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The putrid mess also in CBN!

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By Less Leba
Nigeria has become suffocated in the last three weeks or so with news of the foul dealings in the banking sector of our economy.  A banking licence is not only an authority to receive deposits and lend out money, it is virtually a mandate to also create money.

The Central Bank’s licence to commence banking operations provides cover for a commercial bank to lend out more moneys than it receives as deposits!

amount of cash a bank can lend out over and above its deposits will vary according to each country’s regulations, but generally, a bank may lend out over five times its deposits to customers either for investment or consumption so long as the bank also respects and plays by the rules relating to accountability, prudent management and strict adherence to existing financial guidelines imposed by the respective Central Bank to ensure that public trust is not abused.

The need for regulation and supervision of commercial banks is the universal recognition that power without control inevitably leads to anarchy!  Thus, the Central Bank is expected to exercise benevolent parental guidance to ensure that banks not only remain healthy but also support government’s aspirations in developing the economy, and improving the welfare of the people.

On the other hand, in the same manner that otherwise normal children could become delinquent without parental love and guidance, the role of the banks as an engine of economic growth will also be compromised without the oversight functions of the Central Bank, and bank operations could quickly become a burden to the rest of society.

In the last three articles in this column, namely;“Banks and Fraud Incorporated” and “Banks and Money Laundering 1&2”, we endeavoured to show that the abuses of uncollateralised loans, insider trading, bogus financial reporting, share price manipulations and the resultant huge values of non-performing loans had not only become manifest over four years ago, but that the regulators of the banking and financial system and the special financial fraud squad, EFCC had publicly acknowledged the prevalence of serious banking infractions and evidence of collaboration in the laundering of public funds by the banks all this while.

The big surprise is the inexplicable lack of will on the part of these guardians and protectors of public trust in these institutions.  Indeed, in addition to the articles referenced above, the malfeasance in the banking sector had been graphically captured in other pieces such as “Banking of Public Funds, Corruption and Double Speak” (published 7/4/09), “Whose Money is Soludo Playing With, Anyway?” (18/04/05), “The Bonanza in Margin Trading” (8/09/08), “Bogus Liberalisation = Capital Flight” (3/04/06) and” (17/04 “CBN Stop this Nonsense/06).

However, there now seems to be a significant positive and frenzied attitudinal change on the part of the regulators and the policemen of the financial sector.  Lamido Sanusi, on his appointment as CBN Governor just over three months ago announced that he would always ‘tell it like it is”, even if his transparent posturing and eagle eyed vigilance expected of the CBN cost him his job.  He has admitted that like everyone else, he could genuinely make mistakes, but promised that he would be first to admit it whenever his policies unexpectedly misfire.

Indeed, for the first time ever, we have a public officer who openly proclaims his readiness to resign from such a lucrative position if he is hampered by unnecessary bureaucracy or interest groups from pursuing the course of transparency and accountability in the banking sector.  In fact, the young man deserves a medal of honour for the courage of the above expression!!

However, regrettably, a tree cannot make a forest and Sanusi will have to rely on his subordinates to carry through his vision of an operationally ‘clean’ banking sector!  Therein lies the problem!  The question is, how can Sanusi expect better results from the same CBN officers who supervised and regulated the banking system so sloppily in the past five years?

I recall that Soludo had responded to the suggestion in our paper”A Liberalised Foreign Exchange Market: a proposal for a liberalised foreign exchange market in Nigeria and its economic benefits (August 2002 – Boyo/Ojomaikre), to post resident auditors to the head office of each bank to ensure prompt rendition of accurate information on the health status of each bank to the CBN daily.

Media reports indicated that such auditors were indeed deployed to the banks late in 2008,  shortly before expiration of Soludo’s five-year term; however, it would seem that these auditors failed woefully in alerting the nation of the inebriate state of the banks!  Indeed, possibly based on the incorrect reports filed back, or in spite of the ugly reality, the former CBN Governor boasted that Nigerian banks were stronger than ever and could readily support the government if the effects of the global recession approached our shores!

We now know that these assurances were as solid as sand castles on the beach, but at the time, the CBN Governor basked in self adulation and his collaborators in the media and the banking sector wasted no time in celebrating him as God’s gift to Nigeria’s economy!  Once again, we also now know better!

So, Sanusi’s expectation of a transparent banking sector landscape would be a mirage if the arrowheads of the current cleanup are the same officials who gave a clean bill of health to the banks upto May 31st 2009!  Sanusi may also, once more, assess the integrity of those CBN Directors, who pressurized him to endorse the financial statements of Oceanic and Intercontinental Banks as he claimed, just so these banks could pay dividends from spurious results, and look attractive when indeed, the reverse was the reality!

Indeed, the assets of the top echelon officers in CBN’s Banking Supervision and Regulation Department should be closely investigated to ensure that they did not compromise their integrity in their official roles to the detriment of the rest of us!

We recall that the former Governor was reported to have paid N50m to members of the National Assembly with CBN oversight functions in the course of his tenure; in retrospect, one may wonder if other additional such payments were made and if the intention was to keep assembly members ‘happy’ while the CBN did as it pleased with our national wealth!

Indeed, the rot now unearthed in banking operations, supervision and regulation may be seen as an indictment of the ineffectiveness of the responsible National Assembly Committees.

If Sanusi is truly desirous of starting off on a clean slate, he may also want to examine the circumstances surrounding a CBN advertorial which gave a clean bill of health to Intercontinental Bank less than two months before Sanusi’s audit investigation revealed otherwise.

The questions are, on what indices/information did the former CBN Governor make his declaration, who recommended this course of deliberate misinformation, and who paid for the full-page advertisement carried in several newspapers?

The degree of malfeasance and the unfolding revelations particularly with regard to share price manipulations and the incestuous nature of margin trading enjoyed by possibly all other banks are so mindboggling that it is difficult to claim that they escaped the vision of the CBN.  I have always held that the motivation of unrestrained self-interest could turn an otherwise God-fearing person into a virtual demon.

It may be appropriate, therefore, for a thorough investigation to determine why CBN officers and their colleagues from the Nigerian Deposit and Insurance Corporation, NDIC, and the Securities and Exchange Commission, SEC, seemed to have turned blind eyes to the shenanigans in the banking sector until the advent of Sanusi.

We recall the huge waste of scarce national revenue that accompanied the former Governor’s issuance of new currency notes and coins.  To this end, huge amounts of foreign exchange were expended in the procurement of new machines for the Nigerian Mint Company!

Although some mint workers protested that the due process was not followed in the procurement of these expensive machinery and the expansion of the Nigerian mint.  If I recall, those protesting officers lost their jobs.

Today, in spite of the assurances that the mint expansion would make us self-sufficient in the printing of our currencies and minting of our coins, with excess capacity for export production, there are indications that the promise of self-sufficiency is largely unrealized, and in spite of the huge cost of production, the coins have been totally rejected.

Next week, we shall discuss the rot also in CBN’s monetary policies, particularly with regard to liquidity mop up and forex operations.

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