WHERE IS THE $7BN CBN LOAN TO 14 BANKS?
BY: HENRY BOYO
"The report of the 14 Nigerian banks which were 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 Central Bank of Nigeria’s share of foreign reserves estimated at about $38bn had been released to the consortium of bankers”, according to CBN's Head of Corporate Affairs, Mr. Festus Odoko.
"In this event, CBN made good its promise to invite Nigerian banks which have consolidated a minimum $500m capital base to a "foreign reserves banquet" if they showed 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 the parties involves joint responsibility for profits and loss, with global best banking practice and ethical standards, or if collaboration is simply formalised glorified correspondent banking!
"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; conversely, the apex Bank 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 committed Nigeria to possibly its largest single investment ever! The question 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 did not declare what returns it demands from the 14 fattened beneficiaries, it is unlikely that banks will pay more than the prevailing international cost of about three per cent 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, for minimal gain, to a consortium of Nigerian banks which have a consolidated capital base of less than $3bn, without asking for some measure of audit control or equity participation.
"Nigerian banks have for so long 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 an uncollateralised $7bn low interest loan would change their attitude to the Nigeria economy. The bizarre strategy of a minimal return of three to five per cent for a $7bn investment without an overtly declared time limit is amplified by CBN's willingness to conversely pay interest rates of between 12 and 17 per cent for monies it borrows from these same banks.
"Nonetheless, 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 per cent from government borrowings! "Worse still, moneys so collected for sale of government bills and bonds are regrettably just kept idle in CBN vaults.
"Mr. Odoko, the CBN mouthpiece had also claimed in the Guardian report quoted above that “the $7bn represents the apex bank’s share of the foreign reserves!’ I beg your pardon! Apart from the very lucrative business of changing naira for federally allocated dollars, what work did the CBN do to earn $7bn? The Constitution does not distinguish a share of dollar reserves, especially for the CBN; our crude oil earnings belong to the Nigerian people as constituted 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 preceding is a summary of the above article, which was first published on the 9th October 2006 in the Vanguard Newspaper. Not surprisingly, less than two years after Prof. Chukwuma Soludo's lauded banking consolidation and assurances, 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 CBN before the 2008 banking crisis; consequently, it is possible that Nigeria's $7bn reserves may have ultimately 'gone with the wind' during the ensuing financial meltdown! Nonetheless, such probable default did not stop the banking sector from receiving additional largesse in excess of N5tn ($30bn) from lifelines from CBN and its surrogate, the Assets Management Corporation of Nigeria's interventions, less than three years thereafter, between 2009 and 2010!
CBN's misguided generosity notwithstanding, 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. If anything, the CBN's self-styled "own reserves" increased well beyond $40bn to fund CBN's sporadic multi-pronged cash interventions to various subsectors; paradoxically, in spite of a still comatose real sector, the banking sector has since bounced back with bountiful profit postings, while unemployment, oppressive mass poverty and increasing national debt persist! Ironically in 2015, the banks will also be the prime beneficiaries of over N600bn bonanza which will be paid by the CBN for borrowing back government’s deposits which were placed with zero interest with the banks.
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. After all, if the CBN made the $7bn largesse to banks, a widely reported media affair, one should, indeed expect that successful application and liquidation of this soft loan should have been heralded by a much more ‘in your face’ media blitz to assure Nigerians of the wisdom of such intervention in the first place.
Regrettably, however, despite the $36bn AMCON funds and $7bn CBN’s largesse there are indications that the banking sub-sector is once again in trouble without having fulfilled public expectations of powering the growth of the real sector with the creation of more jobs.
SAVE THE NAIRA, SAVE NIGERIANS!!