Senate plans separate capital bases for banks
- Banks shun N40b govt bond
From Alifa Daniel (Abuja) and
Gbenga Agbana (Lagos)
AN amendment to some banking laws has taken off in the Senate. The exercise may end the controversy trailing the new N25 billion minimum capital base for banks.
At its proceeding yesterday, the Senate classified the banks into mega, medium and small to arrive at new capital bases for them.
The proposals are to be effected through the amendment of the Banks and Other Financial Institutions Act (BOFIA).
There were also indications yesterday that banks are not favourably disposed to a fresh bid by the Federal Government to raise N40 billion from the bond market.
Their officials at a forum organised by the Debt Management Office (DMO) on the proposed bond, in Lagos, said they would rather use such funds to recapitalise.
When completed, banks in the mega class will have a minimum capital base of N25 billion, medium banks (N10 billion) and small ones (N5 billion).
Another bill to amend the Central Bank (CBN) Act of 1999 proposes an authorised capital of N60 billion for the apex bank and also makes it mandatory for the appointment of the CBN governor and his deputies to be confirmed by the Senate.
The amendments to both Acts were sponsored by Chairman of the Senate Committee on Banking, Insurance and Other Finance Institutions, Mr. Ambuno Zik Sunday and the Vice Chairman, Mr. Farouk Bello. The third sponsor is the Chairman of the Senate Committee on Privatisation, Mr. Isaiah Balat.
The CBN Governor, Prof. Charles Soludo, had recently announced the raising of the capital base of banks to N25 billion from N2 billion, among other reforms in the banking sector. President Olusegun Obasanjo has already endorsed the policy. But other Nigerians are divided over it. The banks have December 31, 2005 as deadline to meet the new capital base.
The two bills will now go to the second reading stage before a public hearing will be held to aggregate the contributions of stakeholders. After this, the bills will be deliberated upon by the Upper House and the third reading also held.
The bills will also go through the same processes in the House of Representatives and thereafter a Joint Committee of the National Assembly will harmonise the positions of the two houses.
The harmonised versions will then be passed separately by both Houses after which they will be sent to the President for his assent to make them Acts of the National Assembly.
If the President withholds his assent, the National Assembly may override his veto after 30 days.
The senators are seeking an amendment to Section 9(1) of the BOFIA.
The proposed amendment reads: "Banks shall be categorised according to paid-up share capital. There shall be three categories of banks as follows:
- Mega banks with minimum paid-up share capital of N25 billion
- Medium banks with minimum paid-up share capital of N10 billion; and
- Small banks with minimum paid-up share capital of N5 billion."
An amendment to Section 9(1) of the CBN Act reads: "The governor and deputy governors shall be persons of recognised financial experience and shall be appointed by the President subject to confirmation by the Senate by instrument under the public seal and on such terms and conditions as may be set out in their respective letters of appointment.
The amendment to Section 9(2) reads: "The governor shall be appointed in the first instance for a term of five years and shall be eligible for re-appointment for another term not exceeding five years." In the amendment being sought to Section 9(3), the President is required to give due regard "to a fair representation of the financial, agricultural, industrial, and commercial interests and geo-political spread of the country."
The President will also be required to appoint five directors for the board of the CBN but their appointments are to be confirmed by the Senate.
The chairman of the board under the amendment will be required to appear before the National Assembly every six months to tell the federal lawmakers about the "efforts, activities, objectives and plans of the board regarding the monetary policy."
Other amendments being sought to BOFIA stipulate that it will be an offence punishable by payment of a fine of not less than N10 million for any company to transact banking business without a valid licence. An individual committing the same offence is liable on conviction to a fine of not less than N2 million.
For the bond scheme, the banks were the major subscribers to the government's N150 billion issued last year.
But yesterday, they told the DMO that they were not ready to tie down their funds on any long-term investment at a time that they were grappling with the N25 billion minimum capital base.
Briefing the investors, who were mainly stockbrokers, officials of the CBN and the Nigerian Stock Exchange (NSE), the DMO Director-General, Mr. Mansur Muktar, said the agency was poised to restructure the Nigerian Treasury Bills into longer tenor securities through the Federal Government Bond issuance programme.
Besides, he stated that the issuance, which would be auction-based with a tenor of three years with an interest payable bi-annually, would be used to smoothen the lopsided and uneven weekly issues of Nigerian Treasury Bills and not to finance budget deficits for 2004.
In their reactions, the bankers said that they would rather pool their resources together to meet the deadline for the new minimum capital base.
In fact, one of the bankers said banks have stopped the issuance of credit to customers, both individuals and networth ones.
In the N150 billion bond, banks accounted for N40.93 billion or 56.41 per cent of the total N72.5 billion raised, which made the offer to be 48.3 per cent subscribed.
Pension funds followed with N18.25 billion or 25.16 per cent, while non-banks (insurance, parastatals) among others, accounted for N7.25 billion or 8.64 per cent; discount houses N5.65 billion or 7.79 per cent and individuals N1.4 billion or two per cent.`
