By Les Leba
Absent a fortnight or so ago, Lamido Sanusi, our new Central Bank Governor gave a detailed interview to the London Financial Times. It was clear that the new CBN top dog is not too happy with the performance of the Central Bank management and the Securities and Exchange Commission in their primary duties as the policemen of the money and capital markets.
Although Sanusi agrees that there is no system that is infallible, but he also insists that both operators and regulators should at least be honest enough to admit whenever they make mistakes and thereafter set forth with determination to remedy their failings!
As a starter, CBN auditors have now been deployed to banks to investigate the extent of the burden of margin loans which banks granted their customers for the purchase of the shares of the same lending banks. Readers of this column will recall that we had earlier frowned at this practice and described it as incestuous and potentially destabilising to the system.
In last week’s column, we invited Sanusi to take a closer look at the proposal in our paper titled “A Liberalised Foreign Exchange Market: and its Economic Benefit” Boyo/Ojomaikre 2002 to the National Economic Intelligence Committee (see www.geocities.com/lesleba) in which we recommended that CBN auditors be permanently embedded in the Treasury and Foreign Exchange Departments of each bank as the only way to guarantee that the information submitted by our banks are accurate and reflect a true position of their state of health.
Indeed, Mr. Sanusi’s apprehension of the quality of information churned out by our banks may have been lately buttressed by a Paris based Agency’s report that only 4 banks are truly strong. Of course, this report has been quickly lampooned by the banking confraternity who has questioned the basis for such conclusion; indeed the Paris Agency had even been accused of churning out such uncomplimentary reports as a way of inducing international advert placements from Nigerian banks!
However Sanusi, in the interview under review is of the opinion that a 10% limit is ineffective as an instrument of control of foreign equity in Nigerian banks, substantial equity has already been acquired by nominees who may in fact represent overseas interests! In this event, Sanusi would prefer an open and transparent ownership structure and will consequently remove any limit on foreign ownership of our banks!
Indeed, the CBN Governor sees this option as a means of forestalling major failures in the banking sector after the current ongoing audit exercise; such additional foreign ownership, by for example, such reputable International banks as “Barclays, HSBC or China Construction Bank” Sanusi believes would improve the level of transparency and also accommodate best practices in International financial reporting in place of the ‘suspect’ reports of our banks today!
In plain language, Sanusi’s gameplan is that the current audit which will last eight weeks, will reveal the weaker banks who carry poor quality assets and uncomfortably high burden of margin loans. An asset Management Company may be created to take up the toxic debts, ‘not at cost’, but after these debts have “been properly written down on the book of the banks”. Ultimately, particularly fragile banks may still remain of interest to stronger local banks or foreign investors who may find, the ‘huge investments infrastructure, the extensive branch network and wide customer base of these weak banks as attractive potentials to turn around their fortunes.
The above projections seem quite plausible and basically desirable. However, it is necessary to consider the potential danger of foreign ownership and domination of our banking system.
I recall that one of the reasons adduced for the rapid collapse of the Nigerian Stock market last year was the claim that prices crashed because foreign investors pulled out of the market! Thus, in a country like Nigeria where government policies vacillate arbitrarily or with political colouration, foreign investors may just decide they have had enough and embark on a free offloading of their equity at short notice with the attendant dislocational and destabilising impact on the fortunes of our economy and the pauperisation of millions of investors in the stock market!
Aside from those issues relating to Commercial banks stability and regulation; Lamido Sanusi sees his fundamental role as central banker as that of ‘price stability’ (management of inflation) and protection of the national tender (value of the Naira).
The governor hopes to achieve these objectives by “pushing for lower interest rates” and thereby “stimulating growth in the economy”. Indeed the foregoing may seem to readers of this column as a direct lift from the series of articles in Rational Perspectives over the years! Infact, Sanusi also agrees that “24% is too high, as a lending rate”! Contrast this assertion with his predecessor who berated Manufacturers Association (MAN) for being unappreciative of such interest rate levels when other countries like Ghana have prevailing lending rates of about 30%!
Sanusi on the other hand, hopes to bring down interest rates by “addressing the source of the fundamental reasons for high interest rates”. However, in response to questions on his vision for monetary policy strategy, Sanusi reveals his befuddlement with the interplay between the cause of excessive money supply, rising (double digit) inflation, very high interest rate and a strong exchange rate!
He describes this interplay as an “unholy trinity” that is difficult to deal with simultaneously. Consequently, his immediate objective would be to reduce inflation and interest rate and hope that “depending on what happens to the oil price, revenues and capital flows, I would hope that the naira will hold. But long term I think lower interest rates are more fundamental than a very strong exchange!”
Dear Mr. Sanusi, how wrong can you be! The truth my dear Governor is that the current mechanism for the infusion of our dollar earnings into the economy is the villain in the whole mix; the current system whereby CBN substitutes Naira for our dollar earnings before sharing creates the problem of continuous and unyielding excess liquidity which instigates high interest rates and the need for mopping up of funds at great cost to the country (almost N300bn in 2009 budget) and the storage of the borrowed funds inertly in CBN vaults and Accounts records!
The high interest rates necessary to deter borrowing and reduce inflation invariably becomes a disservice to industry and in fact triggers high production costs in a burdensome environment of inadequate infrastructure.
The substitution of Naira for dollar revenue is also the reason behind the inexplicable continuous decline of the Naira rate as increasing dollar revenue, means increased excess Naira liquidity, which is inturn pitched against controlled dollar releases in various auction models in the foreign exchange market. This invariably ensures that there is always more Naira chasing limited dollars at any one time.
Indeed any fortuitous increase in crude oil price will not improve the value of the Naira as Sanusi expects but would in reality, as happened in the past, when crude prices exceeded $140/barrel, put severe pressure on the value of the Naira!
This is nothing short of madness if you ask me, but regrettably this has been our lot for the past 30 years and succinctly explains why we ended up in the lowest rungs of the world’s poorest only at that time when we earned our best ever dollar export reserves!
Mr. Sanusi’s concept of a liberalised exchange rate will keep us in the pits of poverty and his expectation that the present official rate is ‘a good target’ should sound an alarm to all well meaning Nigerians!
The Naira rate has not been “a sensitive issue primarily because the elite have taken an interest in it” according to Sanusi; the reality is that the depreciating Naira value has gone hand in hand with the poverty of 140 million Nigerians over time, and my dear sir! Do not be deceived by the usual talk of the need for a diversified economy.
A diversified economy with excess for export will not at best earn us different quality dollars from what crude oil has brought us! It is the infusion process of our dollar revenue that is the killer bug! A process whereby dollar revenue is disbursed to the three tiers of governments as dollar Certificates is the most plausible available framework that can redeem our economy! Shikena!
SAVE THE NAIRA, SAVE NIGERIANS!
@cyril harry i love your coment quiet reasonable and taughtful.listen for examples.the major problem of banks in Nigeria.in Europe or here in the states a working class man or woman can finance a loan for a private business in less than 1 month and very easy.
Nigerians bank are not willing to loan,their major intress are in importation and shipping for fast and already made cash.
2.they are not willing to go long time investment and manufacturing which will bolster the economy by 30%.production,industrialization the main economy products.but this banks do not do that at all.tell me how many private banks in Nigeria have conglomerate in manufacturing and production.
I am not an Economist but certain things do not make sense. America and Europe are in trouble with their financial system. Alan Greenspan has appologised and admitted getting it wrong. Why on earth does Sanusi beleive that it is these same folks who were not able to prevent the collapse of their financial system and other high profile enterprises such as Enron, the American big three and major banks that have the answer? Eulogising these western banks who have failed their economies does not make sense.
Soludo came and contributed his bit, Sanusi should contribute his own bit. But how disheartening it would be if his contribution is to turn over Nigerian banks to foreign ownership? Therefore Sanusi should not abdicate his responsibility which (partly) is to enthrone transparency and accountability in the banking system. To do that would amount to intellectual laziness and not astute management. We need creative problem solvers.
Furthermore, Soludo as part of his strategic agenda for the Naira proposed payment of statutory allocations in source currency (USD) to all tiers of government. The North and the Governors shouted him down and vilified him. But this is what we need as David rightly opined and herein lies the answer to the strength of the Naira. Why change the Dollar into Naira and then change it back to Dollar, and other foreign currency to fund our imports? It just does not make sense. If all tiers of government maintain Dom accounts into which statutory allocations are paid, governments would only need to exchange the portion required for domestic expenses while paying for imports through the Dom accounts. This will also help to impose transparency in governments management of funds.
Finally Solude can be remembered for bold indeginous solutions what does Sanusi wish to be remembered for – expatriation? That would undermine the current rebranding effort – YES WE CAN and let no body run us down.
Thank You!, Thank You !Thank You! This is he first time I am reading an article in any Nigerian News paper that truely understands the fundamentals of a sound monetary system.There is no country that becomes developed through the “devaluation” of there currency.If Sanni Abacha(I am not a fan of his by the way) could peg teh Naira to the dollar at N86.00 to $1.00,if the Ghanaians have enough “confidence”in their economy to peg(the once worthless C5million to $1) the cedis to the dollar at C1.25 to $1.00U.S,this is a nation with “No Oil”,they rely on tourism,and the benevolence of “Nigerian Banks”,the same banks that Sanusi and the likes of “Omolola” have been insulting.The so called “Paris” based institutions who are making this false claims,are they in Nigeria,so how do they no we only have four healthy banks,how healthy is PNB Paris Bas,hmmm,isnt the WEST the source of todays global financial melt down,now they want to take over our Banks,No way.Nigerian banks are healthy and Nigerians will continue to patronise them.God bless the federal Rep. Of Nigeria.
The reason foreign investors left was because of lack of confidence. They saw countries that are transparent loose money and look at Nigeria that its banking sector is not transparent, if you are an investor, will you live your money. The truth is the stock price bubble was created by banks who were giving loans to their workers to buy their shares. The CBN should insist they right of this loans after the audit.
“Rational Perspective” when are you going to write about the SEC and NSE and the true reason why the NSE controls the SEC. And why are shareholders not calling for the removal of DAngote and the chairman of the NSE. Not only are they on the board of the NSE, the are also chairman of their companies listed on the stock exchange is that not a big big issue and lack of transparency?