone, whether you have an account with them or not.

History has shown us that when large banks fail, they can cause widespread damage to the banking system and the economy as a whole. That’s why it’s crucial that we take these early warning signs seriously and investigate them thoroughly.

Caution for BDAN

The Bank Directors Association of Nigeria must also be cautious in its response. No one should be condemned without proper investigation, but at the same time, no allegations should be dismissed without proper scrutiny. 

In every major banking crisis Nigeria has experienced, the directors of the failing banks have often been implicated. BDAN, some of whose members may have ties to the banks under suspicion, must allow the truth to come out before making judgments.

What happens next?

The signs are there: suspiciously high profits, unanswered allegations, and echoes of the past. Are Nigerian banks repeating history? Only time will tell, but if we don’t pay attention now, we might find ourselves dealing with the same consequences all over again.

Let’s hope we’ve learned enough from the past not to make the same mistakes again. But if history is any guide, we should be prepared for what may lie ahead.