14 NIGERIAN BANKS TO ENJOY $7BN RESERVE
BY: LES LEBA
"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 the 5th of October 2006. The report confirmed that “already deposits worth $7bn representing part of the apex bank’s share of foreign reserves estimated at about $38bn had been released to the consortium of bankers, according to the CBN Head of Corporate Affairs, Mr. Festus Odoko”.
"In this event, the CBN had made good its promise to invite Nigerian banks which have consolidated $500m capital base to a "foreign reserves banquet" if they show evidence of collaboration with internationally recognized financial houses. The Guardian report further confirmed that all 14 Nigerian banks are already associated with reputable affiliates, but it is not clear whether or not the M.O.U. between both parties involves joint responsibility for profits and loss, with global best banking practice and ethical standards, or if collaboration is simply glorified banking correspondence!
"Nonetheless, critics wondered if the 14 banks which had just raised their capital base under duress to N25bn could also raise additional capital of about N35bn in so short a space of time to qualify for management of CBN's reserves, in which case, CBN may have quietly dropped this requirement so as to pursue its declared agenda!
"But whose interest is CBN serving? The sum of $7bn is a huge sum of money in any currency and disbursement of such huge public funds should not be treated with levity. Although in the Guardian report “Mr. Odoko confirmed that the appointment of the 14 banks was ratified by the Investment Committee of the CBN on Tuesday, 3/10/06, 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, the CBN had committed Nigeria to possibly its largest single investment ever! The questions is whether or not the returns from this huge investment will stimulate productivity and employment, and improve our social welfare. If not, who will benefit from this biggest ever single investment paid upfront by the Nigerian nation? Yes, you have got it, the 14 banks who will wear broad smiles to their overseas vaults! Although CBN has not yet declared what returns it would demand from the 14 fattened beneficiaries, it is unlikely that the CBN will get more than prevailing international cost of about 3% interest per annum for such placements!
"Incidentally, the 14 favoured banks are at liberty to invest anywhere in the world! Thus, while we are pleading with foreign investors to come to Nigeria to support economic and industrial development, we are simultaneously exposing our hard earned foreign exchange to a consortium of Nigerian banks which have a consolidated capital base of less than $3bn for minimal gain, 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 strategy of a minimal returns of 3.5% for a $7bn investment without a time limit is amplified by CBN's willingness to conversely pay interest rates of between 12 and 17% for monies it borrows from the domestic capital market in Nigeria!
"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; the obvious destination would be further patronage of government’s treasury bills and bonds where they can earn rates of return of up to 17% from government borrowings! "Worse still, moneys so collected for sale of government bills and bonds are regrettably not tied to any specific infrastructural project but are inexplicably just kept idle in CBN vaults.
"Mr. Odoko, the CBN mouthpiece had also 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 the CBN do to earn $7bn? The Constitution does not separate a share of dollar 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 ‘given’ to 14 banks without oversight approval!"
The above is a summary of the above article, which was first published in October 2006. Not surprisingly, less than two years after Soludo's lauded banking consolidation, most Nigerian banks tittered on the verge of collapse. There has never been any confirmation that the 14 banks repaid the $7bn "soft loan" granted by the CBN before the banking crisis; consequently, it is more likely that Nigeria's $7bn may have ultimately 'gone with the wind' during the ensuing financial meltdown! Nonetheless, such probable default has not stop the banking sector from receiving additional largesse in excess of N5tn ($30bn) from lifelines from CBN and AMCON interventions between 2009 and 2010!
Notwithstanding, CBN's misguided generosity the banking sector has remained resistant to providing the real sector with loanable funds at affordable rates to stimulate industrial rejuvenation, economic growth and increasing employment opportunities.
In the above event, it may be necessary for the Economic and Financial Crimes Commission to take a closer look at the circumstances and the ultimate fate of CBN's extraordinary loan of $7bn to the banks in 2006; Nigerians surely have a right to know, especially now that a new set of managers has been selected, complete with their own parastatal establishment to manage the $1bn assets designated as our sovereign wealth fund, while we still go cap-in-hand to solicit for development loans with oppressive interest rates!
SAVE THE NAIRA, SAVE NIGERIANS!