Capitalisation: No Compensation for Redundant Staff - CBN
From Kunle Aderinokun in Abuja
Governor, Central Bank of Nigeria (CBN), Professor Charles Soludo, has said the CBN would not compensate or bear the cost of staff redundancy which may arise from the on-going consolidation of the banking sector. Also, the apex bank refused to honour the demand by banks to lower the liquidity and cash reserve requirement, amongst others.
Soludo, who spoke to financial correspondents weekend in Abuja after the conclusion of a two-day Retreat on Mergers and Acquisitions for chairmen and managing directors/ chief executive officers of banks' however, disclosed that the CBN would use part of the SMIEIS as loans to bankers that may wish to leave the industry to set up small and medium scale enterprises. The provision, according to him, is in the incentive framework.
The banks had at the retreat made series of requests including reduction in level of liquidity requirements such as liquidity ratio, cash reserve requirement; the use of SMIEIS funds as credit for bankers wishing to set up small businesses, waiver of at least 90 per cent of all the relevant charges/fees required by the Securities and Exchange Commission (SEC) and Corporate Affairs Commission (CAC), among others; tax exemption for a period of five years and; strengthening the legal framework for collection of loans from borrowers.
However, Soludo confirmed that the Intercontinental Group, the consolidated bank emerging from the merger between four banks has sought the approval and support of the CBN on the merger.
The banks in the Intercon-tinental Group are Intercon-tinental Bank, Gatewaybank, Equity Bank Limited and Global Bank Limited.
Soludo said the issue of compensation for redundancy in the area of staff and equipment redundancy should not arise as "no bank would have been compensated in the event of a systemic crisis in the banking industry."
"Obviously we cannot do that. We already have as part of our incentives the provision that we could use part of the SMIEIS funds to provide credit to those who might leave the industry to go and set up their small and medium scale enterprises if they so choose," he said.
He said the banks should have thought of "what could have happened if we didn't do what we are doing now." According to him, "if we had liquidated the 11 banks that were unsound, at least the other 14 banks that are marginally unsound would have collapsed. This would certainly have caused a big run in the system. Probably, we would have ended up with 40 or 50 banks collapsing. Who would have compensated them for the damages or losses that they would have incurred. So, if we didn't do this we would have had a massive collapse, and nobody would have compensated the banks for anything."
As for the liquidity ratio pegged at 40 per cent by the CBN, Soludo stated that the request could not be acceded to in order to ensure stability in the exchange rate.
He explained that "the CBN pursues multiple objectives, of which banking sector consolidation is one of the objectives" and as a result, "it is the job of the CBN to make sure we have exchange rate stability and if lowering the liquidity ratio would undermine the exchange rate stability or help to fuel inflation, obviously we would have to pull-back."
The CBN governor said that the demands by the banks would be taken to fiscal and monetary authorities for consideration.
According to him, "we would take some of the demands of the banks relating to fiscal incentives to the fiscal authorities and others to review, while the demands pertaining to monetary incentives would be taken to the Monetary Policy Committee of the CBN to deliberate upon."
Similarly, he said the CBN would approach the National Assembly for legislation on some of the reforms that is on-going in the banking sector
"There might be some legislations and revision of some relevant laws to make it possible for people to operate within the law. We would take that issue to the National Assembly to enact new legislation," he said.
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