CBN should stop allocating forex to BDCs - Unegbu

By The Citizen
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Mazi Okechukwu Unegbu is the Managing Director, Maxifund Investment and Securities Plc; former Chief Executive Officer of the defunct Citizen Bank; and ex-President of the Chartered Institute of Bankers of Nigeria. He tells CHIJIOKE IREMEKA that the plan by the Federal Government to borrow $1bn to fight insurgency loan will affect the 2014 budget.

Two months ago, the Minister of Finance, Dr. Ngozi okonjo- Iweala, told the Banker magazine that Nigeria would maintain a tight budget despite the insurgency.Now the Federal Government is seeking a $1bn loan fight Boko Haram. Will that affect the Minister's position?

Well, Nigeria has some modicum of policies and economic ratings from international agencies.

So, a number of international organisations would like to support Nigeria because they know Nigeria will pay and that is why Nigerian bonds abroad sell well.

Where will this money come from?
Where the money will come from is not what we should bother our heads with.

To answer your question on its effects on the budget, I don't think such an amount has been provided for in the budget as well as other contingencies.

However, you would realise that the National Assembly can give the President the go-ahead to borrow because the purpose for which the money is being borrowed is for a national emergency. So, anything you can do to kill insurgency in Nigeria is welcome because you and I are on longer comfortable anymore in this country.

Everywhere we go, we are almost searched naked because of the activities of insurgents. But the problem here is that we do not have good intelligence. The action they are taking now is apparently too late. But all the same, it is better late than never. Borrowing for me, is good.

I support it and I know every right-thinking Nigerian would. Another problem here is that most international organisations have known us as the country that we borrow for one thing and spend it on another. Instead of using it for the purpose for which it was borrowed, they divert it into their own pockets.

I hope it is not going to be the same with this $1bn. I'm looking at what was done with the disaster relief fund. When the flood damaged houses in the country, all of us contributed money but how it was used is what I can't say.

Those affected people are still crying till today as many of them have not been rehabilitated. I hope it won't go the same way because I'm worried about the borrowings we make in this country.

If this borrowing leads to a supplementary budget, hasn't it affected the national budget?

It will not affect our budget. That was what I explained, except our contingencies are higher than $1bn. But I tell you, all the President needs to do is to go to the National Assembly and get authorisation to borrow under emergency circumstances.

It can only affect the budget if I its operation. Some projects that are meant for certain communities like Adamawa, Borno and others might not take off due to insecurity, as those areas are deserted. This, in turn, brings economic activities in those areas to stagnancy.

Thus, uncertainty of events would affect the operability of the budget, but as for quantum leap, the budget would remain unaffected.

You said Nigerian bonds sell out at the international market. What are the reasons and what are its implications for the economy?

Like I said, Nigeria has good ratings abroad and international organisations are willing to lend to and support Nigeria because Nigeria would not default.

When you get bonds, it helps you to develop your system. But there is a problem with the international rating agencies like Fitch, Standards and Poor, among others.

In some cases, they rate a country or company higher than the realities on the ground. Nigeria at the moment is rated positively by international rating agencies and that is why our bonds have good buys.

But as a person, I don't believe in the ratings because they can rate you high today and tomorrow, you are down the drain. They rated Enron as a superstar company and after that, it went under.

They have given us good ratings and because of that Nigeria's bonds are trading well on the international bonds markets. But the President wouldn't wait for the rise and fall in the bonds, he will take the loan and may issue a bond later.

As long as we have good ratings in the international market, our bonds will continue to trade well. At the same time, security issues affect the rating of a country.

Right now, the northern part of Nigeria is a no-go area for international business. So, that would have affected the authenticity of the ratings too.

Also, that is the area one can make quick money because they say 'in the bad time, the fortune tellers and native doctors make their fortunes'. This is when the risk takers can come in and make their money and disappear again.

Your state, Imo, for instance, took an N18.5bn bond for certain projects, which have not materialized.What do you have to say about this?

This is where most people have failed in bond taking. Before you take a bond, you must have analysed the environment, where you are going to invest the bonds and must take a bond for projects that would finance themselves.

As an investment expert, the first thing is to analyse and process the previous debt portfolio of the state and look at the areas that need urgent attention.

A bond used to finance education is a bond you can always realise. Education is key to development and any country that does not have a good education system will never develop.

This is because education is the fulcrum that challenges the mind and brain and gives you the opportunity to embark on successful projects. Ohakim's administration took that bond but didn't use it for anything good.

The Rochas' administration said it was going to cancel it but I'm not sure if it did that. Part of it was used for the dredging of Nworie River, which is blocked today. All the projects they mentioned in the bond never took place.

In my state, for instance, free education has come to stay, but when there is free education in a state and most parents still take their children to private schools, then, there is something wrong with that educational system.

You have to find out what the problem is. So, bond is a good source of development fund. Most of the things done in Lagos State were done with well deployed bonds.

You can see it in roads, rail and others. These are the projects that repay themselves. Lagos has been successful in bond operations and it is easy for the lenders to give them because they have not defaulted.

If I'm elected as the governor, this will be my approach, making the bond viable.

Is it wise for a state to take a bond greater than its annual revenue?

Yes, if the project will repay itself. For instance, if I have a capital base, I can use it for equity loan to do business.

The loan might be higher than my equity. So, once the bank sees my equity and the viability of the project that I have, they will be willing to lend me because money will be coming out every day to service the account.

More so, I accused our governments of not knowing about public finance. They look at commercial finance each time they want to embark on projects, but your revenue is your equity and there is what is called trading with equity.

In equity, if you have zero equity, nobody wants to look at you but if you have equity of N100, and you want to borrow from a bank, it can lend you N200 because it knows that, at least, the N100 will come back, irrespective of any other thing. So, the bank is now looking at where you are putting the money, whether it will be able to service that N200 loan.

On the Imo State bond, does it mean that the Ohakim administration was not properly advised when it floated the bond?

Yes, I was supposed to be part of that but some of us who are capital market experts advised against it. However, others who okayed it didn't consider its viability and returns. They did that for their pockets.

In fact, some people went to court to challenge it and I supported them. They took that bond but there were no projects on the ground to create value in the state.

They said the bond was for a wonder lake at Oguta. But the first thing for them to have done was to provide a good legal environment and enablement for the private sector to come in.

Once the private sector moves in there, you would have created a number of jobs, which will generate income for the state, through taxation and the state is blessed.

But in our time, when politicians take decisions, they are not based on economic viability as a consideration but their self-aggrandizement.

So, several parties to that bond earned their money but the result of that N18.5bn is not seen or felt anywhere. I will conclude that they used more to create less or zero. One of their people asked for my advice and I gave them, but later I heard that the government greased their palms and they gave their endorsement.

By next month, AMCON would have concluded the sale of three rescued banks. What would be the aftermath of this one-off sale?

Well, it's unfortunate that those who came in to drive the new merger policy didn't handle it well

When you are the managing director of a bank, you have so much to take care of yourself but the greed in us will make us go above our needs and start looking for wants. God has given us all that we need but our wants are insatiable.

The sale of the bank is in order because those rescued banks have many customers with billions of naira deposits at risk. When they are sold, customers' deposits are unaffected but investors will lose their investment, while the banks remain alive.

Those shareholders, whether major or ordinary, have lost all their investments in the rescued banks. Those who took over the banks didn't see the need to run the institutions profitably. They didn't know that the business is not for friendship.

The initial signals that the banks would crash came on board when they started giving loans carelessly to friends and directors who borrowed for white elephants. Some banks were lucky to scale the hurdles but others weren't.

So, when AMCON sells them, new investors will come in, and perhaps, learn from the mistakes of others. I don't see anything wrong with the sale of the banks. With that, there won't be loss of jobs and depositors wouldn't cry.

Already, the old investors are no more shareholders in those banks because AMCON restored the banks with tax payers' money. And those people who have capital in the banks have lost them too. But like I said, when you invest in a business, you are taking a risk.

If it succeeds, fine; if not, you cry. They may have reaped the benefits in the past when the bank was booming and some may have recovered their investments too.

As a shareholder in Enterprise Bank, how do you feel losing your investment in that bank?

It's part of the risks of an investor. I used to be a capital holder in Citizens Bank, one of the banks that formed Enterprise Bank and I lost it.

If I see the new team and have confidence in them I may re-invest.

But how would the investors of acquired banks manage the issues of share devaluation and re-arrangement?

Nobody is talking about that.
What you should be concerned about is that the bank doesn't go down the drain because that would have mean outright loss of total investment. You only talk about devaluation when the company is still in existence.

It's only that time you can talk about valuation and devaluation. And it's right. If you and I managed to save your bank because it has to lower performance, that has affected its quality. You don't expect me to value your shares with that of a healthy and strong bank.

If the company is not doing well, you can do share re-arrangement. When acquired, the shareholders will not lose but their share quality might drop.

But when the company is liquidated, it's a closed case. Spring Bank and others would have been liquidated, but AMCON bought them, but it didn't acquire the liabilities of the shareholders. So, they took it with assets, believing that the bank would pay back when they sell it.

The acquiring bank will pay the customers' deposits in full.

Thursday, July 31 is the deadline given by the Central Bank of Nigeria to BDCs to recapitalise with N35 million.What is your take on this CBN directive?

We are all guilty - the CBN, banks and BDC operators. CBN has all the knowledge in this world to do certain things.

When the business of BDC came up initially, banks were not interested in BDCs but CBN started allocating dollars to BDCs. Then, all the banks formed their own BDC companies. And why should that be? It's like all the banks having micro-finance banks.

With this, the CBN is killing that sector of the economy, by allowing the conventional banks with such financial muscle to come into the business. It's not right. I haven't seen it happen anywhere in the world. CBN shouldn't allocate foreign currencies to BDCs.

All over the world, BDC operators source foreign currencies from visitors coming into the country and foreign investors but here, CBN allocates money to them and this is why we are facing this problem. CBN had seen the deficiency, and I personally do not believe, I may be wrong, that raising the capital would solve the problem.

They must look at a way of solving the problem by bringing out operational modules that would protect the economy from the unwholesome activities of the BDCs. BDCs exist all over the world, they have shops here and there and they are under control.

What they do is to get security around them that people would not rob them. They can buy a certain limit of foreign currencies.

I would have thought that CBN would stop allocating dollars to BDCs and bring operational procedure for them to assess whatever they have done, either from oil companies or visitors and tourists. By so doing, you would eliminate those ones on the street.

But when they started allocating funds to BDCs, it became an all-comers market and veritable means of money laundering today, even when there is a policy to check them. I wonder if the CBN has been able to monitor those institutions.

I have not confirmed this, but I learnt that some CBN directors have set up their own BDCs, owning more than one BDC. That is why I suggest that any BDC whose director's name appears in more than one BDC, should be closed. That is what should have been done.

CBN said it was going to tackle unemployment, which is correct but I believe you don't solve a problem by creating another one. You don't throw away the baby and the bath water at the same time. So, there are issues we need to examine properly.

That's one of the greatest failures of our economy. Look at it and check the broad nature in us to use it to make policies that will stand. When I was heading an institution, I had a paper that I divided into institution and advice.

I try to find out your interest in every area. Sometimes, I find out that one might have given a good advice but one's interest influenced the advice. So, I try to modulate it to achieve the same goal.

This is what people don't want to do. Anybody that gives objective criticism in the office deserves to be killed and that is why our organisations are dying.

Oceanic Bank had that problem because people were telling the CEO that she was good; without telling her the endemic problem of certain actions in the bank.

She lived in that euphoria until she crashed. They should stop allocating funds to BDCs. Let them scramble for business.

I don't know which country does it in the world? It's not the best practice. They stated funding them to the tune of $250, 000, later went down to $100, 000 to $50, 000 and right now $15, 000 per week.

I don't think that it is necessary. Don't kill them, allow them to use their staff to look for foreign currencies to sell and buy but for the purpose of money laundering and others, CBN must control them. New Telegraph