N25bn Capital 'll Restore Sanity, Says NLC
Wabara: It's high handed, 'll trigger money laundering
By Ndubuisi Francis and Chris Nwachuku
The Nigeria Labour Congress (NLC) yesterday said the decision of the Central Bank of Nigeria (CBN) to increase banks capital base from N2 billion to N25 billion will strengthen banking operations and restore sanity in the industry. The CBN last week raised the capital base to N25 billion effective December 2005 to encourage mergers and acquisitions.
But Senate President Adolphus Wabara also yesterday faulted the new policy, describing it as not only highhanded but fraught with adverse economic implications.
The NLC stated that the N25 billion capital base would help create bigger and stronger banks, "which would in the long term be in the interest of depositors and the national economy".
A statement endorsed by its President, Adams Oshio-mhole, the NLC said it remained convinced of the necessity for major reforms of the banking industry to restore the stability of the economy and guarantee the safety of depositors' funds.
The NLC noted that it was on record that it had severally called for reforms in the banking sector, the most recent being in its congratulatory message to CBN Governor, Professor Charles Soludo, following his appointment.
According to the NLC, "one person or one family ownership of banks needs to be discouraged as the nation's experience has shown that such narrow bases make it easier for banks to be abused or mismanaged resulting in bank failures and endangerment of depositors' funds"
Labour noted that the current practices in the sector compromises the core values of banks especially as operators resort to speculative activities, trading and foreign exchange round tripping, which proved injurious to the economy.
"Congress believes that a robust banking sector effectively engaged in financial intermediation will provide stimulus to economic growth and by implication, employment in the long run. In the short run, the CBN has to provide the needed safeguards to avoid adverse human resources consequences, especially job losses in the event of rationalisation/mergers.
"A more dynamic approach to combating round tripping and other abuses will also be required. Congress also cautions against allowing the industry to become characterised by oligopolies that will stifle competition", the NLC noted.
The NLC urged government to initiate similar reforms in the downstream petroluem sector which has all the imperfections evident in the banking sector.
It stated that "the same firm, pro-active and public interest driven use of state intervention to sanitise the fianancial sector is needed in the downstream sector of the petroluem industry, given the vast evidences of imperfections of the market and the multiple crises engendered by lack of regulation"
However, workers in the banking sector distanced themselves from the policy, describing it as a recipe for the collapse of the financial institutions in the country and consequent loss of jobs. The workers therefore resolved to embark on industrial action should the CBN go ahead to implement the reform policy.
The bank workers viewed the current effort of CBN as incapable of restoring sanity because of the very weak economy. They said the measures adopted by the government will create confusion and defeat the essence of free market economy.
The workers noted that the capital market does not have all the facilities to provide the huge amount of money which the banks are expected to generate within such a short time.
The workers said if the policy is sustained, foreigners may take over the economy, which they noted will be injurious to the nation.
"The prospects are really frightening as we gradually lose the control of not only our economy but our sovereignity as free people. This is not what globalisation is all about," they said.
Besides the workers said the policy could encourage people with questionable source of wealth to capitalise on the desperate situation and use the process to launder their questionable monies. More worrisome to the workers is the impact of the policy on jobs and the union
"The union is prepared to mobilise Nigerian workers to close down all the banks to protest against the permament closure which the policy seeks to actualise. If the on-going dialogue and persuasion failed, our union is prepared to call out its members on strike," National President of bank workers union, Babayola Mohammed stated.
However, Wabara who said he was at a loss as to what informed the policy drive told airport correspondents in Lagos that the increase, if allowed to hold, would trigger money laundering, apart from imposing a heavy burden on the banks.
Wabara noted that: "It is a burden for the banks to raise N25 billion from N2 billion. I don't know the rationale behind that. The Senate Committe on Banking has invited the new Central Bank Governor to explain that. I am not an economist, I can't really comprehend that type of jump from N2 billion to N25 billion. We will be encouraging money laundering.
"All these 419 guys will probably own heavy shares in the banks because they will find an avenue to launder their money. I frankly won't say anything categorically now until I receive the report of the interview with the Governor of Central Bank by the Chairman, Senate Committee on Banking and Currency. But if you ask for my opinion generally, it is too highhanded", he said.
Asked to comment on the reported move by the Senate to review the CBN Act, Wabara said the issue should be isolated from the N25 billion capital base requirement.
"The Act is a separate thing. We don't want to join issues so that it doesn't seem as if we are trying to victimise the Central Bank on this policy. I mean, it's a totally different thing. We will look at the Act and make the necessary amendments.
"But it has nothing to do with this policy statement by the Governor of the Central Bank. But I know there are banks in America (I know we are copying America). I understand the Central Bank Governor studied in America. There are smaller banks in America. You need only $3 million to establish a bank in America.
"He just has to explain to us Nigerians why that frog-lip from N2 billion to N25 billion. If you are talking about N5 billion, it's nice. Instead of this, we need to address the issue of interest rate. The CBN should start from there and address the issue of interest rate", he said.
The Senate President noted that the CBN should look into the Minimum Rediscount Rate (MRR), arguing that if this was addressed, a lot of sanity would have been brought back to the banking system.
"The CBN should start from there and address the problem of interest rate. If the MRR is 16 per cent, definitely the banks cannot lend money less than 16 per cent. Let them address that and let's go slowly. But I will leave that to the report of the Chairman of the Banking and Currency Committee", Wabara said.
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