How CBN intervention saved FG billions, by Jonathan
BY OSCARLINE ONWUEMENYI
ABUJA—Federal Government would have lost 27 per cent of public sector funds to the crisis in the banking sector if Central Bank of Nigeria, CBN, had not intervened, President Goodluck Jonathan has said.
Jonathan, who said this, Tuesday, in Abuja while declaring open a two-day conference of Chartered Institute of Bankers of Nigeria, CIBN, noted that measures were in place to insulate the national economy from global financial mess.
Giving a breakdown of government’s fund in the banking sector during the peak of the crisis, the President said seven of the 24 deposit money banks held about 52 per cent of the total public sector fund.
Of this figure, he said three of the “healthy” banks held 52 per cent of all public sector deposits, while four of the banks taken over by the apex bank held 27 per cent.
Represented by Minister of State for Finance, Dr. Yerima Ngama, Jonathan blamed the aggressive marketing strategy employed by the banks for the government’s exposure to these banks, saying that when the apex bank intervened, a majority of public sector funds were exposed to “concentration risks.”
He said: “The kind of aggressive marketing that we do here has caused a lot of casualty. We need to sit down and moderate this thing.
“The competition has also affected the government. Marketing staff continue to go to state governments and the ones that are strong actually got all the deposits and at the end of the day, government ended up with concentration risks.
“As at the time CBN intervened to take over those seven or eight banks, 52 per cent of all public sector deposits were in three banks that were healthy, and 27 per cent in four of the banks that were taken over by CBN.
“So, 78 per cent of public sector funds were in seven banks out of which only three are strong and healthy. The other four are already down. Government cannot also sit down and see all the funds concentrated in banks that could burst.
The President said all public sector funds would be spread among deposit money banks.
This, he noted, would help to mitigate any shocks that might arise during banks’ failure.
He said, “I want a future banking sector that is compose of conservative people. We are running a banking system where banks don’t move together because we find out that in every five years, one or two banks will fail
“I am now talking with the Accountant General of the Federation to ensure that government also diversifies its own risks because you cannot just carry all public sector deposit and put in one bank. “It will encourage laziness because public sector fund are cheap. We will try to ensure that the AGF in giving his approval will ensure that government funds are spread across the entire banking industry.”
He said that the federal government would continue to strengthen the regulatory authorities to enable them effectively perform their supervisory roles.
He said, “The Nigerian banking sector has been adjudged the most vibrant in Africa despite the crisis. “In terms of regulation, the regulatory authorities have distinguished themselves and they have at all times been very efficient to the extent that even the recent challenge have been successfully revoked and today, we are proud that we have come to the end of the crisis in the banking industry,
“We know that the crises that have been successfully resolved came along with great shock not only to government but also to the healthier banks and we congratulate the entire banking industry for pledging to contribute to salvage the crisis.
“Moving forward requires that we really reflect and look at where we really failed and put lasting measures to really avoid these occurrences.
“I have heard the Deputy Governor of the CBN saying that the crisis in Europe might even trigger another banking crisis and we pray that this time around, Nigeria will insulate itself. “Many people believe that crisis comes from outside and yes they do but when you look at the banking crisis starting from 1990, their externalities contribute a lot. But the main cause of banking failure is from inside the banks, the human beings.
“We know that the CBN before appointing anybody to be the director of a bank conducts fit and proper test, but all of us here know that though the regulatory authorities keep the questionnaires to themselves, with what has been happening, we need to improve the test.
“I told the President of CIBN that this institute has the history of having some of their past President running failed institutions. “We know that in the early 90s, the Managing Director of Commerce bank was well respected but yet his bank failed, we have another President also whose bank failed and there are human issues involved , which shows that none of us is insulated from the temptation of the industry.
“These people are good and serious people but there are so many banana peels on the way and no matter how well you pass the initial fit and proper test, you might have come out with distinction, the moment you step on that banana peel, there you go.
Continuing he said, “Our lifestyle are too flamboyant, the moment you decided to be too flamboyant, something gets into your head and before you know it, you start taking the wrong decision. “I am telling you that all those bankers that have today found themselves in unfortunate situation were excellent people before and they can continue to be excellent people except for those banana peels.”
Also speaking at the event, the CBN Deputy Governor, Corporate Services, Mr. Suleiman Barau said that the crisis in the banking sector was over.
For instance, he said that the non performing loan portfolio of the banking industry has significantly declined to 9.37 per cent as at the end of August this year from 34 per cent in 2010.
