Foreign banks cautious on loans to Nigerian partners
* Falae faults deadline on capitalisation
By Enitar Ugwu (Lagos), Niyi Bello and Julius Alabi, Akure`
N IGERIAN banks' need to prove their financial muscle has reached the international stage.
Foreign banks have in the last one week begun to withhold credit facilities to some of their Nigerian counterparts, as the banking industry comes to terms with the recent N25 billion recapitalisation order in the country.
Meanwhile, the Senate will today meet with Nigerian bank chiefs on the new policy introduced on July 6 by the Central Bank of Nigeria (CBN) and with which the financial institutions are expected to comply by December 31, 2005.
But former Finance Minister who was also once Secretary to the Government, Chief Olu Falae, has faulted the CBN order, arguing that it smacked of "military mentality."
The Guardian learnt that most of the local banks are not finding things easy as foreign banks are no longer honouring their letters of credit.
The argument of those foreign banks, it was learnt, is that when the capital base for banks was N2 billion, it took Nigerian banks up to one year to honour their debts to the foreign banks that guaranteed their letters of credit.
Based on that, the foreign banks reasoned that with the capitalisation bench mark now raised to N25 billion, it is only prudent to watch proceedings before giving their financial backing to some of these banks.
But the CBN spokesman Mr. Tony Ede, told The Guardian at the weekend that he was not aware of the development. He stressed that it behoved on Nigerian banks to douse fears over their operations by explaining to the world the steps they are taking to meet the new challenges.
Ede explained that the CBN never said that it was out to liquidate any bank currently operating in the Nigerian financial system.
The Senate will today in Abuja meet with the Chartered Institute of Bankers of Nigeria (CIBN) and some other stakeholders in the industry.
The Guardian learnt that the bankers have resolved to use the opportunity to canvass their stand-point on the N25 billion capitalisation.
The thrust of their argument will be mainly based on the twin issue of stratification of banks along their niches, which will inform the amount of capitalisation they require.
The second is the elongation of the time frame for banks to meet up with N25 billion mark, if the CBN insists.
The apex bank recently defended its decision on the new capital base at a meeting with the Senate.
It was learnt the CBN met with the Managing Directors of 10 selected banks last Friday in Lagos.
Sources said that the selective invitation to the helmsman of the 10 banks believed to be capable of meeting the benchmark speaks volumes.
A source expressed hopes that "the CBN is trying to sell its idea to those elite banks, thereby leaving others to sort out themselves."
The CBN governor, Prof. Charles Soludo, had in his July 6 address to the bank chiefs, complained that foreign banks were denying credit lines to their Nigerian counterparts, by labelling of the Nigerian financial institutions as "traders."
He said: "I am sure many of you would agree with me that some of our banks are not engaged in strict banking business in terms of savings intermediation - they are traders...trading in foreign exchange, in government treasury bills, and sometimes in direct importation of goods through fake companies."
Soludo painted a grim scenario to buttress his arguments. His words: "A group of people get a banking licence, use their connection to garner some billions of naira in deposits from one or two parastatals, and use the deposits to trade in governments treasury bills, foreign exchange and open letters of credit for importers."
He stressed that such a bank could wrongly declare billions of naira in profit, noting that "with many of such banks, depositors with balances of less than N50,000 or N100,000 are not welcome."
In opposing the CBN 18-month ultimatum Falae, who spoke in Akure, the Ondo State capital at the weekend, said that the apex bank would create more problems than it intended to solve if it rigidly enforced the policy.
Also in Akure, President Olusegun Obasanjo had pledged to complete all water projects he started 20 years ago, which his successors had abandoned.
Obasanjo said that since he was the initiator of the schemes, as a military Head of State, he won't leave office again without completing them.
Falae described the CBN's action, as an "example of military mentality that has unfortunately been entrenched in our polity."
The frontline politician, who was the joint presidential candidate of the the Alliance for Democrary (AD) and All Nigeria Peoples Party (ANPP) in the 1999 elections, told reporters that the policy was "too hasty," adding: "We should have allowed those banks to grow up naturally."
He was part of prominent Ondo State indigenes who received Obasanjo during private visit to the state.
Falae, however, praised the CBN for putting the banks on the path of growth, but insisted that the time limit on the new capital base could cause more disruptions in the banking sector.
His words: "In Nigeria, we do the right thing in the wrong way. It is good for banks to have large capital base but Rome was not built in a day. We are talking of banks that have about N2 billion capital base being told to get to N25 billion in 18 months.
"Growth is gradual. Like the Malaysia example that the governor of CBN mentioned, the fact is that some of the banks are 100 years old. It has taken them a century to get to where they are, not 18 months.
"So what they need to do is to tell the banks to increase their capital base gradually over time so that they can be stronger and more competitive", Falae stated.
The politician declared that it was a killer policy "to say within 18 months, go from two to 25, human growth or organic growth does not take place like that. In the process, it will cause disruption. A lot of forced marriages called mergers will occur and once a marriage is not right, merger is not right, it leads to problem and crisis."
Advising the CBN to exercise restraint on the recapitalisation bid, Falae, a former managing director of Nigeria Merchant Bank (NMB), said: "The bank (NMB) had a capital base of only N5 million in 1982, but it was doing well and we were making profit."
He faulted the assertion that the stronger the capital base, the stronger the bank, saying that "a third rate and incompetent corrupt management can destroy a bank even with N50 billion capital base.
"What matters is the quality of the management and their input into the economy not the size of the capital base."
Describing the order on banks as a fall-out of a militarised polity, Falae stressed that there is a need to "demilitarise our thinking."
The use of force, he lamented, was drawing the country backward. "Why do we have to decree banks into existence Even on our political parties, we should allow them to exist individually. A party that does not have the capacity to exist outside Ondo State should be allowed to contest elections in the state."
He said that Nigeria would have a strong banking sector if the regulatory agencies allow the big banks to exist along with the medium and the small ones.
Recently, Falae while faulting Nigeria's pleas for debt forgiveness and cancellation, said that the country's $32 billion debt stock could be repaid in 10 years through the leasing of its 20 per cent equity in some mega joint ventures.
The Federal Government through the Nigerian National Petroleum Corporation (NNPC) is into joint venture with some multinational firms in the upstream sector of the oil industry.
Obasanjo told journalists in Akure that he would work to provide all towns and villages in the country pipe-borne water.
He spoke at the Government House in Akure where he attended the wedding of the daughter of one of his aides, Biyi Adesida at the Cathedral Church of St. Daniel Anglican Church, Ijomu, Akure.
"I want to assure the people of this state that the Owena Dam and the Egba Dam that will serve 66 communities in Ondo and Ekiti states would soon be completed to ease the water problem in the areas," he said.
Obasanjo said that the projects were among those he started about 20 years ago, which were yet to be completed, adding that "since these projects have been left for me, I will complete them.
"I can assure you that they will be completed and the governor is aware of this that Federal Government has started working on them so that water will be available for the people of Ondo State," he stated.
The provost of the church, Rev. Justus Oluwafemi Olugasa, in a sermon during the wedding of Adetutu Adebola Adesida and Diche Patrick, praised Obasanjo for fighting corruption.
According to the cleric, the president had distinguished himself as a statesman on several national issues, which he noted had helped to strengthen Nigeria's unity.
He advised the couple to work hard to ensure that their marriage succeeds.
Present at the wedding were Governor Olusegun Agagu, Otunba Oyewole Fasawe, Mobolaji Osomo (Minister of Housing), Alhaji Alli Olamisi, Olu Mafo, and Senator Mimbe Farukanmi.
Others were Victor Olabimtan Olukare of Ikare Akoko, Oba Akadiri Momoh, Senator Oguniya and Regent of Akureland, Adeyinka Adesida.`
