February 4, 2019

14 Nigerian banks to enjoy $7bn reserve

Recapitalisation: MfBs canvass regulatory support to attract investors

Banking hall

By Henry Boyo

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

Gov Central Bank of Nigeria, Central Bank of Nigeria

We needed money to celebrate Christmas-Bank robbery suspects

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.”

The above title ”14 Nigerian Banks to enjoy $7bn Reserve” was first published in October 2006, after, former CBN Governor, Soludo, embarked on a bizarre escapade, which was arguably, a scam of Nigeria’s Treasury. This article was first published, on 9/10/2006; and repeatedly, thereafter on 8/11/2010; 30/11/2013; 16/2/2015 and 17/9/2018 respectively. A summary, again 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. The CBN Spokesperson, Festus Odoko, confirmed that “already, $7bn deposit representing, part of CBN’s present share of foreign reserves, currently estimated at about $38bn, had been released to bankers.”

“Consequently, CBN made good its promise to invite Nigerian banks, which have 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 unclear whether or not the expected M.O.U. between 14 Nigerian banks and their respective International affiliates actually, involves the compelled adoption of global best banking practices and ethical standards with, collateral responsibility for financial integrity, or if the expected collaboration, is simply a glorified correspondent relationship!

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

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

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

“Notably, 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 this $7bn largesse, would change the attitude of banks to the real sector.  The bizarre strategy of harvesting well below 3% returns on a $7bn sovereign loan, which is not time bound, is starkly amplified by CBN’s willingness, to conversely pay interest rates between 12-17% for those funds it borrows primarily, from the same banks!

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

“CBN’s mouthpiece, Festus Odoko, confirmed, that “the $7bn represents CBN’s share of foreign reserves!’  I beg your pardon!  What work did CBN do to earn $7bn?  Besides, the Constitution does not allocate a portion of dollar reserves to CBN; therefore, crude oil earnings, clearly belong to the Nigerian people, as defined by the three tiers of government; consequently, the National Assembly, would default in their constitutional mandate, if CBN is not, promptly, invited to defend why $7bn, out of our reserves should be ‘given’ to 14 banks without any collateral or profitable return!”

The above title was first published on 9/10/2006, a few days after 14 banks received CBN’s $7bn ‘booty’ in October 2006.  Not surprisingly, however, by 2009, i.e. 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 placement 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 an additional ‘bounty’, this time well above N5tn ($30bn), from fresh lifelines extended through CBN and AMCON interventions between 2009-2010, to ailing banks during the financial meltdown!

However, notwithstanding CBN’s misguided generosity, banks have clearly still failed to service the real sector with cheap, loanable funds, which could stimulate industrial rejuvenation, economic growth and increasing job opportunities; indeed, over 30% of all bank credit still goes to Government, while another 33% are loans for fuel imports.

Thus, in view of the preceding narrative, 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 bombshell on the $7bn largesse, twelve years later, curiously, Press/Media/Public reactions against this brazen pen robbery have been inexplicably very lukewarm. Incidentally, however, about five years ago, learned silk, Femi Falana and Associates, on the behest of this writer and another concerned Nigerian, approached CBN on the platform of the Freedom of Information Act, for confirmation of whether or not the 14 favoured had Banks liquidated CBN’s ‘unusual advance’ of $7bn to privately owned banks. Regrettably, till this day, CBN has ignored the FOI request.

However, in January 2019, Dr. Obadiah Mailafia, a former CBN Deputy Governor, was invited by EFCC to shed more light on the $7bn that Soludo allegedly dashed 14 banks in 2006! Mailafia’s testimony will be published next week.