Banking: Nigeria's absent president may result in delays in banking reform

Umaru Yar'Adua's deputy, Goodluck Jonathan, says that his boss intends to return to Nigeria "soon" and that he will be able to take up his responsibilities. But few commentators in Nigeria appear to think that either is likely and are pressing for a transfer of power to Jonathan so as to unblock the parliamentary process.

Calls for Umaru to step aside began with a clamour in Nigerian media last week and gradually gained support from a wide cross-section of society including some members of government.

For bankers, the issue is close to home: banking reform, started several years ago with a brutal scheme to reduce the number of banks, had reached a critical phase with the Central Bank forcefully removing the management of some banks. The governor of the Central Bank of Nigeria, Sanusi Lamido Sanusi, has made it his mission to sort out the banking sector, ensure sound and efficient management and provide high-quality services at reasonable cost.

Umaru expressed strong support for the Sanusi's actions - and future plans. Sanusi's problem is now that he is reaching the limit of his powers and he needs new legislation to make further, far reaching changes.

Amongst those changes will be to ensure that banks become more focussed on the business of banking: in the past few years, they have been obsessed with trying to fix takeovers or finding someone to take them over - in the latter case several banks were unsuccessful and had to close, although no customer lost money. Then there has been a trying period of consolidation in an environment where customers showed great resistance to the closing of bank branches, even when there was another branch within a few hundred metres.

The CBN has announced a series of reforms to prevent bank management becoming complacent including that chairmen may hold office for no more than two consecutive terms.

But potentially a bigger problem may be nothing to do with the banking sector per se, but to do with the internal struggles in Nigeria. The move of the seat of Government from Lagos, in a majority Christian area to Abuja in a majority Muslim area has led to resentment as government offices have moved north leaving vacant lots and unemployment.

Recent violent clashes between Christians and Muslims in part of the country are also seeing battle lines developing between north and south, with southern politicians fighting for development and support for what was the country's core but are now the country's regions. Lagos sees its infrastructure collapsing whilst Abuja receives extraordinary levels of investment. And that's before the Nile Delta troubles are factored in.

If that polarisation spreads into banking, then customers may choose their bank based on factors that have nothing to do with the services offered. And have little to do with anything that CBN sets up.

Despite having a large Muslim population, Nigeria has little in the way of Islamic banking: Jaiz International PLC was supposed to become the country's first dedicated Islamic Bank. It was formed on 1 April 2003 as a holding company. Last November, the bank asked its staff to "fulfil the expectations of the people of Nigeria by conducting Islamic banking" during a course on Islamic Banking held by Islami Bank Bangladesh. The bank commenced operations in 2008 but has made little inroads into the banking market.

There are no other dedicated Islamic banks in Nigeria although several banks are owned or controlled by Muslim interests and are mainly Muslim run.