CBN Stops NNPC Funds' Withdrawal
Masari cautions on N25bn capital
By Ayodele Aminu in Lagos, Kunle Aderinokun and Ahamefula Ogbu in Abuja
The Central Bank of Nigeria (CBN) has backed down on its resolve to withdraw N46 billion Nigeria National Petroleum Corporation (NNPC) deposits from the vaults of commercial banks.
Speaker of the House of Representatives, Alhaji Aminu Bello Masari, has however called for caution in the implementation of the CBN's directive to banks to shore up their capital base to N25 billion within the next 18 months.
CBN's spokesman, Mr. Tony Ede, who made the apex bank's decision to halt the withdrawal of NNPC funds known yesterday in Abuja said the decision was to avoid worsening the liquidity crises that hit the banking industry since three weeks ago.
"We have decided not to debit banks holding NNPC's deposits any longer because of liquidity squeeze the banks are facing," he said.
He confirmed that only N12 billion out of the proposed N74.5 billion parastatal funds had so far been transferred to the CBN.
"As at today, only N12 billion out the total amount has been returned to the CBN. Nigerian Petroleum Technology Development Fund (NPTDF) has returned N8 billion out of its deposit of N20 billion while the Bureau of Public Enterprises (BPE) took N2 billion away from its N3 billion deposits in banks. NITEL (Nigeria Telecommunications) has its N3 billion deposits tied to a collateral," he said.
The CBN had last month directed parastatals to withdraw their funds from banks with a view to controlling inflation and ensuring stability of the Naira through mopping up of excess money in the system.
This had coincided with last months' CBN directive to banks to recapitalise to a minimum of N25 billion before December 2005, a development that triggered a flight to safety by customers through panic withdrawal of their funds from banks perceived as not having the financial muscle to meet the new capital.
The situation which had almost degenerated into a systemic crises was further compounded 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. Mostly affected are small and medium sized banks, especially those that have used such funds to finance various housing projects that have long gestation period.
While the CBN had claimed it only withdrew N8 billion of the total N74.5 billion earmarked for the exercise, banks said all the N74.5 billion public sector funds had been withdrawn thus precipitating crisis in the sector.
As at last Friday, close to eight banks were said to be out of clearing because of acute liquidity crunch.
Ede attributed the on-going crisis in the industry to banks' dependence on inter-bank market transactions. The CBN, according to its spokesman, had even tried to moderate the impact of the withdrawal of public sector funds as contained in its 2004/2005 monetary policy guidelines, by first deciding on withdrawing only capital funds lodged by the parastatals and leaving funds for recurrent expenditures. "The parastatals will have access to their funds with the CBN any time they want it," Ede added.
Public sector funds accounted for over 80 per cent of the total deposit base of most of the small and medium sized banks.
The CBN and the NNPC had been at loggerhead over the plan to withdraw the corporation's N46 billion lodged in banks.
NNPC had pointed out that debiting its accounts in various banks totaling N46 billion will hurt its operations and may create chaos in the petroleum products distribution system.
However, the CBN in a swift reaction had said that the NNPC had no choice but to comply with the directive on public funds withdrawal.
Ede said the CBN had already written to the banks holding NNPC funds that their account with the apex bank would be debited by yesterday, if NNPC failed to withdraw the funds.
Meanwhile, Speaker Masari has called for caution in the implementation of the CBN directive to capital to shore up their banks to N25 billion.
Masari said yesterday in Abuja while receiving a management team of Union Bank led by its Assistant General Manager, Mr. Godfrey Eromhonsele who paid him a courtesy visit that although the policy was good, there was need for caution on its implementation, especially with regards to the CBN's insistence on 18 months time limit.
"Our concern is how do we cushion the negative effects of the policy and take care of the resulting casualties? One wants strong banks with good capital base but to ask them to raise the money within 18 months is somehow," he noted.
The Speaker said that although some banks may meet the criteria of CBN, there was need for "a customers world and not a bankers world."
He noted with regret that while the nation's banks were declaring huge profits, they were surrounded by people who wallow in abject poverty and tasked the banks to help grow the economy.
He pointed out that the reform agenda of the present regime would only succeed with a corresponding reform in the banking sector.
Eromhonsele had earlier told Masari that the officials of the bank came to felicitate with him over his being turbaning as Dallatun Katsina.
He said the need for the bank to assist the growth of the economy led to their supporting agricultural and export programmes.
He said the increase in the capital base would improve lending abilities of banks while it would be a necessity to have solid correspondence banks that will build confidence in the system.
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