Daily Independent (Lagos)
20 October 2008
editorial
The Nigerian authorities ought to borrow a leaf from the United Kingdom (U.K.) and the United States (U.S.), where Government intervention, which has substantially mitigated economic losses and assuaged fears, was dictated by an overriding principle that defines national economic well-being strictly in terms of the buoyancy of the financial systems. Dissatisfied as the authorities were with the operational and ethical lapses within the banking and mortgage institutions and the stock exchanges, the governments had to act decisively to protect investors and depositors and ultimately the national economies.
A policy of non-intervention by the authorities in Abuja would sure resonate with segments of society that view the crises as exclusively a headache, a well-deserved one at that, for Nigeria's clan of unscrupulous bankers and capital market operators, who have over the years inverted time-honoured conventions and operational regulations in an excessive drive for profits at the expense of customers and the national economy. Banks in Nigeria have long achieved notoriety for rigging of financial accounts and other acts of false reporting, besides the extortionate charges for services rendered to customers.
In recent times, the crookedness of Nigerian bankers manifested in huge loans extended to shadowy investors to buy their shares and thus present a faÁade of sound performance. The banks equally injected their lethal poison into the capital market through the deluge of Initial Public Offers (IPOs) by some 21 banks, with the resultant unprecedented trading in bank shares creating opportunities for crooked brokers to abuse the system by way of 'market-making'. As the capital market was thus being undermined, the banks, too, had their underbellies exposed when the Central Bank of Nigeria (CBN) issued its recent directive on year-end reporting - a policy statement that forced banks into desperate initiatives to enhance their balance sheets. With such disrepute, the banks might not be deserving of government or public support at times like these, but it will be doubly tragic to discount considerations for the economic well-being of our nation and smaller units of society, namely, private investors (most of whom are big entrepreneurs) and bank depositors.
Government has an obligation to fulfill: to act, while there is still time, to shield Nigeria and its citizens from the raging turbulence that has devastated and is still threatening the world's leading economies. Apparent loss of confidence and the resultant steep drop in inter-bank lending in the past few weeks within our financial system is sufficient evidence that the global financial crisis is here. Signs of distress are also manifest in the operations of no fewer than five banks within the system. These, by themselves, are enough reasons why preventive measures need to be worked out and put in place, just as a contingency plan, targeted specifically at those areas where the national economy is vulnerable, must be viewed as imperative.
Let not extreme options such as intervention through acquisition of equities in shaky financial institutions be excluded, for, as the U.K. demonstrated through its Treasury's guarantee to depositors of Northern Rock and, lately, the nationalisation of the assets of Bradford & Bingley, there is nothing sacrosanct about economic doctrines. The U.S. did the same through the takeover of the Federal National Mortgage Association (Fannie May) by the Federal Reserve Bank, last month, and Merrill Lynch by Bank of America.
The Nigerian Government has to seek out how it would facilitate the self-help efforts of the banks and NSE, as they press for approval of their N600 bail-out package. Measures of this nature would be beneficial, at least, for the short term, as they would guarantee liquidity, so crucial to lubricate the system and reassure the banking public. For the long term, however, regulation and effective monitoring are key issues, and these might necessitate appropriate legislation. Banking supervision, encompassing a wide range of operations, including lending policies and activities, would need to be strengthened.
A banking crisis and crashing stock market would spell disaster for any country, and must be prevented at all costs. When depositors and investors are ruined in such a disaster, everything of substance in the economy is lost. In our own circumstances, it would mean a most painful reversal of gains attained through the far-reaching consolidation programme concluded a couple of years ago. So much depends on Government, and this is the time to demonstrate will power.
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