Still on that $7bn deposit with the banks! – by Les Leba

No Comments » August 24th, 2008 posted by // Categories: Spotlight


Still on that $7bn deposit with the banks!
Written by Les Leba   
Monday, 25 August 2008
It is easy to conclude that the astronomical profits declared by the banks represent the dividend of the consolidation exercise.

In truth, banking has been the preferred sector for quick returns in the last two decades, and the industry’s expansion has been sup-ported, aided and abetted by lenient government monetary and economic policies.

Analysts have observed that the lucrative forex market and the financial malfeasance of round-tripping provided the foundation for the sustenance and growth of banks. 

The dollar auction systems came with various names such as FEM, WDAS, etc, but Central Bank, knowingly and consciously, created loopholes for substantial fortunes to be made by operators.  

It would be foolhardy to believe that our monetary policy makers were unaware that most banks had abandoned investment in the real sector for the easier moneys which were available in the forex business! 

Of course, such forex business had little positive impact on the masses, but created ‘business’ for a whole chain of intermediaries in the black market!

Nonetheless, the CBN management conveniently looked the other way and pleaded helplessness! The current comatose industrial sector is the sour dividend of what some may describe as CBN’s complicity!  I do not readily recall any senior bank officer found guilty and sent to jail for their role in ruining the Nigerian economy.  

I do not recall either that CBN’s management was ever arraigned for complicity, in spite of their generous negligence in sup-porting round-tripping and providing the banks additional sources of free and easy funds with very attractive interest payments (usually above 10%) for borrowing back funds which the CBN had itself earlier deposited with same banks!

Indeed, some analysts agree that an illiterate and inexpe-rienced management team with sincerity and commitment to the common good would have done a better job in building the economy than the so-called team of experts that had such responsibilities.

The much heralded banking consolidation indeed narrowed the field, but the high expectations of lower interest rates as a result of keen compe-tition, support for Small & Medium Enterprises, which are recognised as the backbone of any economy with their employment generating capacities, and the promise of better customer services have all remained unfulfilled.  

If anything, bank customers have become very unhappy with shabby treatment and inex-plicable deductions from customer accounts and high commissions on turnover are some of the customer grudges; the increasing profitability of the banks belies the marketing principles that identify customer service and satisfaction as the real growth drivers of any company!

Banking consolidation was also expected to ensure stability and the adoption of best practices in the industry, but, regrettably, indications are that shareholders funds are still mismanaged and, at least, two of the new ‘mega’ banks have also been reported to be on shaky grounds!  

Of course, every time a bank founders, innocent depositors are usually the worst hit and, as I write, thousands of erstwhile customers of failed banks still do not know when they would receive value for their deposits!

In all these, our apex bank appears to have taken sides with the commercial banks and, as usual, not only turned deaf ears and closed eyes to the irregularities in the banking sector, but has, surprisingly, shown much favour to the banks so that they would continue to declare humongous profits while the rest of the economy continues to founder!  

How else can one explain the superfluous generosity of the CBN to these banks. For example, the CBN Governor had, in a recent chat with Manufacturers Association, defended the high interest charges of banks and, yet, blamed industrialists for being unproductive!

Meanwhile, the same CBN hopes we do not recognise that its willingness to pay up to 10% on government’s risk-free treasury bills sold to the banks is also a major deterrent to banks lending to the real sector!

The same CBN continues to pursue a policy which ensures banks’ immense profitability when it floods the money market with increasingly bloated naira allocations paid into the bank account of the three tiers of government; this is in spite of its knowledge that it would, soon after, return to the banks to borrow back these funds and simply sequester them in the name of putting a lid on inflation!

According to budget 2008, Nigerians paid close to N400bn to the banks for such lending in 2007. In view of the almost 100% increase in crude oil earnings and the huge collateral of naira allocation every month, such payments may soon exceed N800bn.

It will be no surprise if the percentage of profits derived from such generous partnership between the CBN and the banks exceed 70% in 2009!

Analysts have pointed out that the fear of banks’ credit expansion as a result of huge naira allocations can be better addressed by aggressively raising the mandatory cash reserve base of banks to 10% or 20% as this would reduce the huge cost of mopping up excess liquidity to the nation!

No! The CBN would not have any of such anti-commercial bank measures, and, instead, continues to maintain a mandatory cash reserve base of less than 5% for the banks!

However, probably, the most baffling evidence of collusion of the CBN and the banks against Nigerians is the inexplicable deposit of over $7bn of our funds in 14 Nigerian banks; these deposits were unsolicited and we do not know what interest rates the banks pay, but it may not exceed the 3-4% for such deposits on the international money market!

Prior to these deposits, the CBN had put together an enabling policy arrangement that allows the same banks and, indeed, any other foreign investor to invest such funds in any area of choice, including the Nigerian capital market.

In the same manner that Soludo’s African Finance Corporation recognised the huge profits available in the Nigerian money market and invested CBN’s equity of $460bn on Nigerian government’s treasury bills and bonds, the beneficiaries of the $7bn CBN deposits would also be sharp enough to maximize their returns by also lending back to the same CBN or the Debt Management Office part or all the $7bn after its repatriation (read as round-tripping) and conversion as foreign direct investment! In other words, CBN would ultimately end up paying interest on its own deposits!

Meanwhile, the Bank of Industry, the textile industry, agriculture, PHCN, etc, continue to cry out for lack of funds! This sum of $7bn is larger than the $5.6bn which Mr. President has been unable to access for improvement of power gene-ration as a result of constitu-tional provisions!

It may have been easier and cheaper for Yar’Adua to approach our own CBN for such quick fix loans in view of CBN’s pervasive powers for giving away our money without recourse to Executive and Legislative approval like Mr. President!

In spite of our acute infrastructural deficit, why do we maintain Arica’s highest dollar reserve base of over $60bn while we still go cap-in-hand to beg for foreign investment, at such high cost?

Why must we place $7bn in the hands of banks that round-trip the same funds and lend it back to us? Such aberrations cannot be in consonance with financial propriety.



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