By Les Leba
“…How wilt thou say to thy brother, let me pull the mote of thine eye; and behold a beam is in thine own eye?”  Matthew 7:3_4.  In simple language, the above passage from the gospel of Matthew is an admonition for righteous self examination before making a hasty condemnation of others.

This would probably approximate in legal parlance to the caveat of coming to equity with clean hands!  Inexplicably, our own Central Bank has pursued its mandate for price stability and banking regulation as if it has acquired exemption from this eternal truth.

The following is an extract from a report titled “CBN TO PROBE OWN OFFICIALS’ ROLE IN BANKING CRISIS”, Guardian newspaper of Friday 30/7/2010; the report reads thus: “To avert a repeat of the banking crisis witnessed in the country between 2003 and 2009, the Central Bank of Nigeria (CBN) yesterday announced that it has concluded plans to investigate the role played by officials of the apex bank in paving way for the development.  Any official indicted, whether retired or still serving, will be penalized to serve as deterrent to others….

” Sanusi apparently made the above observation at the 15th edition of the CBN Seminar for Finance Correspondents and Business Editors in Benin on Thursday, 29/7/2010.  The CBN Governor explained that the National Assembly had concluded plans to carry out an investigation of the ‘criminal’ irregularities that led to the near collapse of the capital market last year, and revealed that “by the time we intervened…, there were more than N900bn loans booked.  Out of this figure, 90% was non_performing. These were loans with no tangible collateral.  The problems were bubble capital, non performing loans and theft”.

Indeed, in an earlier report titled “SANUSI INDICTS CBN MANAGERS OVER BANKING CRISIS…., (Guardian Newspeper, 9/7/2010), the apex bank boss revealed in a lecture delivered to Course 32 participants at the National Institute for Policy and Strategic Studies Kuru that some top level managers in the CBN had failed to take adequate measures to halt the drift in the banking industry even where certain inconsistencies were brought to their notice.  His words “…As credit levels rose and stock prices inflated, the CBN failed to halt this vicious circle and foresee the consequences.  The CBN did not highlight this and failed to communicate the problems to fiscal authorities and the market in general.  The sad story in all this is that we now have evidence that  junior officers in the CBN did document their concerns to CBN Management at that time, but no action was taken.”

Sanusi went on to confirm that “the apex bank also failed to heed the warning of an impending doom in the sector by the hard evidence the Nigerian Deposit Insurance Corporation documented”! Altruistically, the Governor concluded that the CBN management under him would not fail to ensure that all bank directors, debtors and their insider collaborators were jailed and ensure that current reforms outlive his tenure.

Nigerians are expected to applaud these patriotic statements and promises with regard to best practices in banking, but no one would be advised to hold their breath yet; we recall countless promises from the Federal Executive to improve practically all sectors of our national life over the years, but regrettably, it is difficult to identify any real or enduring success, whether in the area of education, health, transportation or indeed, industrial resuscitation and power supply!

But, what is even more perplexing in all these is CBN’s wisdom in embarking on such a program of surgical reform of the banks anchored by the same team of senior management and executive directors of CBN, who presided over the recklessness in the banking sector with impunity and possibly criminal negligence and gross self_indulgence!

Indeed, readers of this column would be conversant with our criticism of what we had described as the incestuous relationship between the CBN and the deposit money banks in the last five years or so; for example, in the first quarter of 2009, in three articles in this column namely:

“BANKS AND FRAUD INCORPORATED”, “BANKS & MONEY LAUNDERING” (1&2), we demonstrated that the rot in the sector had been manifest for over four years earlier and wondered why the regulators and EFCC, who had indeed publicly acknowledged the serious infractions amidst evidence of collaboration in the laundering of stolen public funds, did nothing to stem the tide.

In addition to the above articles, the malfeasance had also been captured in other pieces such as “BANKING OF PUBLIC FUNDS, CORRUPTION AND DOUBLE SPEAK” (7/4/08), “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 “CBN, STOP THIS NONSENSE (17/04/06).  So, the million dollar question is whether or not it was appropriate that Sanusi did not start  off his cleansing by getting rid of the rat and cockroach infested house that he inherited before commencing his reform program.

Indeed, can Nigerians truly expect the senior management, who colluded with the deposit money banks to poison the system can be relied upon to set up an effective and efficient machinery which would further expose their ‘involvement’ in the collapse of the financial sector?  The sensible expectation would be for these CBN miscreants to seek to cover their tracks rather than facilitate the adoption of systems that would indict them!  In other words, the new CBN reforms may have been compromised ab initio and may consequently be superficial impact with minimal enduring capacity!

Indeed, it seems that every culprit in this ugly saga has been provided with almost a year in their capacity as senior management to get rid of any evidence that would incriminate them.  In the end, Nigerians may safely bet that nothing will come out of Sanusi’s braggadocio because the chain will not be strong enough to bind all those in the Federal Executive, the civil society and elsewhere including the National Assembly Committees, who had oversight functions over the financial sector and were complicit in the rape!

However, it s in the area of CBN’s self assessment of the achievement of its core mandate of price stability that poor judgment and hypocrisy becomes most glaring!  Thus, if CBN is on top of its game in the area of monetary policy and management, Nigerians will witness single digit interest rates (maybe 5 – 7%) and inflation rates of less than 2% with a naira exchange rate that responds positively to increasing months of imports cover consequent upon rising crude oil prices and federal reserves rather than the reverse case!

In spite of its expressed best intentions, the CBN is at sea in the area of inducing a conducive interest rate structure that would stimulate the economy across the board!   Indeed, one needs to look no further than a simple comparison of the deposit and lending rates, which have evolved from CBN monetary management to observe this failure.  Curiously, deposit rates hover between 3 – 5%, while lending rates continue to be stagnant around 20%; meanwhile, the CBN Monetary Policy Rate remains around 6%.

However, rather than recognize such abysmal failure and find appropriate solution, the CBN has embarked on a spending jamboree better described as unbridled monetary expansion in spite of current inflation rate of 10%.  We note that inflation rate of 2% is considered critical in those economies we seek to emulate in our march towards 2020!

It seems rather odd also that in spite of CBN’s claims that the deposit banks are cash strapped, and consequently do not lend to the real sector, the government on the other hand continues to be able to borrow close to N200bn every month from the same banks!  If such monthly credits were available to the real sector at the same single digit rates at which government borrows, then presumably, there would be no need for the inflationary serial bailout strategy adopted by CBN.  There would also be no need for the CBN to endlessly mop up or borrow presumed excess cash from the banks, or for the Debt ‘Management’ (read Creation) Office to similarly borrow to finance government’s budget deficit, in spite of relatively huge idle reserves!!

Meanwhile, Nigerians must be concerned at the effect of a serial bailout strategy that involves CBN’s expansion of money supply (large scale money printing) without commensurate productivity!  As it is, all sectors are crying for bailouts, whereas correct management of monetary policy would make such sectoral bailouts unnecessary as interest rates across the board would fall to 5 – 7% (the same range as in the bailout packages).  In any event, in spite of the N620bn easy bailout package to the banks, to cover part of the hole left by the N900bn or so non-performing loans in the system, as per Sanusi’s observation in Benin, the EFCC claims to have also recovered over N400bn!  Some critics would query the wisdom in further creating additional money to the tune of N1000bn for the Assets Management Company AMCON to restore the lending capacity of the banks, particularly to the real sector.

But the question must be asked that,
with such cash injections, is there any guarantee that the banks will play ball with the real sector?  The obvious answer will be found in the banks’ lack of support of the real sector post Soludo consolidation exercise, when the banks presumably boasted of huge cash balances!  The reality, of course, is that the abysmal failure to reach out to the real sector even at that time, necessitated further CBN interventions such as the moribund Small & Medium Enterprises Investment Scheme (SMEIS) and other directives regarding sectoral loan allocations.

Indeed, in spite of the huge sums currently provided to the banks, the CBN is still constrained to find a meager N150bn for the revitalization of our industrial base.  The truth is that CBN’s failure to correctly and successfully manage monetary policy is reflected in our persistent inflationary spiral and extremely low naira purchasing power, the juxtaposition of excessive government borrowing from the same banks that are being subsidized by CBN, and the paradox of rising petrol prices whenever our reserves are blessed with increasing crude prices, and the general collapse of our industries as a result of high borrowing costs!

Rather than admit these causative realities of CBN’s monetary policy, Sanusi has chosen to divert attention from the apex bank’s failures.  Rather, the Governor has been very vocal in the campaign for the removal of fuel subsidies, and maintenance of a tight cap on the wages of millions of Nigerians, who have become devastatingly impoverished by CBN’s failure to manage the value of the naira successfully and the unbusinesslike strategy of incessantly borrowing from the same banks whom you also provide with loanable funds.

Save the naira, save Nigerians!