'N25bn Not to Penalize Banks'
From Kunle Aderinokun in Abuja
President Olusegun Oba-sanjo yesterday said the N25 billion capitalization benchmark set for banks by the Central Bank of Nigeria (CBN) was "not designed to penalize any bank or precipitate crisis in the banking sector."
The CBN recently asked all banks to increase their capital base from N2 billion to N25 billion effective from December 2005. The apex bank advised banks unable to meet the deadline to enter into mergers or acquisition.
Speaking yesterday in Abuja when he declared open the 10th Annual Bankers' Conference of the Chartered Institute of Bankers of Nigeria (CIBN), Obasanjo stated that the new capitalisation requirement was designed to "strengthen the sector and the individual banks.
"It is designed to empower the banks to restructure, redefine and re-conceptualize their mission as banks in a rapidly growing economy and make them less susceptible to market shock.
"The reforms in the sector are designed to position the banks to provide more efficient services to the Nigerian people by channeling credit to the real sector of the economy."
The president noted that it would have been ridiculous for other sectors of the economy to be subjected to reform and the banking sector left out. He expressed government's belief that at the end of the exercise, the country shall have "more focused, well-fed, well-managed, confident, stable, predictable, energized and productive banks that can work as partners in promoting all round development in Nigeria."
Obasanjo urged the banks to take the reforms seriously and to deploy all their assets in ensuring that they modernize, retool, retrain, improve on technology and refocus their objectives.
The president who expressed satisfaction that the management and staff of the sector have begun to reason with the Federal Government, also described the high interest rates charged by banks as anti-growth and anti-development as "it stifles creativity, discourages investment, suffocates business and intimidates the ordinary person."
"If your interest rate is 15 per cent, let it be 15 per cent. Which one is administrative charge, ledger charge... ? It's not only dubious and criminal, it is really annoying," he added.
Noting that it was easy for people to argue and provide several technical rationalisations and justifications for high double-digit interest rates, he pointed out that "interest rates in any society is anti-growth and anti-development."
"I have always been on record against high interest rates. They are generally inhuman. What sort of business can any one establish at 25 per cent or even higher interest rates? How can a small or medium scale business person borrow at 25 per cent and ever hope to have a business after two or three years? It is even worse for business with long gestation periods."
However, in a veiled expression of confidence in banks, Obasanjo said, "the truth is that I do believe that bankers know what is right."
He assured of Federal Government's resolve to drive interest rates down in collaboration with the banks, regardless of the odds.
"I can assure you that government will work with you to bring interest rates down and no matter the obstacles, our resolve in this area remains unshaken. If we truly want to build a middle class, promote growth and development and expand the private sector, interest rates must come down," he said
Obasanjo expressed the belief that for the banking sector to be relevant to growth, development and social security, "it must have, and must be perceived to have, integrity, credibility, and honour.
"It is not ideal for an institution to call itself a bank when all it does is rely on funds from government, which it then trades with without adding value to the economy. It is unpatriotic for a banking institution to function as a forex and currency trading institution again, adding no value to the economy or promoting necessary growth. An institution that relies solely on currency trade and rarely gives loan to agriculture industry in a decade cannot proudly call itself a banking institution.
"Worse still, in recent times, rather than create jobs, many banks have resorted to behaviour that smacks of social criminality -imposing unrealistic deadlines on young ladies and men compelling them into all sorts of anti-social conduct in order to meet such imposed target and keep their jobs."
In his goodwill message, Governor, CBN, Professor Charles Soludo said it was important for all stakeholders to support the reform programme in order to ensure enduring results.
He, however, added that after the initial reactions, the CIBN rose up to show support for the reforms.
He explained that the CBN's concern was on consolidation and strengthening, good governance and transparency.
Soludo who was represented by Deputy Governor, Operations, Dr. Shamsuddeen Usman, said the CBN had realized that the weakness of the banks hindered their developmental roles as characterized by ownership structure, weak capital base, dependence on volatile funds and therefore needed radical reforms.
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