Daily Independent Online.
*
Monday,July 19, 2004.
Soludo declares 25 banks
unhealthy
•CBN withdraws N74.5b to stem inflation
By Sanya Adejokun
Senior
Correspondent, Abuja
Unviable nature of
most of the financial houses in the country led the Central Bank of Nigeria
(CBN) to propose raising their capital base to N25 billion, it emerged at the
weekend.
Part of the vision of
the new CBN management for economic growth is to compel the fusion of banks
through mergers and acquisitions - hence the high capital requirement
- and by controlling inflation, also known as the retail price index.
A strong purchasing
power of the naira means stable or lower inflation; when it’s weak that
translates as high inflation (rising prices).
The planned capital
base was announced last week. That is known already. The new bit is that the
CBN will from Wednesday begin to withdraw N74.5 billion public sector funds
from the money market to force down the retail price index.
It said in a statement
at the weekend that “the policy action, which represents a tightening of
monetary policy stance, is designed to stem the continued high demand pressure
in the foreign exchange (forex) market, and acceleration of the inflation
rate”.
Inflation rate in May
exceeded the 17.5 per cent recorded in April and daily average forex demand was “unsustainably
high” at $46.03 million in May and $47.90 million in June.
CBN Governor Charles
Soludo declared that only 64 of the 89 banks are healthy and cited this as one
of the reasons for the jerking up the capital base by 1,150 per cent, effective
from end 2005.
“Of the 89 banks
in the system, 64 can be adjudged to be healthy, while 14 others tither between
good health and not too healthy, and the remaining 11 classified as not doing
well”, Soludo told Enugu State Governor Chimaroke Nnamani when he visited
him last week.
Soludo told Nnamani
that the recently announced 13-point action plan, which includes the N25
billion capital requirement for banks, is hinged on consolidation and
strengthening of the banking system, in line with the global trend of
commercial banks.
And, consistent with
his argument, he said Nigeria does not have banks “in the true sense of
it” as some of them are mainly rent seekers which thrive on government
deposits “that they use to buy treasury bills and foreign exchange. They
also engage in trading and mercantile business and declare huge profits at the
end of the year without adding much value to the national economy”.
In his view, when
banks consolidate and are strong, people can put their money in their banks and
go to sleep with two eyes closed even with any systemic shock.
Banks themselves would
be able to mobilise the over N400 billion outside the banking system for
productive investment which would, in turn, create employment and reduce
poverty; besides “the reforms would create keen competition and reduce
the need for all the existing banks to each have corporate headquarters and
separate infrastructure in cost saving measures”.
After enumerating the
various problems facing the sector, Soludo reiterated that “there is no
more time to waste in properly addressing the economic and financial system
challenges confronting the nation and the CBN”. This was contained in a
statement issued in Abuja at the weekend by CBN Deputy Director, Corporate
Affairs Tony Ede.
Given the political
cycle “there are only 3,500 working hours a year remaining to sort things
out and there are only 10,000 hours left to right the wrongs and fully reform
the system” for the full benefit of the economy.
