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Sen. Mark: CBN is still misleading you!!

By Les Leba
“Banking Reforms: Soludo Deceived Us – Mark”. The foregoing was the caption of a report on pg 15 in the Business & Economy section of the Punch Newspaper edition of Friday, 15/3/2010.

The story was in relation to statements credited to the Senate President, David Mark, while declaring open a joint public hearing on a bill for an Act to establish the Asset Management Corporation of Nigeria (AMCON).

Incidentally, AMCON is the brainchild of the Central Bank  and the corporation is promoted as a ready dump yard for the toxic assets of the troubled banks rescued by the apex bank with a cash injection of over N600bn in 2009!  In simple language, AMCON would acquire or buy up all the bad debts at a fraction of their face value, thus providing the beneficiaries of AMCON’s patronage with some additional liquidity in place of outright write-off and the attendant loss and dislocation for the banks.  It is expected that the cash injection would enable the banks to carry on their businesses on an even keel, and thereby save depositors’ funds currently estimated by the CBN to be over N10 trillion in Nigeria banks.

In order to ensure the successful takeoff of AMCON, Lamido Sanusi “revealed that the CBN had set aside N50bn as sinking fund with a target to raise over N500bn in the next 10 years…”  the above sum is in addition to the N620bn earlier ‘loaned’ to the banks with interest rate of 10%!  The CBN expects the loan to be fully repaid within ten years!  In this manner, the beneficiary banks’ liquidity would have been buoyed up by the CBN’s injection of N620bn plus whatever the value which will be paid by AMCON for the toxic assets in each bank’s portfolio.
In the course of time, CBN’s loan would be repaid with interest, while AMCON presumably would generate income with improving valuation of the equities of these banks as they stabilise and begin generating improved profit figures.

It all seems so simple and workable, yet, the Senate President in the Punch report wanted an assurance that the country was not again being led down the garden path with billions of taxpayers’ naira frittered away!

Indeed, the Senate President appeared guided by the popular admonition of (once bitten, twice shy), and reminded the gathering that “we have found ourselves where we are today as a result of one thing: the Central Bank’s inability to supervise the banks properly”.

The question obviously at the back of Sen. Mark’s mind is, what has the apex bank done so far to ensure that they have the required human capacity, structure and integrity to prevent a recurrence of banking crisis of the current pervasive magnitude?  Well, the answer to this question is still not yet clear!!

Over the years, the media is regularly awash with news of one form of reform or the other in the banking sector, culminating in Soludo’s consolidation about six years ago!  All the reforms were
characteristically heralded as an elixir on a platform of stable and secure banking operations in line with international best practices, but the historical evidence confirms that the banking sector has witnessed so much policy flip flopping that Nigerians gave begun to wonder whether the real problem is not that of failure of regulation and supervision!!

Indeed, from a universal perspective, those policy guidelines on structure and operation which have failed in Nigeria seem to have succeeded in other serious economies elsewhere!  Senator Mark buttressed this point as he
noted that: “I recall that in Soludo’s time, we called the Governor of the CBN not less than three times to come and brief us when the economic meltdown started, and on each occasion, we were assured and reassured that
the situation in Nigeria was excellent, and that there was no problem at all.  Now we know better!!”

I might add that on each occasion of Soludo’s presentation at the Senate and indeed in several other such outings, the former CBN Governor was always so impressive and convincing that he inevitably received extended standing ovations for telling a basketful of lies, not only to our economically illiterate elite in the real sector, but also to the top echelons of the custodians of our democracy!  What a shame!  Inexplicably, Soludo was rewarded for his negligence and complicity in our economic meltdown with the candidacy of the ruling party for Anambra State gubernatorial elections.  Sometimes, I wonder whether this is all a bad dream or a tragic reality!!  Incidentally, we endeavoured ceaselessly in this column in several articles (e.g.

Banks & Fraud Incorporated 3/10/05) to warn Nigerians that Soludo’s policies would end up making us all poorer even when we were blessed with increasing wealth; for my pains, I received copious abuse from CBN organs and other public commentators, who depended on CBN largesse!  Senator Mark expresses the apprehensions of this column with regard to AMCON when he further noted that “and I believe very sincerely that if the supervision was alright, we would not find ourselves running debts up to trillions of naira”.

The question, once again, is, what assurance can Sanusi give to Nigerians that he is also not playing a ludo game with our destiny as his  predecessor did so excellently?  The truth, of course, is that, if the same CBN structure with the same actors who negligently presided over the recent bank failures are also the caste being relied upon to manage the
banking sector successfully with a presumed born-again attitude with accountability, commitment, transparency and integrity as their hallmark, some observers would conclude that we would be living in a fool’s paradise.

Besides, we have all witnessed the ongoing trauma meted to the Directors of the troubled banks for various financial misdemeanours, but regrettably, the EFCC is yet to knock on the doors of any serving or former CBN staff who presided over the open shenanigans of insider lending, margin loans, uncollateralized debts and open manipulation of
equity prices by the banks themselves!  It did not require a Sherlock Holmes (fictional crime investigator) to decipher the rot and the complicity of the CBN in the banking sector, as the whole charade was carried out in full public glare with so much aplomb that no one would believe that Soludo and his team were cleverly or unknowingly  hoodwinked by corrupt bank directors!

But, let us return once again to the operation of the proposed AMCON in line with international best practices.  If  AMCON would be run as a profit making private company, why should it be funded to the tune of N50bn with taxpayers money; how do we explain the penchant of the CBN and the Debt Management (read as debt creating) Office for borrowing billions of naira over the last four years, without legislative approval, especially since Nigeria’s current over N2.5 trillion domestic debt was incurred with no specific purpose other than intangible objectives of excess liquidity mop up and setting benchmarks for borrowing in the capital market?  I wonder why the Senate is fiddling aimlessly while the CBN and DMO surreptitiously drag us back into a suicidal debt trap under their watch!

Pray, who gave the CBN approval for another cash injection of N500bn (about $3bn) to support power provision?  In spite of CBN’s good intentions, it is unlikely that $3bn would make significant difference on the power sector, if over $16bn apparently spent on the sector in the last six years failed to provide much succor!

Indeed, we may also expect CBN’s separate cash injections to each subsector of Nigerian’s industrial landscape in due course; but can such strategy be judged to be superior to sensible monetary policy management that would bring commercial lending cost to below 10% across the board for all sectors?  Indeed, cost of borrowing would fall automatically and our debts reduced once the CBN releases its stranglehold and monopoly of the forex market!!

Furthermore, how do we ensure that CBN can be relied upon to mediate the acquisition of the toxic debts at prices which have not been prearranged to favour the private owners of AMCON?  How do we ensure there is no collaboration between AMCON sponsors and government mediators?  No one should listen to Sanusi if he says this cannot happen; he would first need to convince us that AMCON sponsors, CBN and SEC teams are new Nigerian angels!

AMCON may become another failed government sponsored enterprise if CBN and SEC are again found negligent and Sen. Mark’s apprehension sadly may become prophetic.

Indeed, in spite of various articles in this column on the self-destructive and corrupt management of monetary policy by the CBN, the federal legislature continues to pretend to hear nothing and see nothing!

But in truth, it is in the area of CBN management of monetary policy that the greatest deceit and disservice to Nigeria actually occurs.

Appropriate monetary policy management should lead to achievement of CBN’s core mandate; i.e. price stability, which would bring about minimal inflation to protect the value of income earners and enthrone single digit
interest rate to encourage industrial expansion and increasing

employment!!  On the other hand, CBN’s current monetary management has yielded inflation at over 12%, (food: over 17%), lending rates of 24% and above, and increasing unemployment!!

In other words, CBN’s current monetary policy and strategy can never take this country out of the woods, but would instead, make us a poorer nation whenever our crude oil dollar reserves increase!  Unfortunately, the Nigerian real sector and legislature mistake high visibility of banking activities and CBN’s policy flip flop on banking as the prime function of the CBN, but they are wrong; the CBN Act defines price stability as the core function of the CBN.

So far, the CBN is not on the road to achieving this objective and we will never get on to that road until provision of Section 162 of the Constitution is recognized.  That Section does not give the CBN any right to capture the nation’s dollar earnings and substitute increasingly worthless loads of naira.  CBN’s usurpation has, and will continue to make us poorer and pray that we do not earn more export dollars as a nation!!

Meanwhile, the reality remains that the adoption of dollar certificates for the payment of dollar earned revenue will quickly turn around our economy and ensure single digit interest rate structure with minimal inflation and rapid gains in employment! Senator Mark may not know this, but if he thought Soludo misled the Senate on the issue of the integrity of the banks, he would do well to recognize that CBN governors have in the last three decades (current incumbent included) deceived Nigerians with a self-inflicted and suicidal monetary strategy that will continue to reduce the dignity of increasingly millions of Nigerians.

SAVE THE NAIRA, SAVE NIGERIANS!


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