The recent suspension of nine banks from the foreign exchange market and their readmission a few days later reflect some weakness and confusion in bank regulation in Nigeria. It was depressing enough that big banks could still flout a simple financial regulation, it was worse that the Central Bank of Nigeria appeared to be soft on them instead of imposing heavy sanctions. Such tolerance is impacting negatively on the economy and it is time to shake up the CBN for more effective supervision.
For how long will Nigeria’s regulators continue to tolerate blue murder from bankers? The instant case reflects the contempt the banks have for regulations. It transpired that nine banks had withheld about $2.1billion of the Nigerian National Petroleum Corporation funds rather than remit the same to the Consolidated Revenue Fund of the government as required by regulations issued in furtherance of the Treasury Single Account scheme. Regulations issued by the CBN and the Accountant-General of the Federation last year were clear and unambiguous: all revenues accruing to federal Ministries, Departments and Agencies are to be transferred on receipt into the government’s account at the CBN. A follow-up circular from the AGF in September 2015 to an earlier one in August of the same year, inaugurating the e-Collections platform of the TSA on President Muhammadu Buhari’s orders, directed deposit money banks to close all existing accounts maintained by the MDAs and transfer available balances to the CBN. But the affected banks claimed that the NNPC and other 12 agencies, which are government major revenue mobilisers, were exempted from the TSA policy. This case is intriguing.
By lifting the forex ban on the nine banks within days, the CBN appeared to be vacillating, or perhaps it was in recognition of its own contradictory directives to the banks. It is also curious that the banks were reported to be asking to repay the withheld funds in naira instead of the foreign currency they collected and failed to remit. An advertorial by one of the affected banks was revealing: while pleading the alibi of exemption of the NNPC from the TSA based on an AGF circular, it said that it had to ask for time to refund the over $120 million traced to it, citing lack of foreign exchange availability. This is ambiguous, suggesting that it traded with the funds, either on its own or in collusion with the NNPC officials. Either way, this is doubly unacceptable while the offer to repay in naira is provocative.
The government and the CBN should not allow the TSA to fail and any bank that plays false with it should be severely sanctioned. The TSA was introduced in 2012, part of the long-running public service reforms started a decade earlier. It aims to instil order, accountability and transparency into government’s finances by instantly collecting all revenues due to the CRF, blocking leakages and aligning with the CBN’s cashless economy policy. From about 17,000 public sector accounts with zero interest, all collections now go to the Federal Government’s account at the CBN. Though the collection aspect was to begin in February 2015, the Goodluck Jonathan administration lacked the fiscal discipline and political will to implement it.
Buhari had disclosed in March this year that over N3 trillion had been received, with remittances from 976 public agencies, according to the National Bureau of Statistics.
A report on Monday related how government’s revenue from non-oil exports had fallen by N134 billion in the second quarter of this year, reflecting the precariousness of public finances in an economy that has slipped into recession. An October 2015 report by the CNBC said misbehaving American banks had paid $204 billion fines for their roles in triggering the last global financial crisis, with the 10 largest banks jointly coughing up $110 billion. After paying $16.7 billion in fines, the Bank of America will hesitate to flout the rules in future.
A study published in May found that British banks had paid about $75 billion in fines and penalties for misconduct and sundry legal issues, since 2000. Western governments are particularly hard on lenders for any manipulation of foreign exchange and interest rates, among others. The LIBOR scandal provoked a slew of new regulations in the United Kingdom, Australia, the European Union and Japan. Despite its liberal banking laws, Singapore sanctioned 20 banks in 2013 as part of the worldwide rate-rigging scandal. This is the way to go.
The CBN needs to make penalties for infractions of the rules by banks stiff enough to discourage infringement. Currently, the profits from rule-breaking tend to outweigh the punishment, thereby encouraging bankers to take the risk. Failure to impose very severe penalties on bankers and banks implicated in moving out billions of naira and dollars in contravention of money laundering laws for the discredited immediate past government and politicians is sending out signals of weak or complicit regulation.
The AGF and the CBN Governor, Godwin Emefiele, should infuse clarity into the TSA regime. The CBN should be more assertive, reform its surveillance processes and demonstrate zero tolerance for financial malfeasance in line with the country’s adverse economic situation and the government’s anti-corruption drive.
