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Budget 2010 not likely to succeed – Sanusi

*Says rescued banks are making profit

By Babajide Komolafe

Budget 2010 may not succeed because it is based on totally unrealistic oil price assumptions, Governor  of the Central Bank  of Nigeria, CBN, Mallam Lamido Sanusi, said yesterday.

Speaking on Channels Television, Sanusi said the CBN had advised the government to hedge its oil price with a view to minimising  the impact of  decline in crude oil prices.


“Now we have proposed to government, and which again has not been done, why you don’t hedge your oil price. Let me give you an example, we have just passed a budget, that budget was based on an oil price of $67 per barrel, it is based on assumption of oil output of 2.3 billion barrels per day. The answer is its totally unrealistic.

“We have a problem huge problem in Nigeria at the present, the oil fields in Iraq are coming back to production in 2010, and we are going to have our OPEC quota reduced, and unless America bombs Iran you are not going to produce 2.3 million barrels a day, your quotas will be there and now that Obama has allowed oil firms to drill in the offshore of the United States, you are not going to get elevated oil prices for a long time. So we have already defined a budget that is likely not to succeed.

Now, the next step is to protect yourself and guarantee stability, monetary stability is to make a hedge. If you make it $67 per barrel, you have to hedge, Mexico has done it, and you can hedge half of your production at $37 per barrel so that whatever happens to the price of oil you will not be hit hard. Now in that way the excess crude account was a very good introduction by Central Bank because what it does is that it minimises the fluctuations in earnings.”

Responding to the wave of criticism against the ongoing reform measures of the CBN, Sanusi said he never said he was out to  do any reform but  was just doing the work of a regulator, doing what was necessary to address the problem in the banking industry. He said that moreover reform is an ongoing thing. “Before I came there were reforms and after I have left there would be reforms”, adding that most of the measures we are introducing now the seed were sown in previous reforms.

He said contrary to opinions, the intervention of the CBN in the banking industry and other measures have enhanced confidence, such that the rescued banks have returned to profitability.

“Now the last thing is confidence. People have used this word and I have seen it even on Channels that oh there is no confidence or confidence is down. But go back to Nigerian press in March, April and May 2009, people were talking about whether banks were safe; treasurers were calling people can I put my money in that bank, you know, and people were wondering whether they could go to sleep with their money in the banks. Now people have their money in Oceanic, in Afribank, in Intercontinental Bank and they go to sleep. Because as the regulators we said they would not lose your money and they did not lose their money. And we have said yes we have a problem, we have identified the problem, and we have articulated a process of taking care of the problem.

Look at the shares of the rescued banks, its stabilising. In August, in fact if you do the analysis, and that is where I kept challenging the analyst in Nigeria, the good analysis comes from outside the country. Look at the stock market between February 2008 and August 2009, every single stock was falling, the market was crashing.

In August when we intervened only the rescued banks kept on losing value, other banks stabilised and other stock because people now has a basis for differentiating the good stock from the bad stock. Before then, everybody thought we can’t trust the banks, we don’t know which bank is safe, and people were panicking. But now look at the deposit of the banks.

Oceanic bank today has a third party deposit balance of over N600 billion, deposit by the public. The bank is making profit now. It made profit last month.  Afribank made profit last month, Union bank made profit last month, Spring bank made profit last month, these were banks that were making lose of N4 billion to N5 billion a month.


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