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Banks challenged to step up as CBN set to withdraw public sector funds

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IMAGE: CBN Governor Mallam Sanusi Lamido Sanusi »



Story:  John Omachonu


Nigerian banks will be challenged in the weeks ahead to enhance professionalism within their systems by way of growing the requisite skills-set for real banking, improving risk appraisal, rendering enhanced customer service and re-assessing the overheads they bear in terms of number and cost of branches, among others.

This follows on the imminent removal of all public sector funds from the vaults of banks.

Besides, the 100 percent hike in cash reserve ratio (CRR) by the Central Bank of Nigeria (CBN) will engender real intermediation that banks are supposed to do through even allocation of resources to all sectors of the economy.

Sanusi Lamido Sanusi, CBN governor, said this at the 30th anniversary lecture of the Udo Udoma & Belo-Osagie law firm in Lagos, yesterday.

The move, which will be through the Monetary Policy Committee (MPC) chaired by Sanusi, will see the CRR moved to 100 percent, thereby forcing banks to create risk assets through aggressive deposit mobilisation.

However, some analysts said yesterday that the development would highlight the state of the banks, in terms of skills acquisition in relevant areas such as risks and credit appraisals.

The move, the analysts said last night, would make the current tightening policy stance of the CBN more meaningful to both the citizens and government, through checking of fiscal dominance, with the resultant effect of high liquidity in the system which is putting pressure on the naira.

Speaking at the anniversary lecture, Sanusi decried a situation where, in the face of current account surplus, with oil price above $100 per barrel, the external reserves continue to go down, exposing the economy to external shocks.

“From the perspective of economic theory, a persistent surplus on our current account, resulting from high oil price, should see the naira strengthen. However, the failure to build reserves has resulted in strengthening expectation that the naira will lose value. This expectation has been manifest in a continuing switch from naira to foreign currency-denominated deposits,” Doyin Salami, a member of the Monetary Policy Committee, had said at the recent MPC meeting.

Speaking further, Sanusi wondered how people would expect the CBN to perform its task of price stability in the face of fiscal dominance, stable exchange rate in the face of scarce foreign exchange due to leakages and theft, and how it could put the naira stable in the face of dwindling fiscal buffers.

Consequently, the CBN governor said his concern was to have a stable naira and exchange rate, stressing that this was the area that affected most Nigerians, rather than interest rate.

He expressed the opinion that when these funds are moved to the CBN, which is the best practice internationally, banks would become agents of development by moving funds from excess areas to where they are needed.

The implication is that liquidity in the system would be monitored and controlled; government’s accounting procedure would be synchronised and transparent, while the accompanying speculation of foreign capital withdrawal after hike in CRR would be eliminated.

“Available evidence from our decision to increase CRR on public sector deposits to 50 percent in July 2013, for instance, shows that this is one form of monetary tightening that has led to increased lending to the real sector by banks,” Uche Chibuike, a member of MPC who, like Sanusi, is an advocate of removing or increasing the CRR rate, said at the last MPC meeting.

“This is so because the incentive for banks to earn rent income by simply colluding with government officials to privately place government deposits in such banks has been reduced. Banks have therefore been forced to focus more on their intermediation function which is what leads to economic development,” he added.

But some of the banks are so heavily exposed to public sector funds that they have abandoned their core responsibilities. Besides, management of public sector funds by banks had always encouraged corruption, as government officials are usually gratified by banks for patronage and in most cases at the expense of developmental projects.

As such, Sanusi said the CBN had to embark on intervention in various sectors of the economy so as to engender growth and development, adding that this had manifested through lending to agriculture, which has moved from zero level to 4 percent, and the financing of the privatisation of the power sector by banks.

BusinessDay gathered that the CBN had recommended the establishment of a Treasury Single Account (TSA) to check some of these abuses but government had not been forthcoming.

Underscoring the importance of TSA, Chibuike further said: “At the very least, the incessant practice of unnecessary borrowing at high interest rates, while simultaneously holding huge balances in non-interest yielding deposits, will be greatly curtailed. Despite this simple logic, government is yet to implement the TSA. This has led to widespread allegations that private interests within government policymaking circles are colluding with banks and benefitting handsomely from the status quo, through the receipt of deposit brokerages.”

Article Credit: BusinessDay Newspapper

Updated 5 Years ago

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