Babajide Komolafe, Asst. Business Editor
18 April 2005
Lagos — THE Central Bank (CBN) has barred state governments from making new investments in banks. The apex bank has also cancelled all shares purchased from banks through private placement and public offers under the on-going consolidation exercise.
Vanguard was reliably informed that the decision to this effect was taken by the board of the CBN at its last meeting. A similar decision was taken by the Financial Services Regulation Co-ordinating Committee (FSRCC) which comprises the Securities and Exchange Commission (SEC), National Insurance Commission (NAICOM), Nigerian Stock Exchange (NSE), and the CBN. The committee is chaired by the CBN governor.
Vanguard gathered that the decision was informed by the need to forestall the emergence of state governments holding significant shareholding in banks and the resultant effect on the management of the banks. It was feared that a similar situation led to the collapse of most of the state-owned banks in the past.
The apex bank had limited the shareholding of state governments in any bank to 10 per cent. It was, however, gathered that this has been reduced to five per cent.
Deputy Director, Corporate Affairs, CBN, Mr Tony Ede, confirmed to Vanguard that the CBN had asked the states that still have shareholding in banks to reduce it to a maximum of five per cent, adding that the directive was to ensure the shareholding of any state government in a bank was very minimal.
Vanguard was informed that the decision to bar state governments from making fresh investment in banks might not be unconnected with the debts owed by many of the states. The CBN believed there was no justification to allow a state government owing bank A to invest in bank B. Such state governments, it reasoned, should be preoccupied with repaying its loan.
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