Soludo's N25b solution tears Senate apart
From Alifa Daniel and Azimazi Momoh Jimoh, Abuja
A FTER meeting with members of the Senate Committee on Banking, Insurance and Financial Institutions for four hours, the Central Bank Governor came out looking confident. However, journalists who had waited outside the chambers while the meeting lasted, cajoled him for interviews.
He tried to resist, insisting that he had an agreement with the senators to keep mute. The chairman of the Senate Committee, he said, would speak. The journalists would not relent, and Professor Charles Chukwuma Soludo buckled, after consulting with the deputy governors and directors of CBN.
For about eight minutes, Soludo finally restated the need for the banks to shore up their capital base.
The N25 billion, which should indeed be the minimum, he said was one of the 13-point agenda initiated as part of the first phase of the reform agenda. "Relative to the size of the economy, the banks that will emerge if they have only N25 billion will still be very small banks, but they will be stronger than many of the banks we have today," he said.
The 18 months period of grace he said, "is really very generous. It is a very generous time frame. If a bank thinks of the time that it will take it to meet the criteria, then 18 months might seem small. But if you are thinking of the length of time it will take a group of banks to come together, nothing stops them from doing so within six months."
The CBN boss noted that "in many places, negotiations of mergers and acquisitions take a few months, especially for people within the same industry interacting everyday in Nigeria."
He said that the major barrier before the banks was the mental block by proprietors who want to have a hold on the bank as theirs.
Senator Zik Ambuno Sunday, chairman of the Senate Committee on Banking, Insurance and Financial Institutions who was not initially forthcoming with answers to questions from journalists, however, came out smoking the next day.
Sunday and his vice-chairman, Farouk Bello, were categorical that contrary to the impression created by Soludo and some newspapers, there was no agreement on the N25 billion capital base. The two senators were disturbed by the impression created in the media that they backed the new capital base.
The Senate Committee chairman said that the committee could not have taken that decision since it was yet to get the views of all stakeholders in the banking sector. He added that invitations letters were just being sent to other stakeholders to appear before the committee.
"The Central Bank and the Senate had fruitful discussions. I did not mention the details and I could not, because that is not how we work. The way we work is that we would get the views of the Central Bank, the stakeholders and we will report to the Senate. If the leadership says we can air this as the view of the Senate," he said.
He pointed out that "the CBN governor informed us of his efforts in trying to revamp the economy. "That is why I said he meant well about the economy. I was not categorical about the N25 billion proposed as capital base for banks. I did not say that we have rejected or accepted N25 billion, because I cannot do that until we finish with all stakeholders." He said that part of the process was a meeting billed for next week with the National Union of Bankers, Insurance and Financial Institutions.
Sunday denied speculations that some members of his committee were working against the N25 billion capital base for banks, because of their interests in many banks.
By mid-week, the Chief Whip, Senator Victor Oyofo added to the raging fire in the manner he backed the CBN position on the banks. He was the first senator to do so. Few hours after he stated his position, Bello criticised him, saying that he was neither a member of the appropriate Senate Committee nor was he authorised by the leadership to make such comments.
However, questions are being raised on the various positions of senators. For example, are they talking in the overall interest of the nation's economy Could their positions have been motivated by personal interests There are insinuations that some banks, which felt threatened by the new capital base, are seeking to use some senators to protect their interests.
As at now, no Senator has declared interest in any of the banks as provided for in the Senate standing rules, which makes provision for declaration of pecuniary interests before sitting on a matter. Further, all those who have spoken claimed to be protecting the national economy.
Bello who has been speaking on the implications of the N25 billion capital base for banks, talked about an international standard for determining capital base of banks which he said was the function of risk profile of a bank.
He said: "There is also an international standard of determining minimum capital requirement of banks, which is a function of the risk profile of a bank in categories. We impressed on the CBN that perhaps what we can do is to fix N25 billion for those banks that want to be big and the other ones with lesser amount, depending on their categories. That was what we impressed on them. However, they were of the opinion that they had gone to the market, that they have confidence of the stakeholders.
"That is what the law says and we operate within the confines of the law. So, if the CBN insists, perhaps the National Assembly will be very right if it says okay we insist also on what the law says until such a time that the law is amended."
However, at the press conference after meeting with the Senate Committee, the CBN governor made those declarations about the issue of categorisation raised by Farouk.
Banks he said could be categorised depending on what they do. "What we are talking about is what is considered the barest minimum... You could choose to be a regional player, but with the minimum capitalisation of N25 billion, because ultimately, the N25 billion will still produce very small banks relative to the size of the economy.
"I can tell you that in some economies, you find banks whose total capitalisation happens to be up to 50 per cent of the size of the GDP. In our own case, we are talking about banks with less than $200 million and relative to the size of the economy, that is still very, very minuscule."
Bello also raised the question of the CBN not complying with the Act that established it, especially in coming up with this directive of N25 billion for banks. According to him, the CBN had no powers to raise unilaterally, the capital base for banks.
"There are laws that guide the activities of the Central Bank and the banking industry. These laws are very categorical on the minimum paid up capital of banks. I can cite the Banks and Other Financial Institutions Act (BOFIA), which in Section 9 clarifies the powers of the CBN to prescribe, determine from time to time the minimum paid up capital of banks in categories. The same Act makes provision for categorisation of banks. Therefore, what we would have expected was that there is a minimum paid up capital, not minimum shareholders' fund, because there is nowhere in this Act that gives CBN powers to fix minimum shareholders fund."
Curiously, Bello's position received a serious knock from Oyofo, who believed that the CBN was doing the right thing. Oyofo told journalists that even if the law establishing CBN had loopholes, which would not allow it to perform properly, the National Assembly could amend those laws to empower the CBN to do its work.
In endorsing the position of the CBN on this capitalisation, Oyofo was categorical. He said: "There is nothing to argue about, the government position and the proposition of the CBN are the correct things to do. Let us do the correct thing, there is no need to quibble about what is right. In any case, when you are talking about N25 billion, how much is it in dollar The only people who are going to swallow bitter pills are those who happen to be managing directors and general managers.
"We must also address the problem of growth. Growth has to be systematic. If it is not systematic, it becomes a curse. The way our bankers behave, everybody is floating. Why are they doing so It is because they have government funds to trade on."
Oyofo appeared set to whip into line any senator pursuing any interest other than the one they were elected to do in the National Assembly. He assured that the Senate leadership would not pander to all those personal interests as far as the issue of capitalisation of banks was concerned.
He said: "There must be people who have different interests to protect, otherwise how do you expect the 109 senators to have the same interests to protect. This is a plural society where people have different interests. I know that the Senate leadership will only offer that kind of leadership that will lead to the progress of Nigerians.
"We are not going to be swayed by individuals who may have their own reasons for holding their positions and saying this or that. People have the right to say what they want, but the senate leadership will only do those things that will advance the interest of Nigerians. Banks that fail to advance the interest of Nigerians have failed."
However, Bello said: "I have spoken with the Senate President Adolphus Wabara and his deputy, Ibrahim Mantu and they are backing the position of the committee, which is that the Senate had not taken a position on the N25 billion. These leaders are 100 per cent in support of us, so the chief whip is on his own."
Bello may not be wrong that his committee has the backing of the Senate President and his deputy, going by what Wabara said at the Lagos Airport recently.
Wabara had advised Soludo to look for ways of controlling the interest rate of the banks instead of talking of capital base.
Said Wabara: "It is a burden for the banks to raise their capital base to N25 billion from N2 billion. I do not know the rationale behind that. The Senate Committee on Banking and Currency has invited the CBN Governor to explain the rationale behind it. I am not an economist but I cannot really comprehend that type of jump from N2 billion to N25 billion.
"We will be encouraging money laundering if this is allowed. All these 419 people will probably own heavy shares in the banks because they will find an avenue to launder their money. I frankly will not say anything categorical until I receive the report of the interview with the CBN Governor by the chairman of the Senate Committee on Banking and Currency."
To assure those who think the review of the CBN Act was targeted at clipping the wings of the bank, Wabara said the review of the Act was intended to strengthen the bank.
Chairman of the Senate Committee on Industries, Senator Felix Kola Ogunwale, showed support to Soludo, describing his action as a good omen for the economy. He said the N25 billion was 'small' when viewed in relation to "the compelling needs to improve on banking services in this country."
He said: "Raising the capital base of banks to even N50 billion will enhance the performance of banks, because many banks will come together and this will assist the economy. Any bank that is not able to meet her N25 billion will surely be forced to merge with a stronger bank and business will be better. "We do not need all these banks. We might have only one bank. For example, the capital base of say a bank like the Bank of Johannesburg, is more than the capital base for all the banks in Nigeria put together."
He said that a bank should have at least a capital base of N500 billion. This he said would solve many problems and strengthen the economy.
He believes that the N25 billion was over due, with respect to the value of the exchange rate of naira.
When the Senate resumes next week, it is expected that the Upper House will be further divided on the matter. However, even senators agree that how the issue is resolved, will be interesting considering the various interests that are playing up. Will Soludo's confidence be dented Or will the senators find reason to end the discord among them
