Where is the $7bn CBN placed with 14 banks? – Vanguard

dollar to naira

By Henry Boyo

“The report of 14 Nigerian  banks which were appointed by CBN as “Asset Managers” of Nigeria’s reserves was carried on back page of The Guardian Newspaper of the October 5th, 2006.  Festus Odoko, the CBN’s Head of Corporate Affairs, confirmed in the report that “already deposits worth $7bn representing part of the Central Bank of Nigeria’s “share of foreign reserves” presently estimated at about $38bn had been released to the banking consortium”.

Thus, CBN made good its promise to invite Nigerian banks which have just consolidated their capital base to a “foreign reserves banquet” if they could provide evidence of existing collaboration with internationally recognized financial houses. The Guardian report however failed to clarify if the expected collaboration simply formalised a glorified foreign correspondent banking arrangement! “Nonetheless, critics have wondered if 14 banks which had just raised their capital base under much pressure to N25bn could also quickly raise an additional N35bn as required to qualify to manage CBN’s reserves; conversely, the apex Bank may have quietly dropped this requirement so as to pursue its earlier declared agenda!

Although “Festus Odoko confirmed in the report, that the appointment of the 14 banks was ratified by the Investment Committee of the CBN on Tuesday, 3/10/06, the $7bn was quickly shared out the next day! “Nigerians may be unaware that with a stroke of the pen, the CBN committed Nigeria to possibly its largest single venture ever!

The question however, is who will benefit from this huge upfront payment for yet unfulfilled promises to grow our economy? Yes, you have got it, the 14 banks who will wear broad smiles to their overseas partners’ vaults, since the related cost of funds, if any, may not exceed the usually very modest prevailing international 3% annual  interest for such placements! “Incidentally, the 14 favoured banks are not constrained to restrict application of the $7bn to address our domestic infrastructural deficit, and are therefore at liberty to invest internationally!

Curiously, therefore, while we are pleading for foreign exchange inflow for investment from foreigners, we are also inexplicably simultaneously exposing our precious $7billion, for minimal or nil return, to a consortium of Nigerian banks which have a consolidated capital base of less than $3billion, without demanding some measure of collateral, audit control or equity participation. Curiously, the tenure and other details of the M.O.U regarding this transfer of our vital assets are yet to be made public.

It would be foolhardy to expect that the largesse of an uncollateralised $7bn deposit and low interest advance would change the attitude of banks to supporting real sector investments especially the SMEs.  The bizarre strategy of a minimal return of say 3% on a $7bn “placement/investment” is clearly amplified by CBN’s willingness to simultaneously conversely pay between 12 and 17% interest on funds it borrows from these same banks! “Nonetheless, even if the 14 banks are also free to repatriate all or part of the $7bn back to the Nigerian capital market, it is not difficult to predict where their interests would lie: yes; the obvious destination would be further patronage of government’s treasury bills and bonds on which they earn returns of up to 17%, even when the CBN ultimately simply sterlizes hundreds of billions of Naira of such advances from any use. “Odoko, the CBN’s mouthpiece had also claimed in the same Guardian report that “the $7bn represents the apex bank’s share of the foreign reserves!’

I beg your pardon!  Apart from the very lucrative business of substituting naira for federally allocated dollars to build up reserves, what business did the CBN specifically do to earn $7bn? Section 162 of the Constitution does not distinguish a share of dollar reserves, strictly for CBN; our crude oil earnings belong to the Nigerian people as constituted by the three tiers of government; thus, the Senate and the House of Representatives would have defaulted in their constitutional duties if CBN is not invited to defend why $7bn of our reserves should be liberally advanced to 14 banks without oversight approval!”

The preceding is a summary and excerpts from an article titled “14 Nigerian banks to enjoy $7bn reserve”; the piece was first published in the Vanguard Newspaper on 9/10/2006.  Not surprisingly, less than two years after Prof. Chukwuma Soludo’s ‘celebrated’ banking consolidation and confident assurances of the sector’s stability, most Nigerian banks tittered on the verge of collapse.

There is yet no confirmation that the 14 banks repaid the $7bn given away in October 2006 by CBN before the 2008 banking crisis; consequently, it is possible that Nigeria’s $7bn reserves may have ultimately ‘gone with the wind’ during the ensuing financial meltdown! Nonetheless, such probable default did not stop the banking sector from receiving additional largesse in excess of N5tn ($30bn) from money created by CBN and channeled through its surrogate, the Assets Management Corporation of Nigeria’s interventions, between 2009 and 2010! CBN’s misguided generosity notwithstanding, the banking community has remained resistant to providing SMEs access to loanable funds at affordable rates to stimulate industrial rejuvenation, economic growth and increasing employment opportunities.

If anything, the CBN’s self-styled “own reserves” even increased well beyond $40bn to support CBN’s sporadic multi-pronged uncoordinated cash interventions to various groups. Paradoxically, in spite of a still comatose real sector, the banking sector bounced back with bountiful profit postings, soon after AMCON’s interventions; conversely, unexpectedly however, unemployment, oppressive mass poverty and increasing national debt became increasingly burdensome!

Ironically in 2015, the banks also became prime beneficiaries of an additional N600bn bonanza interest charges which was paid by CBN for borrowing back deposits which were earlier placed with zero interest by government and Agencies in these same banks. Consequently, it may be necessary for the Economic and Financial Crimes Commission to take a closer look at the circumstances and the ultimate fate of CBN’s extraordinary ‘deposit/loan’ of $7bn to 14 banks in 2006; Nigerians surely have a right to know.

After all, if the $7bn largesse to banks was a widely reported media affair, one should, also expect that the refund of the huge deposit or the successful liquidation of this ‘soft loan’ should have been heralded by a much more ‘in your face’ media blitz to assure Nigerians of the exemplary sectoral competence and the wisdom of providing this facility in the first place. Regrettably, however, despite the $7bn CBN’s largesse and $36bn AMCON interventions, there are indications that the banking sub-sector is once again in trouble without having fulfilled the public expectations of powering the growth of the real sector and the creation of more jobs. SAVE THE NAIRA, SAVE NIGERIANS!!