As CBN Confirms Crisis in Industry...
Senate Begins Amendment of Banks Act
Seeks banks' categorisation, approval of Soludo's appointment
From Kola Ologbondiyan in Abuja and Ayodele Aminu in Lagos
The Banks and Other Financial Institutions Act (BOFIA) Amendment Bill categorising banks into mega, medium and small banks yesterday passed through the first reading in the Senate.
Also yesterday, an amendment bill to the Central Bank of Nigeria (CBN) Act seeking to grant Senate the powers to confirm the appointments of members of the CBN board, the governor and his deputies also passed the first reading. The amendment also sought to increase the authorised capital of CBN from N300 million to N60 billion.
However, the CBN while confirming the systemic crisis brewing in the banking industry as reported by THISDAY yesterday said that has nothing to do with its withdrawal of public sector funds from banks.
If the amendment to the bill is passed, rather than the CBN proposed blanket capital base of N25 billion for all banks effective from December 2005, only banks that fall under the mega category would be required to have minimum paid-up share capital of N25 billion. The medium banks would have minimum paid-up share capital of N10 billion; and small banks with minimum paid-up share capital of N5 billion.
The BOFIA amendment bill, sponsored by the Senate Com-mittee on Banking, Insurance and Other Financial Institutions chairman, Senator Ambuno Zik Sunday, his deputy, Senator Farouk Bello-Bunza as well as the Chairman, Senate Committee on Privatisation, Senator Isaiah Balat, requested the Senate to amend section (9) sub-section 1 to read; "Banks shall be categorised according to paid-up share capital. There shall be three categories of banks as follows: (a) mega banks with minimum paid-up share capital of N25 billion; (b) medium banks with minimum paid-up share capital of N10 billion; and (c) small banks with minimum paid-up share capital of N5 billion.
The comprehensive amendment of the BOFIA Act also provides for a N1 million fine or three years imprisonment or both fine and imprisonment for any bank director who failed to declare his interest in relation to any advance, loan or credit facility among several others.
The amendment to the CBN Act raised the authorised capital from N300 million to N60 billion while the paid up capital may be increased by such amount as the board may, from time to time, resolve with the approval of the National Assembly, and shall be subscribed by the Federal Government and paid up at par.
The bill also sought to add sub-section 6 to Section 6 to read that, "on the day this Act comes into force, all persons who are, immediately before that day, holding office as members of the Board shall be subject to confirmation by the Senate."
The amendment to Section 9 (1) also read: "the governor and deputy governors shall be persons of recognised financial experience and shall be appointed by the President subject to the 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."
On the right of issuing of currency notes and coins, the amendment to Section 17 read thus: "the bank shall, subject to the approval of the National Assembly have the right of issuing currency notes and coins through Nigeria and neither the Federal Government nor any State Government nor any Local Government nor any other person or authority shall issue currency notes, bank notes or coins or any other documents or tokens payable to bearer on demand being documents or tokens which are likely to pass as legal tender," among others.
Meanwhile, CBN yesterday confirmed that there was some crisis in the banking industry but maintained that the development was not caused by its withdrawal of public sector funds since only N8 billion of the total N74.5 billion earmarked for the exercise have so far been withdrawn.
Banks, however, insisted that the apex bank had already taken all the N74.5 billion public sector funds initially proposed to be withdrawn in phases. While contradicting the CBN claim, bank chiefs yesterday told THISDAY that N8 billion was too small a figure to throw the industry into the present chaos which may result into the collapse of some banks.
Speaking with newsmen in Lagos yesterday, Deputy Director, Corporate Affairs, CBN, Mr. Tony Ede, who acknowledged that all was not well with the banking industry, attributed the on-going problems to banks' dependence on inter- bank market transactions.
"We are aware that the inter-bank market is no longer functioning. Why some banks are experiencing difficulty in meeting their obligations is because about 45 per cent of them depend on the inter-bank market, they are net-takers. How would the withdrawal of just N8 billion be causing problem in the industry?
"A situation where over 45 per cent of the banks depend on the inter-bank is not healthy for the economy. This is why there is need for consolidation in the banking industry," he declared.
He further explained that it was in an attempt to prevent a run on these banks that the CBN decided not to be directly involved in the withdrawal of the public funds.
"We were not directly involved in the withdrawal of these funds from banks because when we undertook an analysis of the total public sector funds in respective banks, we found out that they accounted for a substantial part of some banks' total deposits, some were about 100 per cent, 96 per cent, 70 per cent and so on.
"We felt that if we directly withdrew these funds it would affect those banks, so what we did was to call all the four parastatals whose funds were with banks to withdraw a specific amount," he explained.
He listed the four parastatals directed to return a total sum of N74.5 billion to the CBN to include Nigerian Petroleum Technology Development Fund (NTDF), Nigeria National Petroleum Corporation (NNPC), Nigeria Telecommunications Limited (NITEL) and the Bureau for Public Enterprise (BPE).
Out of all these parastatals, he said only NTDF has so far returned N8 billion. He added that besides Nigeria Telecommunica-tions (NITEL) which has its funds tied to loan facility, the remaining two parastatals have been given up till yesterday to bring back their funds, failing which the banks in custody of such funds would be given a grace period of one week to voluntarily return the funds.
Thereafter, the CBN spokesman said any of the banks that fail to respond would have such funds directly debited from their CBN accounts.
Justifying the decision to withdraw public sector funds which forms part of its 2004/2005 monetary policy guidelines, Ede said the apex bank had looked at the liquidity position of the economy long time ago (between May - June 2004) and decided that it had to be reduced to cage the interest rates which had been on the increase.
"We are aware that there is excess liquidity and this has been exerting pressure on exchange and interest rates. Inflation rate as at June stood at 19.5 per cent. Demand for foreign exchange has been on the increase, so where is the money used in funding this foreign exchange coming from?" he asked.
Banks have however declared as false the claim that only N8 billion from total public sector funds have so far been withdrawn from them.
"It is not possible that the CBN withdrew only N8 billion and the entire industry would be shaking like this. Divide 89 banks (total number of deposit money banks in the country) by the N8 billion they said had so far withdrawn, do you think that can cause the kind of pandemonium we have in the industry today? Call any bank MD or treasurer they will tell you the true position. The CBN has withdrawn the entire N74.5 billion and they still want to withdraw more," stated the managing director/chief executive officer of one of the banks last night.
The managing director/CEO of another medium-sized bank also said there was no iota of truth in the N8 billion CBN said it has withdrawn.
"Honestly, they (CBN) have withdrawn all those funds. They felt that such withdrawals would reduce the demand for forex but discovered that it was still on the increase and have therefore decided to withdraw more of those funds," he said.
He maintained that the withdrawal of public funds was a deliberate attempt by the CBN to make banks collapse so as to justify the need for consolidation in the industry.
"If the CBN means well for the industry, it ought not to have made the withdrawal of public funds a public affair. The CBN would be so shocked and would wonder where the funds for the N25 billion new capital base is coming from because a lot of us are working round the clock to meet the deadline," he stated.
Since last week when the big banks which account for over 70 per cent of funds in the inter-bank market recalled their matured placements and refused to roll-over or grant new ones, things have not been the same for some banks, making them default in meeting the financial obligations of their depositors.
Mostly affected are small and medium sized banks, especially those that have used public funds to finance various housing projects that have long gestation period.
Public sector funds accounted for over 80 per cent of the total deposit base of most of the small and medium sized banks. The sudden withdrawal of the funds by the CBN in the early 90s was responsible for the distress of several banks at the time.
The CBN had July 6, directed banks to increase their capital base from N2 billion to N25 billion by December 2005. It further noted that it would embark on phased withdrawal of public sector funds from banks.
The banks that would not be able to meet the capitalisation requirement were advised to merge.
Bank chiefs opposed to the new capital have at various times suggested other measures like a downward review of the capital base, stratification of banks and deadline extension.
|
