By Les Leba
The boisterous assurances by the last Governor of Central bank, Chukwuma Soludo that the Nigerian economy and banking sub-sector were firmly immune from the world’s economic meltdown still remain fresh in our memories.

Indeed, barely two months before the banking crisis in 2008, the eminent professor had received a thunderous applause for the rosy picture of the banking sector and the economy that he painted on the floor of the National Assembly!  Soludos braggadocio was, in spite of the warnings of those critics, who recognized that the National Assembly and a significant portion of the Media had been sold a dummy!

Despite the apparent gross negligence of the CBN in the areas of banking regulation and supervision, surprisingly, no one was sanctioned or punished for the consequent pain and deprivation that Nigerians suffered.

Indeed, possibly all the Deputy Governors and Directors of the apex bank, who were not due for retirement were retained by Lamido Sanusi to clean up the mess, which they themselves created by their negligence and possible collusion.

After the rampaging cleansing of the banks and CBN’s insistence that banks pay more attention to risk management and control in their various operations, there now appears to be some calm in the banking sub-sector.

However, some critics still maintain that the semblance of peace is akin to that of graveyard.  These critics are concerned that in spite of the huge cash injections directly from the CBN and AMCON, nothing much has changed in the sub sector.

Indeed AMCONs cash support of more than N3 trillion in place of the earlier speculated total toxic debt of about one trillion is ample testimony of how badly the regulatory agency lost control.  Nonetheless, Sanusi remains boastful that in spite of the mess he inherited no depositor lost a single kobo.

What the apex bank does not mention, of course, is the fact that the additional creation or printing of over N3 trillion to salvage the distressed banks and protect the interest of depositors has undoubtedly instigated the rate of inflation and reduced the purchasing power of millions of income earners in Nigeria.  In other words, 90% of Nigerians have had to lose money (through inflation), so that the remaining 10% who were bank patrons would not lose their deposits.

So far, for their sacrifice, Nigerians recognize that some sponsors and directors in five banks have been harassed, detained and ultimately released by the EFCC; but these financial miscreants obviously continue to live in affluence that would make even President Obama envious, while the rest of us wonder who may have picked our pockets as our stagnant naira incomes continue to buy less & less as a result of inflation.

Inevitably, some critics, whom CBN would describe as prophets of doom, have sounded a warning that all may not be well once again with our banks.

Incidentally, the core mandate of the CBN is the sustenance of price stability; Professor Olofin, a Board Member of the apex bank in a recent media interview has also confirmed the CBN’s role as facilitator and a catalyst in the development of the economy.

Regrettably, after almost three years in office, Nigerians do not see any positive evidence of this objective.  Indeed the humongous CBN & AMCON cash interventions have not brought much succour neither has it enhanced our social welfare.

For a start, the Small and Medium Enterprises sub-sector, which is normally the backbone for growth and employment opportunities, has remained comatose.  The inescapable truth, of course, is that the SME sub-sector cannot grow and perform their expected role if they have little access to funds or if they have to pay over 20% for their borrowings.

Worst still, inflation has been targeted to reach 15% by the end of the second quarter, by the current Central Bank Governor, while the rate of unemployment has continued to rise in the last five years.  In spite of these failures, the sympathy of the CBN bank remains firmly in favour of the banks.

The CBN has decried the excessive cost of generating power and huge cost of handling cash as major obstacles to the capacity of the banks to lend to the real sector.  Some critics have wondered whether the stakeholders in the real sector have access to cheaper sources of power than the banks!

Nonetheless, the CBN has embarked on a cashless project with heavy penalties for breaching deposit and withdrawal limits in order to support cost reduction by the banks.  In spite of this, there is no evidence that the banks are yet ready to lend to the real sector!

The CBN appears to have taken the banks under protective custody against the people just as in the days of Soludo, rather than be actively seen as the regulator and supervisor of the banking sub-sector.  Thus, in spite of the unabaiting social deprivation of the masses, it is surprising that even those banks recently salvaged by CBN’s bailouts now publish trading results that would make banks in Europe green with envy.

The pertinent question is, if the banks are not lending to the real sector, to whom are they lending and from where are they making such quick and huge profits?  Regardless of these contradictions, Lamido Sanusi, like his predecessor, has been rewarded with the best banker of the year award by non other than the Financial Times of London, the same benefactor of Professor Soludo’s award.

The reality, of course, is that the banks will be the main beneficiary of the huge sum of over N500bn set aside in the 2012 federal budget for debt servicing for their risk free loans to government.

Curiously, the banks earn interest of up to 15% and above on such loans to government.  Again, some critics have observed that if the banks could make such money for these risk-free loans to government, it is understandable that they have not shown much interest in servicing the real sector!

So, we have a paradox of the same CBN decrying the inability of banks to lend to the real sector for various reasons, yet, in collaboration with its sister agencies AMCON & Debt Management Office, remain the real villains, crowding out the real sectors from accessing bank loans at low rates of interest.  There is no doubt that if this arrangement continues, the prospect of growth of the real sector will continue to remain a mirage.

We have maintained without equivocation in this column that the prevalence of excess liquidity caused by CBN’s substitution of naira for dollar allocation is the real poison in the economy.

In focused economies worldwide, liquidity mop-ups are generally intermittent incursions into the money market to reduce the amount of cash in the system, especially if existence of such excess cash is adjudge capable of driving an inflationary spiral that would make it impossible to fulfill CBN’s core mandate of price stability!  In any event, such mop-up in serious economies would attract interest rates of between zero and 3% as risk less sovereign securities!

“In addition, the Central Bank of such economies may more appropriately choose to increase the cash reserve and liquidity ratios of banks in order to reduce excess cash at no cost to government!  Our own CBN should be ashamed that like those banks who became eternally locked into the expanded discount window, the CBN had also become eternally locked into a spurious eternal liquidity mop-up, such that a series of immediate reflex mop-ups follow every time monthly allocations are made to the three tiers of government!!

In spite of the fact that upward revision of liquidity and cash ratios could be used for reducing excess cash that may be perceived to exist, our own CBN chooses the path with the higher cost burden to our country, such that the 2012 budget, projects over N500bn for debt service for loans incurred by the government and for mopping up excess liquidity from the banks.

Need we wonder how the banks continue to be immensely profitable even when the real sector that should ordinarily instigate their profitability is largely moribund?”

So, in reality, the current CBN administration appears to be totally on all fours with the same practices that gave the banks a clean bill of health, when, in fact, they were hemorrhaging during Soludo’s time.  Worse, still, in spite of Sanusi’s recognition of negligence in his predecessor’s management of monetary policy he has shied away from inviting the investigative attention of the Economic and Financial Crimes Commission, EFCC.

Inexplicably also, the current monetary framework not only contravenes section 162 but also continuously engenders the spectre of excess liquidity and the paradox of government borrowing back it own money at ridiculously high interest rates with the resultant consequence of rising inflation and unemployment and a prostrate industrial landscape.  Sanusi appears to be in no hurry to stop this constitutional illegality.

It may be appropriate, in this regard to end this week’s article with an excerpt from the series “The Putrid Mess Also in CBN (4)” which was first published in February 2010.  It reads as follows:

“In spite of unceasing assurances of former Governor Soludo that the CBN was on top of its responsibilities, the current incumbent Lamido Sanusi is reported to have noted at a ‘ThisDay’ organised conference on Thursday, 11/2/10 that “The sector entered a crisis situation partly because the CBN, as the regulator, lacked both the capacity and the will to supervise the banks!”

In the above context “If honour and dignity mean anything, it would be appropriate for Soludo to come out and tell Nigerians what constrained his will to serve effectively, especially in view of what appeared to be his unfettered powers under the 2007 CBN Act and a very supportive and gullible President Obasanjo!

Sanusi also noted at the ThisDay conference that “…for instance, the Financial Sector Regulatory Committee did not meet for three years, and no one talked…!!  When you have someone responsible for financial system stability or surveillance, who has never worked in a bank, it is difficult to expect him to know what makes the bank run.”  (Punch 12/2/2010).

Although Sanusi has taken a swipe at the incompetence of CBN management under his predecessor, he has no overt attempt to rid the system of these square pegs, even though he continues to boast of his ability and determination to take the banking sector and the economy to the promised land with the same negligent CBN regulatory and supervisory staff who may have colluded with the banks to ruin the economy!  Heaven help us!!”

SAVE THE NAIRA, SAVE NIGERIANS!!