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The Putrid Mess Also In CBN

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In the light of the ongoing constitutional amendment by the National Assembly to whittle down the perceived excessive powers of the apex bank in the CBN's 2007 Act, we concluded last week in this column that the issue of good governance will not

depend on whether the Chairman and Directors of the apex bank were external directors.   On the other hand, we suggested that an appropriate evaluation of the performance of the CBN could only be made against the background of its prime objec tive /mandate, which invariably is maintenance of price stabili

We noted that on the grounds of available evidence, i.e. for example, inflation projected to approach 15% by the end of the real sector, and a weak naira in the face of increasing dollar revenue deepening poverty in Nigeria, we may rightly concede that CBN has failed in delivering the expectations of its prime mandate.   We concluded that there was no basis for Nigerians to expect improved social welfare or any form of reduction in the rate of unemployment under the CBN's current operational and monetary framework.

Incidentally, the current hearing by the House of Committee on the capital market, curiously, does not beam any investigative light on why the CBN also enjoys unfettered administrative independence and fiscal autonomy, which precludes budgetary approvals or indeed, any form of supervision or oversight by the National Assembly, as is currently the practice with other ministries and parastatals.

Indeed, stories of huge leakages and extra fiscal cash movements from the CBN abound in our economic history in the last 30 years.   For example, we recall the disappearance of $12.8bn oil windfall from the federal treasury some years back; we also recall the substantiated allegations of Abacha's direct access to hundreds of millions of dollars from the Central Bank treasury; former President Obasanjo also made 'illegal' incursions into the treasury to pay the London/Paris Clubs debt as well as for huge contracts in the power sector, without prior approval from the National Assembly.

The way things stand, so long as the power for appointment of the Central Bank Governor resides solely with the Presidency, it will be difficult to prevent such executive forays into our treasury.   On its refusal to submit its budget and administration for scrutiny and approval by the National Assembly, CBN, on its own side, has taken protection under Section 6(3)(a) of the 2007 CBN Act, which states that its Board of Governors shall be solely responsible for the consideration and approval of the annual budget of the bank.

The House Committee, however, may rightly feel that CBN's position is a deliberate misinterpretation of Section 6(3)(a) of the CBN Act.   Indeed, if the budgets and performance of all government agencies, including the Presidency, are constitutionally subject to National Assembly approval, it becomes inexplicable that the operations of any arm of the executive could be excluded from such scrutiny and approval.

It becomes more worrisome if the exempted agency is not only the custodian of our treasury and national wealth, but also the agency responsible for ensuring, the creation of an enabling environment that would galvanise employment, industrial regeneration, with improved social welfare and increasing employment opportunities in line with its mandate.

It is equally dangerous that this same government agency is also capable of committing Nigerians to an expensive debt trap without recourse to alternate evaluation and approval from any superior constitutional authority.   For example, it is not clear if President Jonathan recognizes that it is reckless for his government to pay up to 15% for its risk-free sovereign debts, when even distressed European economies such as Spain still borrow at less than 4%!   Mr. President would be hard pressed to rationalize why we should pay such a high cost for borrowing trillions of naira that even the CBN openly admits would only be kept idle in vaults and accounts records.   The CBN and its associate agency , the Debt Management (read as Debt Creating) Office have unilaterally rapidly increased our national debt portfolio by about 500% in the last five years, with a collateral debt service charge of over N500bn; i.e. over 10% of the 2012 expenditure budget.

So, it will be difficult to fault the House of Reps for seeking more transparent information and some measure of supervision of the Central Bank.   The way things are, it is not clear if the staff salary structure and other emoluments enjoyed by Central Bank staff are in consonance with federal civil service structure.

T he CBN on its part has further expressed its financial and administrative independence in ways, which have raised questions on probity and accountability; for example, the N50m donation by former CBN Governor to some members of National Assembly to support their oversight functions on the banking sub sector a while back.

More recently, the incumbent Governor has similarly made direct donations of millions of naira to victims of the Boko Haram bomb blasts in Kano and Madala in Niger State, and over N1bn has also been made available by the apex bank for revamping facilities in some Nigerian universities.   The value of such CBN donations in the public domain exceed N1bn, and one wonders what the total budget of the CBN for its corporate social responsibility (CSR) actually is.   Critics have noted that even if such acts of CSR were appropriate, the CBN would have been better advised to make the donations through government agencies properly empowered with responsibilities for such activities.

The writer has on the platform of the Freedom of Information Act sought information from the CBN on critical issues,, particularly with regard to its monopoly in the foreign exchange market and the industrially destabilizing impact of its easy dollar policy to bureau de change.   The CBN has characteristically shunned our request for any such information.

However, I must say that successful amendment of the 2007 CBN Act may not necessarily guarantee efficient delivery of CBN's core mandate of price stability.   In other words, the amendment of the Act, may not deliver the expectation of minimal inflation below 3%, or lower cost of borrowing below 5% or indeed, reduce the rate of unemployment, neither will it lead to improvement in infrastructure and social welfare.

Regrettably, also, the CBN may not do any better in its secondary role of banking regulation and supervision.   Nigerians have witnessed at least two major banking sector meltdowns in the last seven years, and on each occasion, the CBN had stepped in to refloat the sector with huge cash injections.   It is not generally recognised that such funds were basically deliberate expansions in money supply largely supported by printing more naira, without minding the creeping inflationary impacts of such action on the economy, and the reduction in the purchasing power of all income earners, particularly that of the poor.

Ultimately, for the joy of inflicting such pain on the people, the few bank proprietors and management (who do not enjoy the patronage of the incumbent government) will get a mere slap on the wrist as punishment and before you say Jack Robinson, it will once again become business as usual.   Curiously, the apex bank, whose gross failure to entrench global best practice in the supervision and regulation of the system, invariably,   always walks away without any sanction for what some critics would describe as their criminal negligence.   On the individual level, there is no evidence in the public domain of any form of disciplinary action against any CBN staff for their role in the rape of the banking system in the last decade, but its board members and directors have been quick to point fingers as in Kingsley Moghalu's presentation at the ongoing capital market hearing, which decried manipulation by stakeholders as the cause of failure in the banking sector.  

  The expectation created after the last banking meltdown by the same Moghalu, who is currently CBN's Deputy Governor Financial Systems Stability, that CBN would return to clean out its own stable after it has sanitized the banking sector, was certainly intended to be a joke!   How can anyone rely on the same set of management, who brazenly presided over the well-acknowledged putrid rot in the system to expose their own failure to act responsibly in policing the banks to create clean and lean banking institutions?

In the following three articles published in this column between 2007   and 2008 namely; 'Banks and Fraud Incorporated' and 'Banks and Money Laundering 1&2',we endeavoured to show that the abuses of uncollateralised loans, insider trading, bogus financial reporting, share price manipulations and the resultant huge values of non-performing loans had not only become manifest for over four years, but that the regulators of the banking and financial system and the special financial fraud squad, EFCC had publicly acknowledged the prevalence of serious banking infractions and evidence of collaboration in the laundering of public funds by the banks all this while.

The big surprise is the inexplicable lack of will on the part of these guardians and protectors of public trust in these institutions to act decisively.   Indeed, in addition to the articles referenced above, the malfeasance in the banking sector had been graphically captured in other pieces such as 'Banking of Public Funds, Corruption and Double Speak' (published 7/4/09), 'Whose Money is Soludo Playing With, Anyway?' (18/04/05), 'The Bonanza in Margin Trading' (8/09/08), 'Bogus Liberalisation = Capital Flight' (3/04/06) and 'CBN Stop this Nonsense' (17/04/06) all of which can be accessed at

The degree of malfeasance in possibly all the banks was so mind-boggling that it is difficult to claim that they escaped CBN vision .   When this piece was first published in 2009, we called for a thorough investigation to determine why CBN officers and their colleagues in the Securities and Exchange Commission and the Nigerian Deposit Insurance Corporation seemed to have turned blind eyes to the shenanigans in the banking sector until the advent of Sanusi.

We had also advised that if Sanusi were truly desirous of starting off on a clean slate, he would need to examine the circumstances surrounding a CBN advert which gave a clean bill of health to Intercontinental bank less than two months before Lamido's audit investigation revealed otherwise.   The questions are, on what indices/information did the former CBN Governor make his declarations; who recommended this course of deliberate misinformation and who paid for the full page advert carried in several papers.   All these questions have remained unanswered.

It is instructive that soon after his exit from the apex bank, the former Governor was soon able to finance an obviously deep pocket campaign for the top seat in the government House in Anambra State from his personal savings!