IN any given economy, banks and other financial institutions play a transformative role in the growth and development. If the banking system is not solid, development of any form will be hindered or compromised.
However, banks do not work alone; they have local and international partners that enable them to execute their primary mandate of saving and lending money. The banks also have regulators. The Central Bank of Nigeria (CBN) licenses banks and regulates activities of the sector in the country.
Despite the critical role of the sector, especially in managing public and private finance, the banking system has been fingered as part of a large-scale criminal enterprise sabotaging the Nigerian economy.
How do we even explain a situation whereby the CBN – the regulator and stabiliser of the financial system – in the last two administrations abandoned its core function of formulating monetary policy to become an “interventionist” agency?
At a press briefing last Tuesday, the CBN governor, Olayemi Cardoso, disclosed that over N10 trillion was spent on various intervention programmes when Godwin Emefiele, his predecessor, was the helmsman.
CBN’s involvement in quasi-fiscal activities in sectors ranging from agriculture, aviation, power, and youth development to many others was clearly to hoodwink the unsuspecting public into believing that the apex bank cared, but it painted the organisation in bad light.
CBN became a jack of all trades and master of none. It was at that time alleged that the entire scheme was designed to be fraudulent. It was also alleged that Emefiele used the intervention projects to feather the nests of his friends, cronies, close allies and those in the corridors of power.
Cardoso, while delivering a keynote at the annual Bankers Dinner of the Chartered Institute of Bankers of Nigeria last year, made the same claim when he accused Emefiele and his colleagues of corporate governance failures.
When the CBN strayed away from its core mandate, Cardoso explained that it came with consequences such as “diminished institutional autonomy of the Central Bank of Nigeria, unorthodox use of monetary tools, an inefficient and opaque foreign exchange market that hindered clear access, lack of clarity in the relationship between fiscal and monetary policies and a foray into fiscal activities under the cover of development finance activities.”
Under Emefiele’s watch, the CBN also broke the law by financing Ways and Means of up to N23 trillion for the Buhari administration when the statutory limit is five percent of the previous year’s budget. The question on the lips of the many was: what did we do with all that money? Yet we had outstanding financial obligations to our lenders, with more than 90 percent of our revenue used to service our debts.
The Ways and Means debacle which now stands at N30 trillion (N7 trillion released so far since President Bola Tinubu assumed office) has been unhelpful to the economy. Once free money is available, the beneficiaries head to the parallel market to mop up dollars. Unfortunately, Nigerians have since lost confidence in the naira because of its continued devaluation and the uncertainty in the forex market.
More than a year ago, the same CBN under Emefiele launched a badly managed currency swap initiative that inflicted untold pains on Nigerians who had to struggle at ATMs to get their cash. Commercial banks – with no sense of shame – profited from the misery of Nigerians by hoarding the naira.
What the CBN did with these policy somersaults was to signal commercial banks to also behave irresponsibly by taking advantage of the weaknesses in the financial system and exploiting them. The bad seeds that Emefiele sowed have grown into economic monsters that are becoming difficult to tame. Under his watch, round tripping, arbitrage and outright stealing, was the order of the day. They made a mess of foreign reserve. It is one of the major reasons why we are where we are today.
We have all witnessed the embarrassing slide of Nigerian currency to depths unknown since the ‘80s when the naira was stronger than the dollar. There was a time in this country when we exchanged one dollar for eighty kobo. But what do we have today? The scandalous exchange rate was inching towards N2,000 to the dollar in the parallel market two weeks ago – an all-time high. In 2014, the US dollar sold for N155.
When Emefiele “liberalised” the sale of dollars, it became an all-comers affair. Almost 6,000 Bureau de Changes (BDCs) with comedic names were licensed to participate in the dollar bazaar which has now become a national disgrace.
Who are the owners of the BDCs? Should we also be surprised at the unwieldy number of BDCs? No, we shouldn’t, because it was a fraudulent scheme ab initio for round-tripping and money laundering.
The unholy trinity that exists between the banks, BDCs and the street hawkers should worry Cardoso and the entire Board of CBN.
In the first place, the number of BDCs should be cut down to not more than 300, and should be serious legal entities. Secondly, hawking foreign currencies on the streets and roadsides should be banned immediately. In other parts of the world, you visit a bank or BDC or use the ATM for your cash needs.
Many customers are unable to withdraw from their domiciliary accounts even when they lodged foreign currencies into those accounts. There was the case of a customer who wanted to withdraw cash from his British Pound Sterling dorm account, but was told by his accounts officer that only the head office can attend to his request.
Insider abuse in the banks result from weak regulations and poor oversight by the CBN, which allows some banks to declare unbelievable half-year profits of more than N200 billion when the economy is bleeding. Every year Nigerian banks and their AGMs declare jumbo profits, but this does not translate into a performing economy. It doesn’t just add up, even when we concede that these financial institutions are in business for profit and make returns to their shareholders. It is becoming clearer that they have a hand in round-tripping in the foreign exchange management process of the Nigerian economy.
Whereas the irregular Bureau de Change operators were isolated and castigated, the public was never able to see beyond the Malam to what the CBN and the commercial banks were doing with and behind the Malam. A good example was the scandal in the humanitarian affairs and poverty alleviation ministry where billions of naira – as usual – were warehoused by some banks after obliging the deal-makers on favourable terms signed under the table.
Idle funds such as unclaimed dividends and money belonging to deceased customers have become “strategic reserves” of banks. Usually, they do as they please with these funds. But even more insidious is the way banks continue to mismanage non-performing loans with inaccurate data and the egregious “immunity” granted to some influential Nigerian customers who blatantly refuse to repay their loans.
Apart from acting as proxies to “hide” money for politicians, ministers, governors, and several government officials whose identities may never be known in ledgers the public and auditors cannot see, banks also fleece their customers with hidden charges which they are sometimes forced to refund when customers go the extra mile to carry out forensic audits of their transactions.
By far, the juiciest harvest for banks and other financial institutions has come from forex transactions because they have perfected the art of managing illicit inflows and outflows for their “clients.”
Banks have also joined the speculators of our currency as they feast on diaspora remittances running into billions of dollars. They trade on this humongous cash reserve for huge profits in the foreign exchange market.
The free fall of the naira (which is clearly not a function of demand and supply), forex distortions, inflationary trends and high input costs have resulted in huge losses for multinationals such as Nigerian Breweries, Nestle and PZ Cussons. The US dollar is scarce. For example, Nigerian Breweries has been operating in Nigeria for more than 78 years, but 2023 was its worst-performing year with a loss of over N150 billion.
If the CBN under Cardoso’s leadership continues with the “paddy-paddy” structure which Emefiele institutionalised, nothing will change. Society is not run by morals but by rules that must be enforced.
The CBN governor needs to bark and bite as he strives to salvage the value of the naira with the ongoing reforms otherwise the banks will continue to exploit all the available loopholes to continue to sabotage the economy.
Government needs to put a leash on the banking sector. It needs to redefine its policies in terms of foreign exchange earnings and management, more so at a time that there is a “robust” scarcity of foreign exchange in the land. The time has come to make scapegoats of some individuals and banks. The Central Bank must muster the courage to rein in some of these banks that are driven by seemingly powerful individuals. Sanctions must be imposed on erring banks – even if it means withdrawing their operating licenses.
