ABUJA—THE Governor of the Central Bank of Nigeria (CBN), Prof. Charles Soludo, spoke yesterday of “disturbing reports” about desperate banks involved in a fresh wave of massive round-tripping at the foreign exchange market in a bid to hit the new capitalisation of N25 billion by the end of next year.
Prof. Soludo, speaking at the Monetary Policy Conference in Abuja, therefore, warned that he would immediately send his men to examine the banks and any one caught would suffer maximum sanctions.
His words: “Let us say that we have got report of some disturbing signals of some banks, and I will say some, probably minority of banks have become a bit more desperate in the bid to make it alone and consequently engage in some kind of unwholesome practices including foreign exchange round-tripping. I must say this very seriously that we will take very stringent measures once we are able to pin down anyone of them.
“We are going to invoke the rules, including revocation of foreign dealership licence of any bank we find infringing. Our people will soon be in the banks to examine them and any bank that we find offending this particular rule, we have to apply the maximum sanctions. This will not be tolerated in anyway or shape.”
Prof. Soludo also insisted that assets striping was against the rules of the on-going reforms, as it affects mergers and acquisition and that it would not be condoned by the apex bank. “Also, the issue of assets striping through financial re-emerging contrary to the laid down guidelines and rules which we are also not going to tolerate,” he said.
The governor who said he was “targeting the cheapest consolidation anywhere in the world” pledged that with the cooperation of all stakeholders, particularly the banks, the objectives would be achieved.
He admitted that there would be challenges ahead and that contingency plans had been put in place to handle any emergency, adding, however: “We believe, if everyone works together we are sure of smooth and soft landing for everyone.”
He clarified that the current reforms were not targeted at creating any specific number of banks in the system. “Let me clarify that we are not targeting any specific number of banks. Some people asked me a question on this and the answer was interpreted to mean we have made our minds that there are gong to be 12 banks. No.”
In an address at the conference, Secretary to the Government of the Federation, Chief Ufot Ekaette, said the reforms were inevitable if the banks were to play useful roles in economic growth. According to him, “most of the banks nicknamed second generation banks were rent seekers who sat in their well furnished offices waiting for people, mainly government contractors and state governments institutions to bring huge deposits on which service commissions were paid. The banks engaged in using those huge deposits to bid excessively for foreign exchange, which are later sold for profit to customers, thus heating up the economy, while some engaged in round-tripping.
“Also, the profits before tax of these small banks were unusually high. A typical Nigerian bank at that time had large amounts of bad debt, a direct result of unusually high interest rate charged and the non-financial based lending.
“When loanable liquidity in banks and capital markets are so constrained, the interest rates payable by borrowers who are lucky to obtain loans are unnecessarily high. The rate of interest payable by borrowers when the banks lend money at all in Nigeria makes nonsense of the credit facility granted. Banks in Nigeria are known to have charged as much as 32 per cent on money lent after the banks would have imposed extra charges such as administrative, ledger, legal and other spurious charges.
"All sorts of arguments, technical rationalisations, and justifications are tendered to support the high double-digit interest rates. This does not promote growth and development. What business does an investor want to engage in that would bring a profit in excess of 32 per cent so as to ensure a positive margin after servicing interest? Such high interest rates stifle creativity, discourage investment, suffocate businesses and intimidate prospective investors particularly for investment with long gestation periods."
And in a circular to all authorised dealers entitled: “Resurgence of foreign exchange malpractices,” the Director Trade and Exchange Department, Mrs O.O. Akanji, the apex bank said: “It has obtained market information using the established market intelligence process that many banks are still engaging in foreign exchange malpractices including illegal dealing in the outlawed ‘free funds’ market.
“We have noted persistent increase in the demand for foreign exchange even when accounts are not funded, spurious demand and the desperate efforts of some banks to improve their position as a result of the on-going consolidation exercise."
