Daily Independent (Lagos)
Tiko Emmanuel Okoye
6 November 2008
column
Contrary to the sanguine predictions by key market operators and government officials, the Nigerian banking and finance sector is far from being immune to the turbulence in the global financial markets.
Albeit, we must carefully and patiently sift the wheat from the chaff in order not to be guilty of addressing the symptoms rather than the disease. The plethora of uninformed insinuations, juxtapositions and deductions by many individuals and organizations are far more likely to foist a fait accompli on the system. It is in this vein that I've consistently opposed any form of direct commitment of new resources by way of a government bailout plan on equities-related transactions given that many other sectors of the economy are in pole position for a redemptive rescue package.
Some fastidious folks may want to split hairs over whether or not CBN's past interventions (drastic cuts in benchmark interest rate, cash reserve ratio, minimum liquidity ratio and expansion of access at its discount window) constitute a bailout plan in disguise or are simply part of standard procedures by the apex bank in its execution of monetary policy. Most Nigerians ordinarily understand a bailout to mean a commitment of resources similar to what occurred in Europe and the U.S. where national governments virtually took over key financial institutions by injecting funds into the system. This is what the CBN says it is opposed to. It isn't that the apex bank is less concerned about the survival of the banking and finance sector because its very survival and soundness are key reasons for the CBN's existence.
Nigeria's vulnerability to the global financial turbulence is relatively limited in the short run - despite her fortunes being tied to the vagaries of its mono-product lifeline (crude oil) - because of the absence of a large external debt (one of the few positive legacies of former president Obasanjo), non-reliance on financial aids from foreign donors and global financial institutions and the low level of foreign currency borrowing by her nationals. Were this not so the global financial turmoil would have had a far-reaching multiplier effect on the nation's fundamental infrastructure and institutional weaknesses.
But just as they are many ways of skinning a cat, there are also many ways of ensuring the sector's wellbeing. I decry efforts by lobbyists to pressurize the government into fast-tracking a bailout plan for financial market operators. I worry that the same CBN that waxed lyrical about the need to check inflation by reducing the money supply in the economy (leading to non-availability of funds to the real sector) suddenly started pulling the brakes on the Monetary Policy Rate, opting for an expansionary monetary policy just to stem the slide in share prices. If the government must cave in to such pressures the least it could do is to raise the minimum capital gains tax to 50 percent. The sum so generated should be used as buffer fund by the government to intervene in the equities market whenever it decides to go crazy again. This way we shall avoid taking from the poor to support the rich.
It is an open secret that banks were manipulating their stock prices. There's even a strong rumor that a few banks are stuck with huge portfolios of their own stocks which they illegally bought back in the past to induce a hike in their share prices. Is it fair to bailout banks that were busy speculating rather engaging in their core lending activities with taxpayers' money? The affected banks are better off cutting their losses by unloading the shares to generate the cash needed to shore up their core banking operations.
I am fully persuaded that a lot more attention needs to be paid to the issue of bank regulation and supervision. Informed street gossip insists fact that banks render false returns to the CBN making monetary policy formulation and implementation dead on arrival. I'm saddened that rather dramatically and regrettably the three institutions with various forms of oversight functions over banks and related organizations recently sent mixed signals regarding the wellbeing of the nation's banks. Penultimate Sunday, the CBN through its governor assured Nigerians that all our banks - without exception - are safe. Not so, countered Jim Obazee, Technical Director of the Nigerian Accounting Standards Board (NASB), who declared that only four banks are in a state of 'transition' to a healthy status while 11 are merely "existing" with the rest deductively unsound.
Although NASB promptly dissociated itself from its technical director's position, his views merit more than a perfunctory dismissal because they gel with similar disclosures by the Nigerian Deposit Insurance Corporation (NDIC). In its recently released Annual Report and Statement of Account for 2007, the NDIC revealed that only four banks can be considered safe, 17 banks satisfactory, two marginal and one unsound. Expectedly, this generated unsolicited conflicting text messages regarding which banks were safe, satisfactory, marginal and unsound!
A major concern is whether one or more of these institutions are not speaking out of turn. A clear demarcation of the job descriptions of the various financial regulatory bodies would go a long in preventing a repeat of the messy public washing of dirty linens by the sector's statutory laundrymen. Be that as it may, the maintenance of accurate oversight of the businesses and balance sheets of the industry players should be Job No. 1. The CBN should therefore commence its rotating in-house bank examiners' scheme without further delay.
To successfully wage the firefight of financial stability, the banks themselves must be prepared to bite the bullet early by making full provisions for all bad loans and identifying potentially dangerous industry over-exposures after a clinical review of their loan portfolios. By taking early action they would be spared the pains of having to make larger forced adjustments when most inappropriate. The banks must also reduce their dividend payout ratios in order to plough earnings back and enhance their ability and capacity to cover any future business and financial risks. Finally, banks are strongly advised to start using foreign exchange and interest rate futures to hedge their exposures in view of the increasing complexity of their operations and locale.
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the cbn should set a targeted shareholders funds level for all the banks. before they can start going to town, paying out huge sums of thier profits to shareholders,as dividends, they must meet these targets, and ensure that depositors funds can be protected by their shareholders fund. how can nib of those days, make a profit, with one branch in nigeria, that first bank could not acheive with 100 branches? and nib paid out twice the shareholders funds in its first year of operations? thats bull. i am as usual, CAPITAL G.C.