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14 Nigerian Banks to Enjoy $7BN Reserve

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Nigerians may rightly feel shortchanged by the shenanigans in the banking subsector in the last two years or so.  In the wake of the global meltdown, the eloquent Professor at the helm of our Central Bank assured Nigerians, including the Federal Legislature, over and over again that Nigerian banks were insulated from the global crisis as a result of astute regulation of the commercial banks and adoption of best practices in monetary policy and management.  Alas, only a few months after these soothing assurances, the patches of the incoherent structure gave way and the edifice came tumbling down with sordid revelations of all manner of fraud spanning the gamut of unbridled margin loans, deliberate equity price manipulations, unsecured loans and the diversion of depositors' funds into the personal accounts of bank directors.  

  The appointment of Lamido sanusi in mid 2009 as the new CBN helmsman further exposed the putrid malfeasance in the banking subsector.  At least, five banks were initially reported to be almost fatally distressed, but in reality, almost all the registered commercial banks in the country were tainted in one way or the other.  

  In the aftermath of these revelations, Sanusi 'created' over N600bn with his magic wand as Governor to bridge severe hemorrhaging in Oceanic Bank, Intercontinental Bank, Afri Bank, First Inland Bank and union Bank, after the respective Chief Operating Officers had been given the boot!!  Initially, CBN suggested that the bad loans in the banking subsector approached N1.2 trillion, but this figure has since witnessed several upward reviews and in spite of the forced recovery of over N500bn with the cooperation of the EFCC and the recent retrieval of assets estimated at about N190bn from erstwhile Oceanic Bank G.M.D., inexplicably the value of toxic loans that the hurriedly contrived Asset Management Company AMMCO is expected to absorb has leaped  to N3 trillion!!  Some cynics would say that in this matter of toxic assets, it is a case of the more you look the less you see!!  

  CBN's assurances of the positive economic impact of the 25 consolidated banks have all become moonlight tales!  Our best ever foreign reserve base of over $60bn has also since been frittered away leaving a paltry $34bn, which presumably consists of 'core reserves' as well as undeclared billions of dollars for which CBN had substituted naira when disbursing monthly allocations to the three tiers of government!  It is not clear if this balance includes the $7bn that Soludo gleefully gave to 14 Nigerian banks to manage as reward for increasing their capital base beyond N25m in 2006!!  Indeed, it is not also clear whether the $7bn (about N1.05 trillion) is also part of the toxic debts value of N3 trillion in which case CBN's bailout package to the same debtor banks with additional public funds may best be seen as the ultimate in 'worst' Central Banking' practices!   

  In other words, our CBN will be putting more money in the pockets of our debtors so that they can pay same to us as loan redemption!!  The following article titled '14 NIGERIAN BANKS TO ENJOY $7BN DOLLAR RESERVES' was first published on 9/10/2006.  It was our hope and expectation that the government would take more than a casual look at CBN's monetary and banking management; regrettably, this was not to be.  Indeed, the current Governor has persisted with the same monetary framework that encouraged the reckless depletion of our reserves and simultaneously increased our debt profile.  If for example, the CBN can recover the $7bn from the 14 Nigerian banks(amongst which are distressed banks like Oceanic, ICMB, Union and Bank PHB) then, there may be no need for processing  the new loan request of about $4.5bn from international creditors.  Please read on.              

  'The report of the 14 Nigerian banks which had been appointed as Asset Managers of Nigeria's reserves was carried on the back page of The Guardian Newspaper of last Thursday 5/10/06.  The report confirmed that 'already deposits worth $7bn representing the apex bank's share of the foreign reserves estimated at about $38bn has been released to the consortium of bankers according to CBN Head of Corporate Affairs, Mr. Festus Odoko'.  

  'In this event, CBN had made good its promise to allow Nigerian banks which have up to $500m capital base to be invited to the foreign reserves banquet if they could show evidence of collaboration with internationally recognized financial houses.  The Guardian report quoted above indicated that all the 14 Nigerian banks have associated with reputable institutions.  The report is, however, not clear whether or not the M.O.U. between both parties involves a joint responsibility for profits and loss or simply collaboration as glorified banking correspondents.  The difference is that if the international financial houses are joint stock partners with the Nigerian bankers, they would automatically show interest in the transparent and profitable management of the reserves.  If on the other hand they are glorified correspondent partners, they could provide technical support and advice on transparent, secure and profitable ventures, but the Nigerian banks do not have to heed their advice or professional direction!  In this manner the whole purpose of technical collaboration may not exceed using the facilities of their international partners to facilitate cross- border transactions!  

  'The CBN had earlier demanded that only Nigerian banks which had a capital base of $500m (i.e. about N60bn) would be allowed to participate in the reserves management, but it now appears that CBN may have quietly dropped this requirement so as to pursue its declared agenda!  

  'But wait a minute, whose interest is the CBN serving?  The sum of $7bn is a huge sum of money in any currency and when the money is the property of 150m people, it would be expected that the disbursement is not treated with levity.  Although in the Guardian report 'Mr. Odoko explained that the appointment of the 14 banks was ratified by the Investment Committee of CBN on Tuesday, 3/10/06, and the deposits worth $7bn had already been shared by Thursday morning, 5/10/06.  

  'Nigerians may not realize that with one stroke of the pen, CBN has committed Nigeria to possibly its largest single investment ever!  The questions that need to be asked are: what do we hope to get from this huge investment in terms of returns of a better life and improved welfare for our people?  Would the $7bn investment improve the power generating capacity so that industries, commercial outlets and private homes, can enjoy cheap and sustainable power supply?  The answer is no.  Will this investment bring potable water to more Nigerians so that our national hygiene standards can improve and water borne and related diseases which afflict the majority of our people be reduced?  Again, the answer is no!  Will our hospitals and schools which suffer severe deprivations be resuscitated and replenished? The answer is no!  Will our mass transit systems improve in the face of the untold suffering of our people to and from their workplaces everyday?  Again, the answer is No!  Will the investment of $7bn enable Nigeria to inch nearer to the United Nations Millennium Development Goals for poor countries?  Again, the answer is No!  

  'So, who will benefit from this biggest ever single investment paid upfront by the Nigerian nation?  Yes, you have got it, the 14 banks which will wear broad smiles to their overseas vaults!  The CBN has not yet declared what returns it would demand from the 14 fattened banks.  The parameter of rate of return on investment is the universal measure of the profitability or attractiveness of an investment.  It is unlikely that CBN will get more than 3% interest per annum on its $7bn; i.e. less than $220m profit after deduction of the usual array of management and banking charges which are peculiar to the Nigerian banking industry.  

  'Presumably, the 14 favoured banks are not constrained to channel lendings back to the Nigerian economy, as they would be free to invest anywhere in the world.   Thus, while we are pleading with foreign investors to come to Nigeria to help economic and industrial development, we are exposing our hard earned foreign exchange of $7bn to a consortium of Nigerian banks which have a capital base of less than $3bn without asking for some measure of audit control or equity participation.   

  'Nigerian banks have found it unattractive to invest in the real sector, particularly the income and employment generating SMEs; so, it would be foolhardy to expect that the largesse of $7bn low interest loan would change their attitude to the Nigeria economy.  The bizarre posturing of CBN with regard to the rate of return expected by Nigerians for a $7bn investment without a time limit is amplified by its willingness to pay interest rates of 12 and 17% for monies it borrows from the domestic capital market (mainly same indebted banks) in Nigeria.  The CBN Governor lamented the other day that over N75bn (the value of the capital base of three Nigerian mega banks) had been spent by government in servicing its indebtedness for such instruments for the first half of 2006 alone!  Presumably, Nigerians will pay holders of government bills and bonds another N75bn before the year runs out!  (Debt service for 2010 is over N500bn!!)  

  'Indeed, in the event that the 14 banks are free to repatriate all or part of the $7bn back to the Nigerian capital market, it is not difficult to predict where their interests would lie: you have got it!  Further patronage of government's treasury bills and bonds where they can earn rates of return of up to 17% on loans to the government!  Never mind that the monies which will be repatriated by the 14 banks for these investments will be part or all of the loan of $7bn which Nigerians had deposited in their overseas accounts!  Worse still, money so collected for sale of government bills and bonds are not tied to any specific infrastructural project but just kept idle in CBN vaults.  

  'Mr. Odoko, the CBN mouthpiece had indicated in the Guardian report quoted above that 'the $7bn represents the apex bank's share of the foreign reserves!'  I beg your pardon!  What work did CBN do to earn $7bn?  The Constitution does not define a share of reserves for the CBN; our crude oil earnings belong to the Nigerian people as expressed by the three tiers of government; the Senate and the House of Representatives would have defaulted in their constitutional duties if CBN is not invited to defend why $7bn of our reserves should be 'dashed' to 14 banks!   

  'The CBN Investment Committee must also be summoned to acquaint the Federal Legislature with the parameters adopted for managing Nigeria's external reserves!'