September 17, 2018

14 Nigerian banks to enjoy $7bn reserve

By Henry Boyo

The Chairman of the Special Presidential Panel for Recovery of Public Property, Mr. Okoi Obono-Obla, recently, (Sept. 7th 2018), noted in a NAN report in Abuja, that the Agency is continuing its investigations to “recover monies that have been taken away from the people of Nigeria.” One of such ‘loot’, according to the Chairman  is the “almost $7bn bailout fund that the Central Bank of Nigeria (CBN) granted 14 commercial banks between 2006-2008. Obono-Obla also confirmed that “after 13 years, these banks have not returned the money to government’s treasury.” Curiously, however, according to Obono-Obla “when we enquired from CBN, the state of that money, the banks told us that the money was ‘dashed’ to them.”

It is not clear, why the Presidential Panel made its inquiry to CBN, but instead got a response from the banks; nevertheless, Obono-Obla rightly reiterated, that the $7bn, belonged to “Nigerians and so could not be given away, for free to commercial banks, owned by private individuals.”

Indeed, in exchange for their bloated bad debts, which were often poorly collateralized, over N5tn was also eased into the banking sector to bailout distressed banks in 2009. Notably, however, there has been no evidence of any refund whatsoever, of the $7bn, which CBN Governor, Soludo seemingly ‘dashed’ 14 banks after they raised the mandatory N25bn capital base in 2006; ironically, nonetheless, government has since borrowed trillions of Naira, and paid double-digit interest rates to the same banks with whom CBN had placed $7bn ‘Awoof’ Credit.

The above title was first published in October 2006, after, former CBN Governor, Soludo, embarked on a bizarre escapade, which is, arguably, a scam of Nigeria’s Treasury. A summary of that article follows hereafter. Please read on.

“The report that 14 Nigerian banks were appointed as Asset Managers of Nigeria’s reserves was published in The Guardian Newspaper of October 5th, 2006.  CBN Spokesperson, Festus Odoko, also confirmed that “already, $7bn deposit representing, part of CBN’s present share of foreign reserves, estimated at about $38bn, had been released to bankers.”

“Consequently, CBN made good its promise to invite Nigerian banks, with a consolidated $500m capital base to a “foreign reserves banquet”, if they provided evidence of collaborative agreements with credible international financial houses.  However, it is not clear whether or not the M.O.U. between the 14 Nigerian banks and their respective International affiliates, involves the adoption of global best banking practice and ethical standards with, collateral responsibility for financial integrity, or if the expected collaboration, is simply a glorified correspondence relationship!

“But whose interest is CBN serving?  Instructively, the disbursement of $7bn of public funds should not be treated with levity.  Although, “Odoko confirmed, in the Guardian report, that CBN’s Investment Committee had ratified the appointment of the 14 banks for reserves management on Tuesday, October 3, 2016, curiously, however, the  $7bn ‘bounty’ was also confirmed as already shared before Thursday morning, 5/10/06!”

“Nigerians may not appreciate, that with one stroke of the pen, CBN committed Nigeria to possibly its largest single investment ever!  The question however, is whether or not the return from this ‘huge investment’ will stimulate productivity and employment opportunities, to improve our social welfare.  If not, who will benefit from this biggest ever single investment paid, upfront by Nigerians?  Yes, you have got it, the 14 banks who will, invariably, wear broad smiles to their overseas vaults!

“Incidentally, the 14 favoured banks, are free to invest anywhere in the world!   Thus, while we go cap-in-hand for foreign loans to support Nigeria’s economic development, we have simultaneously also, ironically exposed our hard earned $7bn forex, for either minimal or no gain, to a consortium of Nigerian banks, which presently have a consolidated capital base of less than $3bn, without asking for some measure of audit control or equity participation.

“Nigerian banks still do not find it attractive to lend to the real sector, particularly the income and employment generating SMEs; consequently, it would be foolhardy to expect that a $7bn largesse, would change the attitude of banks in Nigeria’s economy.  The bizarre strategy of harvesting minimal returns below 3.5% on a $7bn sovereign loan, without time limit, is starkly amplified by CBN’s willingness, to conversely pay interest rates between 12-17% for the funds it borrows from banks!

“Indeed, if the 14 banks are free to repatriate all or part of the $7bn back to the Nigerian capital market, the obvious domestic investment destination would be further patronage of government’s treasury bills and bonds where they would earn up to 17% return, when government borrows from banks!  “Unfortunately, however, the trillions of Naira, CBN borrows with Treasury bill sales are regrettably not tied to any specific infrastructural project, but are inexplicably, simply kept sterilized in CBN vaults to restrain inflation.

“CBN’s mouthpiece, Festus Odoko, also confirmed, in the Guardian report under reference, that “the $7bn represents CBN’s share of foreign reserves!’  I beg your pardon!  What work did CBN do to earn $7bn?  Furthermore, the Constitution does not allocate a portion of dollar reserves to CBN; invariably, crude oil earnings, clearly belong to the Nigerian people, as defined by the three tiers of government; thus, the National Assembly, would have defaulted in their constitutional role, if CBN is not invited to defend why $7bn of our reserves should be ‘given’ to 14 banks without any return or oversight approval!”

The above title was first published in October 2006.  Not surprisingly, however, by 2009, three years after Soludo’s ‘celebrated’ banking consolidation, most Nigerian banks tittered on the verge of collapse.  The 14 favoured banks, apparently, never repaid the $7bn advanced before the banking crisis; consequently, Nigeria’s $7bn may have ultimately ‘gone with the wind’ during the ensuing financial meltdown in 2009!  Nonetheless, such probable default did not stop banks from receiving additional largesse, above N5tn ($30bn), from the lifelines extended through CBN and AMCON interventions between 2009-2010!

Notwithstanding CBN’s misguided generosity, banks have clearly failed to service the real sector with cheap, loanable funds, which would stimulate industrial rejuvenation, economic growth and increasing job opportunities.

Consequently, EFCC should closely examine the circumstances and the ultimate fate of CBN’s extraordinary package of $7bn to banks in 2006.

POSTSCRIPT SEPTEMBER 2018: Curiously, despite Obono-Obla’s recent bombshell in September 2018, Press/Media/Public reactions against this brazen pen robbery has been unexpectedly very lukewarm. Incidentally, however, on our behest, about 5 years ago, learned silk, Femi Falana and Associates, approached CBN on the platform of the Freedom of Information Act, for confirmation of whether or not the 14 Banks had liquidated CBN’s ‘unusual credit’ of $7bn to privately owned banks. Regrettably, however, CBN till this day, ignored the FOI request.