The oppressive impact of the myriad charges on the transactions of everyowner of a bankaccount in Nigeria, was subject of discussion, in this columnin recent weeks. Mediareports have also suggested that these charges, may contributetrillions ofNaira income for banks annually; indeed, the income fromretained stamp dutycharges, alone, may have exceeded N6 trillion, if figuresbandied by NIPOST andagents are ultimately verified.
Thesubstantialincomes from bank charges, invariably, supplement hundreds ofbillions of Nairaincome from the regular, and extremely profitable business ofgranting loans tothe CBN, States and Federal Governments and several businessesand accountholders nationwide.
Theabove title “How Banks make Free Money from Government Funds” (www.lesleba.com) wasfirst published soon after key decisions made at CBN’s MPC No.90 of 22/23 July2013, were announced. Notably, over 5 years thereafter, thequestion stillremains, whether or not the oppressive, financial absurdity,which incumbentCBN Governor Sanusi condemned, in 2013, still prevails today?A summary of thatarticle follows, hereafter; please read on.
“…First of all, you have gotliquidity surplus in the banking industry; … there is overN1.3trn or sositting in banks and belonging to government agencies. Nowbasically,they (these funds) are at zero percent interest, while banksarelending about N2trn to the government and charging 13 to 14per cent! Now, that is a very good business model, isn’t it? Give meyour money forfree and I lend it to you at 14 percent; so why would I goand lend toanyone?” (LamidoSanusi, CBN Governor, July 23,2013)
“Theabove statement, which, corroborates views regularly canvassedin this column,was Sanusi’s defence of CBN’s Monetary Policy Committee’sdecision to raise theexisting CRR (Cash Reserve Ratio) of 12 percent to 50 per cent onall public funds, domiciled in commercial banks, in order toreducethe inflationary threat from aggressive credit expansion bybanks.
“Invariably,larger cash deposits create liberal opportunities for banks toleverage on suchdeposits, to expand credit and thereby increase public andprivate sector spending,which may, inadvertently, drive higher inflation rates.”
“Thus,this latest requirement for banks to hold higher cash reservesis really anadmission that the existing 12 per cent CRR, unduly,instigated credit expansionand drove higher inflation rates.” “Some critics may however,regard the much higherCRR as inappropriate, since it would also further reduce thealready inadequatecredit to cash beleaguered businesses.”
“Thiscolumn has, consistently drawn attention to the patentlyreckless strategy ofbanks lending their so-called surplus funds (excess liquidity)at atrociousinterest rates to the same CBN, which ironically, induced thesystemic excesscash supply!!
“Thankfully,Sanusi may have finally recognized, according to him, that “Ifyou want to discourage such perverse behaviour, part of itis to basically takeaway some of this money; a reserve requirement istherefore, supposed to makesure that the excess liquidity in the banks’ balancesheet, is evenlydistributed”. Nonetheless, if CBN fails inpractice, to ensurestrict compliance with the new 50percent CRR policy, systemicsurplus cash willpersist and expectedly drive higher inflation rates withdisastrousconsequences for cost of loans, consumer demand and economicgrowth.”
“Nevertheless,Sanusi’s fear that even the higher CRR may not adequately cageinflation isprobably embedded in his warning that “if spending continues,and we are concernedabout the liquidity conditions, we foresee in the nearestfuture, continuedincrease in the CRR across board….” Consequently,if surpluscash deposits persist despite the new measure, CBN wouldfurther increase itsalready oppressive CRR beyond 50 per cent for both public andprivate sectordeposits; predictably, this may drive interest rates,sucidally, beyond 30 per cent!”
“Thiswriter has consistently decried the foolhardiness ofgovernment’s borrowingback its own cash deposits with banks, at extortionistinterest rates and consequentlyadvised instead that it would be more businesswise, forMinistries, Departmentsand Agencies to domicile their monthly naira allocations,internally withCBN. Regrettably our external debt strategy, also follows thesameself-oppressive model of borrowing what one has in undeniableexcess!” (see www.lesleba.com) for “Willyou Borrow Back Your Own Money and Pay 17 per centInterest? …Ask CBN!” – 27/12/2004 and “MPRHike: Failure of CBN’s Monetary Framework”, 01/08/2011).
“Allthe same, Sanusi’s new directive of 50 per cent CRR forgovernmentdeposits, is clearly, an uneasy half way measure, and criticsmay wonder whythe CBN Governor cannot, in his characteristic style, take thebull by thehorns, and demand that ALL government funds should be bankedwith CBN!”
“Invariably,total domiciliation of Government revenue in CBN, will lead toa significantcontraction in systemic cash surplus, and thereby restraininflation;regrettably, however, cost of funds to businesses may not fallsignificantly ifgovernment remains actively in competition with the realsector for both longand short term loans.”
“Ultimately,an enduring cure to the high cost of funds and unyieldinginflationary push isto tackle the root cause of excess liquidity; i.e. to firstrecognize excess liquidityas the direct product of CBN’s monthly substitution of nairaallocations fordollar revenue, and secondly, to also ensure thatbeneficiaries of thefederation pool receive dollar certificates for their share ofmonthlyallocations of foreign distributable income. This arrangementwouldfinally exorcize the, seemingly, perennial ghost of systematiccash surplus andits train of adverse consequences on our economy and peoples’ welfare”.
“Inits place, minimal, socially and industrially supportive,inflation rates will evolvewith lower single-digit interest rates in tow! The naira willbecome muchstronger, and eliminate any remote possibility of subsidizingfuel prices, thusachieving the erstwhile seemingly impossible task of benignlyderegulating fuelprice, so that, hundreds of billions of naira saved can beploughed intocritical social infrastructure and positive social welfareprograms.”
“Ultimately,the purchasing power of all income earners will improve tostimulate increasingconsumer demand, which industrialists and entrepreneurs wouldhasten to profitably,satisfy, in a prevailing ambience of low inflation andinterest rates and amuch stronger naira.”
Postscript April 2019: The TreasurySingle Account (TSA) which consolidated all Government fundsin CBN wasultimately implemented in August 2015, based on an earlierframework developedovertime by Obasanjo, Yar’Adua/Jonathan Administrations.
Regrettably,however, TSA implementation and 50 per cent CRR, still did notremove the perceivedliquidity surfeit in commercial banks, as the secludedGovernment fundsfiltered into the open money market the moment MDAs madeexpenditures fromtheir treasury allocations. Indeed, the Bankers’ CommitteeChairman had evendeclared that banks’ liquidity position was not seriouslyaffected by thereductions in CRR. Inexplicably however, after the MPC No 103rdmeeting,on 23rd September 2015, CRR was reduced to 25 percent for allpublic and private sector deposits and later to 22.5 per centin March 2016. Thereafter,CBN’s CRR, MPR and liquidity ratios remained unchanged forwell over 24 months,despite the attendant disruptive economic impact, until afterthe MPC 123rdmeeting in 2019 when the MPR alone was singled out formarginal reduction from14 per cent to 13.5 per cent!
Despitethese subsisting harsh policy rates, CBN has continued tomop-up perceived Nairaliquidity surplus at a rate which often correlates withGovernment’s annualfiscal plans! Consequently, CBN may have been compelled to payhigh counterproductivedouble-digit interest rates to banks, in order to remove closeto N9.0tnperceived surplus liquidity from the system in 2018!Invariably, conversely, thebanks may have earned close to N1tn from such interestpayments in 2018.
Instructively,however, banks have continued to post humongous profitsannually with theprevailing business model; inexplicably, however, businessesin the productivesector have continued to wail!
SAVETHE NAIRA, SAVE NIGERIANS!!!
