Nigeria's central bank wants banks to report politicians' deals

The Central Bank of Nigeria (CBN) is working on a plan to make banks report suspicious cash transactions by politically exposed persons (PEPs).

The banking watchdog boss, Mallam Sanusi Lamido Sanusi, also said yesterday at the end of the Monetary Policy Committee (MPC) meeting in Abuja that the CBN might soon start buying margin loans to boost lending.

The proposed banking regulation, which is a draft manual on anti-money laundering, published on the CBN website, will require banks to report large movements of cash between accounts by PEPs.
The banking watchdog defines “politically exposed persons” as individuals who are or have been entrusted with prominent public functions both in Nigeria and foreign countries and those associated with them.

It listed examples of PEPs to include, but not limited to, heads of state or government; governors; local government chairmen; senior politicians; senior government officials; judicial or military officials; senior executives of state-owned corporations; important political party officials; family members or close associates of PEPs; and members of royal families.

The CBN said: “Financial institutions are required, in addition to performing Customer Due Diligence (CDD) measures, to put in place appropriate risk management systems to determine whether a potential customer or existing customer or the beneficial-owner is a politically exposed person.

“Financial institutions are also required to obtain senior management approval before they establish business relationships with a PEP and to render monthly returns on their transactions with PEPs to the CBN and Nigeria Financial Intelligence Unit (NFIU).

“Where a customer has been accepted or has an ongoing relationship with the financial institution and the customer or beneficial-owner is subsequently found to be or becomes a PEP, the financial institution is required to obtain senior management approval in order to continue the business relationship.

“Financial institutions are required to take reasonable measures to establish the source of wealth and the sources of funds of customers and beneficial-owners identified as PEPs and report all anomalies immediately to the CBN and other relevant authorities.”

According to the CBN, a financial institution in a business relationship with a PEP is required to conduct enhanced ongoing monitoring of that relationship.

“In the event of any transaction that is abnormal, FIs are required to flag the account and to report immediately to the CBN and other relevant authorities such as Economic and Financial Crimes Commission (EFCC)/NFIU,” it said.

Many PEPs are major shareholders or directors in Nigeria's banks. Under the regulations, the identities of both individuals and corporate institutions making a transaction above N500,000 and N1,000,000 respectively must be checked.

Briefing newsmen on the outcome of the MPC meeting yesterday, Sanusi said that the proposed legislation setting up an assets management company to buy the loans is expected to be sent to legislators next week.

The purchases would “stimulate activity in the capital market” and improve banks' balance sheets, Sanusi said.

About N1 trillion of banks' cash is believed to be trapped in margin loans at the stock market, which has lost over 31 per cent of value so far this year – after losing 45.8 per cent last year.

Sanusi said there would be quantitative easing to bridge the gap currently estimated at about N500 billion between the levels of the current monetary aggregates and the benchmark levels for 2009.
He said the modalities for quantitative easing include investments in bonds is to be issued by the Asset Management Company (AMC).

“The setting up of AMC, however, is subject to the approval of the National Assembly,” he noted.
The CBN governor said that the MPC had also resolved that the purchase of loans by banks under the AMC would be based on terms aimed at strengthening the balance sheets with a focus on asset quality, improving liquidity and capital adequacy as well as on reducing debt overhang relating to the stock market in order to stimulate activity in the capital market.

Sanusi also explained that given the fact that the audit of banks had been concluded and adequate provisions had been made for non-performing loans, the one per cent general provision on performing loans contained in the existing prudential guidelines had been waived for 2009 as a “countercyclical measure”.

The measure, he said, was necessary “to stimulate credit growth and strengthen banks' balance sheets”.
He said the MPC resolved to leave the Monetary Policy Rate (MPR) unchanged at six per cent but, however, added that an asymmetric corridor of interest rates around the MPR is introduced. The key rate was last cut by 1.75 percentage points last April.

According to him, “the rate on the standing lending facility will remain at 200 basis points above the MPR, while the rate on the standing deposit facility will be 400 basis points below the MPR. With this development, it is expected that secured borrowings and unsecured inter-bank placements will immediately slide downwards to around two per cent per annum.”

In addition, he said, with effect from November 16, 2009, the temporary ban placed by the CBN on the use of Bankers' Acceptances (BAs) and Commercial Papers (CPs) would be lifted. Guidelines, on that, he said, would be issued by the CBN prior to that date.

He said: “The totality of these measures is aimed at improving system liquidity and financial stability to regenerate confidence in the Nigerian markets and to further stimulate growth.”

Sanusi said the real gross domestic product (GDP) growth rate rose to 7.58 per cent at the end of the third quarter of this year. The GDP, the CBN noted, had grown from 7.22 per cent in the second quarter and 4.5 per cent in the first quarter.

The banking watchdog chief said no decision had been taken on a fixing the tenure for chief executives of commercial banks. Rather, the apex bank said it was still conducting a forensic and diagnostic audit of the banks, which is expected to be ready next week.

He said after the audit is concluded, views would be taken from from the Nigeria Deposit Insurance Corporation (NDIC) among other stakeholders and such views would the apex bankto make a decision on the tenure of bank's chief executives.

Also yesterday, the CBN announced that by the first quarter of 2010, it would release a New Prudential Guidelines on Loans and waived one per cent provision on performing loans contained in the existing prudential guidelines.

Sanusi also expressed delight that the foreign exchange market had been stable.

According to him, “the official exchange rate stood at an average of N149.3578 per US dollar in October 2009. The inter-bank market rate averaged N150.1252/$. There was thus a slight appreciation of the naira during the month. The spread between the rates has continued to be insignificant.”

He said the external reserves rose to $43.34 billion as at the end of September 2009, representing an increase of about $ 1.64 billion over August. He attributed the increase mainly to the receipt of the SDR allocation.

By the end of October, the foreign reserves are provisionally estimated to be $43.05 billion, he said.