Some financial experts have commended the Central Bank of Nigeria (CBN) for stopping banks from using their funds to finance foreign subsidiaries. The experts said in separate interviews with the News Agency of Nigeria (NAN) that the step would checkmate fraudulent practices and enhance sanity in the financial system. According to them, the banking sector has been overheated with persistent crises and the industry needs effective measure  to restore investors’ confidence in the system.

Mr Tunde Lemo. Deputy Governor, CBN Banking Operations, in a forum in Lagos, said CBN would stop banks from using their funds to finance foreign subsidiaries. Mr Eddie Osarenkhoe, a former President, Finance Houses Association of Nigeria,  said that the initiative was a welcome development that would make credit facilities available in the Nigerian economy. Osarenkhoe said it was regrettable that banks mobilised money from the public and divert it to run subsidiaries at the expense of giving loans to customers.

According to him, the funding of bank subsidiaries with public fund has made the financial sector incapable of discharging its financial obligations to the customers. Osarenkhoe said that many banks had been hiding under the universal banking system to siphon money for personal use and negatively affected the industry. He said that corruption in the banking sector led to the financial crises in the banks. “ The  CBN’s ability to implement and enforce the directive will bring sanity and reduce capital flight out of the country,” he said.

Dr Samuel Nzekwe, former President, Association of National Accountants of Nigeria, said the move by CBN would curb money laundering. “ The collapse of the capital market was due to actions of the bank executives to divert money and buy shares in the same bank to finance their subsidiaries,” Nzekwe said.

He said many of  bank managers borrowed money from the banks and used them to buy stocks of their subsidiaries and converted them to personal use.

Nzekwe said  many banks in the country failed to become mega banks because of the lack of capacity to give long term loans to customers and failure to finance their foreign subsidiaries effectively.