The banking sector’s lame impact on the Nigerian economy compared with its energizing role in the United Kingdom (UK) was examined in an article by Franklin Ngwu (a lecturer in a Scottish university), which this newspaper published recently. He observed that under the latest Central Bank of Nigeria (CBN) Guide to bank charges, various financial transactions incur over 100 different charges, most of which are not charged in the UK just as they are questionable. Those charges, he noted, raise the question whether Nigerian banks are actually financially intermediating or dis-intermediating the economy. Despite having been in existence for over 122 years, the Nigerian banking sector has recorded limited development and contribution to the economy. In his words, with interest rate of about 20 per cent, only about seven per cent of adults and five per cent of firms have loans with banks, even as access to credit remains a major challenge to over 80 per cent of SMEs. He added that from 2008-2012, the average credit provided by the banking sector to the economy as a percentage of GDP was about 24.62 per cent. (In fact, using 2012 CBN Annual Report data lowers the average bank credit to the economy over 2010-2012 as a portion of the rebased GDP to 20.83 per cent).
By contrast, “the lending interest rate in the UK over these years has been about 0.5 per cent, the average credit provided by the banking sector to the economy as a percentage of the GDP from 2008 to 2012 was about 214.32 per cent”. And over 95 per cent of adults in the UK own bank accounts (as against probably less than 20 per cent in Nigeria) and have access to bank loans. Doubtless, the banking sector makes tremendous contribution to the UK economy but parasitizes the Nigerian economy. The latter characterization is supported by Ngwu’s main conclusions, firstly that the numerous and high charges account for the low patronage and wage of the Nigerian banking sector. Secondly, the high profits normally declared by Nigerian banks possibly (nay, wholly, to correct Ngwu) come from the numerous but questionable charges, and the public funds which Nigerian banks manage (nay mismanaged, to again correct the lecturer). Ngwu posed the question: Who is to blame for the banking sector’s high charges and limited contribution to the economy? The direct and unreserved answer, which available facts provide, is the Central Bank of Nigeria along with those to whose tune it dances.
For example, the CBN’s Consumer Protection Department (CPD) has announced that following complaints received from some 5,500 bank customers, the apex bank got the banks concerned to refund overcharges of N17 billion, a whopping average of N3.1 million per customer. But the CPD’s disclosure actually amounts to self-indictment. Having issued the guide to bank charges, the CBN is expected to carry out eagle-eyed supervision of the banking sector in order to unearth any non-compliance and, without prompting, to weed out fraudulent charges, which abound. Take, for instance, the Commission on Turnover (COT), (it is slated to disappear in 2016), which translates into erosion of the account balance for the bank customer as well as value addition earning (VAE) for the bank. Clearly, VAT, by definition, should be surrendered from VAE and borne by the bank. However, banks deduct VAT from the bank customer’s balance, which is fraudulent. Therefore, the CPD needs not await the written complaints of the hurried but silent vast majority of bank customers who are charged VAT on various bank transactions. The CPD should initiate action immediately for the refund of all VAT deductions to bank customers by the various banks not later than a specified date.
As regards the failure of the banking sector to promote economic development, the root cause is the mismanagement by CBN of public sector oil proceeds, which otherwise constitute great economic blessing. Proper management of the oil proceeds demands that deposit money banks (DMBs), to adapt Ngwu’s expression, be allowed to perform their inherent intermediation function between dollar-bearing Federation Account (FA) beneficiaries and forex end-user investors. But alas, the federal executive arm has derailed the procedure for several decades by causing the CBN to withhold FA dollar allocations and substitute freshly printed amounts misconstrued to be the naira equivalent. As a result, the economy has been engulfed in persistent excessive fiscal deficits with the attendant poisonous harvest of excess liquidity, high inflation, sliding and unrealistic currency value, monetary tightening measures, high lending rates and so on. The CBN compounds the excess liquidity because it disburses FA allocations (which should ordinarily hibernate in the government treasury in readiness for release solely in settlement of matured government commitments to third parties) into the DMB accounts of beneficiaries.
Apparently knowingly subverting productive banking culture, the apex bank has put in place measures, which have turned the CBN-induced excess liquidity to the benefit of DMBs and a source of profit to itself but to the detriment of the economy. A dutiful CBN would drain any excess liquidity with appropriately set liquidity ratio and mop up remaining traces of excess liquidity by paying DMBs nominal interest income below one per cent for their administrative trouble. Instead, the CBN, firstly, issues at high interest rate 91-day and 180-day treasury bills (NTBs) to mop up excess liquidity for the sole purpose of sterilisation. Secondly, the CBN rolls over the NTBs a few times and thereafter turns them over to the Debt Management Office (DMO) to be restructured into treasury bonds of various tenor periods. These make up the FGN domestic debt (FDD). By end-December 2012 (the 2013 CBN Annual Report is not available), the FDD stood at N6.5 trillion or 9.1 per cent of the rebased GDP. The FDD so accumulated is strictly sterilised and not used “to finance the priority sectors of the economy and settlement of contractual obligations” as the CBN misinforms the public. In 2012, DMBs and Discount Houses held 55.0 per cent of the FDD; the CBN and the Sinking Fund held 8.3 per cent while the non-bank public (where foreign portfolio investors feature prominently) accounted for 36.7 per cent. With debt service payment for the non-investable FDD (it is provided for in the federal budged) standing at N721 billion in 2012 alone, the CBN effectively assisted the banking sector, itself inclusive, foreigners and a few Nigerians to loot that huge amount from the national treasury in the proportions indicated above at the expense of national development.
The foregoing exposes where the practically wholly unearned profits of the banking sector come from despite the sector’s “dis-intermediation of the Nigerian economy.” Yet, the Federal Government is totally resigned to the entrenched mismanagement of the banking sector and by extension the economy because its latest policies will further whittle patronage and contribution of the banks. The tiers of government and private sector firms are being encouraged to avoid the domestic high lending rates by raising foreign bonds. Given the benchmark of 7-8 per cent interest rates for government Eurobond and private sector bonds on the one hand and the prevailing British lending rate of 0.5 per cent on the other hand, foreign investors are assured of jackpot returns that may well precipitate unfavourable balance of payments just as foreign credit will increasingly produce an appendage Nigerian economy.
That paved road to present and future economic ruin prepared by the fiscal and monetary authorities, which represents the worst degree of national shame. It should be strongly condemned. Hence, the Jonathan administration, firstly should cancel outright the Federal Domestic Debt in its present form. Secondly, proper management of FA oil proceeds should be adopted without further delay in order to unfurl conducive economic conditions under which the banking sector will play a positive role in the development of the economy.
