In defence of bankers
By Abubakar Suleiman
AS a banker, I was naturally dismayed when I saw the front page of The Guardian, July 28, 2004. As I scanned the page, my emotions turned from dismay to anger and then disgust. A man presiding over one of the most corrupt countries in the world (Transparency International) where 90.8 per cent of the population live on less than two dollars a day (Human Development Report) and inflation of 19.4 per cent (FOS) has just figured out the problem with the economy " banks. I will begin by saying what Nigerian banks are and what they will never be unless the country changes dramatically.
Nigerian banks are some of the most competitive work place on earth. Our work hour is humorously referred to as five to nine instead of the traditional nine to five and is usually true. These banks hire over 50,000 Nigerians in direct employment and many more in their subsidiaries and affiliates. We also create jobs for all the ancillary workers from doctors, architects, lawyers and restaurateurs. We generate a significant part of the domestic GDP in this country and we pay tax! We pay our PAYE tax (I dare say we pay more tax per capita than any other industry except, perhaps, oil and gas); we pay company tax and we pay education tax " all in the billions. And every year, we publish our contribution to government approved charities. That is what Nigerian banks are " employers of labour, tax payers and socially responsible institutions.
Nigerian banks are not 100 per cent free of the charges of corruption against the country. Banks are known to have taken advantage of the system to engage in forex frauds and paying brokerage to government officials, and to a lesser extent engage in money laundering. Nigerian banks have not financed long term projects and have fairly inadequate investments in the productive sector. Nigerian banks (most of them are less than 20 years old) are not Western banks with centuries of experience and no decree on earth can make that happen. When our per capita GDP reaches US$9,120 (Malaysia: 2002 per capita GDP), we can then hope to become like Malaysian banks.
And coming down to the business of lending, I want to make this very clear, banks can only lend what they get. If we receive overnight money (current account call deposits) we put it in treasury bills and other liquid assets. If we get 30-day money, we seek for 30-day assets. A bank's primary obligation is to ensure that it is able to pay depositors on demand and that can only be achieved if your balance sheet is structured to ensure that your obligations (liabilities) do not fall due before your loans (assets). The banks will become distressed if they use short term funds to finance long term manufacturing and agricultural projects.
You might ask, why can't Nigerian banks attract long term deposits The whole country is built on political inconsistencies and policy summersaults! In the last Monetary Policy Circular, the government gave the banks till December 2005 to meet the minimum capital requirement of N2 billion. Six months later, the most respectable bank chairmen and CEOs in the country (admittedly a few scoundrels were present) were assembled by the CBN governor and told, in fairly rude terms, that they must cough out N25 billion, merge or be liquidated! And they were not to ask why. And you expect people to place money in banks for one year It is on record that the government does not respect tenure contract signed by parastatals when withdrawing government funds. If a bank had lent that money to a manufacturer, how will that bank terminate the existing contract and repay
According to the President, banks charge 25 per cent in a 19.4 per cent inflationary economy. If we pay depositors less than 19.4 per cent, their investment will have a negative real yield. Yet the maximum lending rate is 19 per cent. Bank deposits attract approximately three per cent reserve (CRR), liquidity (SLR) and insurance (NDIC) costs. Add this to your inflation figure and you get 22.4 per cent as the break-even deposit rate. Assuming investors expect their money market funds to grow, in real terms, by five per cent and you get 27.4 per cent. Add the banks' cost of business (say five per cent " considering the state of infrastructure and security) and you are at 32.4 per cent without any margin. And, I forgot to mention the 10 per cent withholding tax! How can this add up to a profit Banks are expected to lend at 19 per cent yet government parastatals place funds with banks above 20 per cent. Mr. President wants banks to provide equity funding for companies but not have control over these entities. That is what the capital market is for. By their very nature, the money markets attract tenured funds which banks, as custodian, cannot invest in equity without the consent of the depositors.
Everybody complains of interest cost and blame banks for the woes of manufacturers. When are the manufacturers going to put in their own equity and recapitalise instead of depending entirely and perpetually on bank loans If their business proposition is profitable and they are willing to dilute their shareholding, let them go to the capital market. Maybe it is time we re-evaluate the cliche that manufacturers are not making money because of finance cost. The prices of manufactured goods, as represented by the consumer price index (CPI), tend to rise faster than the maximum lending rate. So if a manufacturer takes a loan and buys inputs at today's price, in three months, the goods will be sold at fairly higher prices than is represented by their input cost. Besides, there are lots of manufacturers that are not dependent on bank loans but their fortunes are no better. Nigerian manufacturers cannot compete because Nigeria, as a country, is not competitive. Our labour laws are archaic, our infrastructure non-existent, energy cost exorbitant and our bureaucracy expensive. This is no way to compete in the global economy and zero finance cost will not help. Mr. President, I would love to say 'let there be light', but what will the 38 per cent of Nigerians without access to sustainable water supply say to that You rule over 140 million people travelling by foot, donkeys, camel, horses, bicycles and cars. No other country of this size lacks a viable mass transit system (trains, trams and passenger boats) and expects to manufacture profitably.
I hear all the people that ran down our educational systems are not only sending their children to schools abroad but are now queuing up to build private universities (I hope it is not with bank loans). I also know that we do not have a single hospital in this country that is good enough to cater for our cabinet ministers (even for basic check-ups). It is interesting that not a single bank chief has been jailed for all the rent seeking and forex round-tripping. It is regrettable that 11 weak (or is it distressed) banks are allowed to continue to operate, some with negative equities! If banks� supervision was allowed to function efficiently, these institutions will either be fixed or liquidated, not allowed to operate side by side with efficient and safe banks. And if I may ask, why is mercantilism so attractive Why does the system allow merchants to prosper while farmers and manufacturers suffer Why is it cheaper to import petrol than to refine it
I tell you something " banks are victims of their own success. Everybody knows that oil company workers earn far more than banks and that telecom has all but overtaken banks in compensation. And where does this money go If you earn one million in Lagos, consider the following: Rent N200,000 (two bedroom flat), Transport: N183,000 (at N500 per day) Tax: N150,000 or 15 per cent) and office lunch N130,000 (N500 per week day). That is a whooping N663,000 and yet the price of medical and clothing, school fees and energy cost, water and security has not been accounted for. You see, the banks are not the one killing the economy, our rulers already did that. And until we have a leader that can stand up publicly and confess that they have failed the people over the decades instead of giving national awards and hosting expensive sporting events, we will continue to look for people to blame. And bankers make very nice fall guys.
Suleiman, a banker, lives in Lagos.
