Who is Soludo?

Soludo -no solution

In the post of February 2, 2009 by Fortune&Class magazine titled Yar’Adua under pressure to renew Soludo’s tenure as CBN’s governor, Prof. Chukwuma Soludo claimed that Nigerian economy was not in any way impacted by the world global economic crisis, the statement he had long denied.

Again, as our naira began its decline in December 2008, the CBN Governor made comments that ‘the devaluation was caused by currency speculations by some individuals and certain banks in the country.’

The Governor noted that, “the CBN was aware of the individuals responsible for the devaluation and the CBN will do all in their power to ascertain the speculators are punished”. However, several weeks later the CBN made an official statement that they are responsible for the devaluation of the currency. Again, this was denied too.

Now, it is beginning to look like the CBN does not really have a clue about the problems confronting the Nation. First Nigeria was not impacted, and then later Nigeria was impacted. Then speculators were responsible for the currency devaluation, later the CBN was intentionally letting the currency fall.

And for a man who is not sure of his standings, what sense is there in shifting blames by claiming that, “With the Obama government proposing to invest heavily on alternative energy sources, there is a permanent threat to oil as mainstay of the Nigerian economy. Unless we take urgent steps to address the situation by also finding an alternative to oil as the mainstay of our economy, we might be back to the similar crisis we witnessed in 1982 when the price of oil crashed, government revenue declined and it became difficult for government at all levels to pay salaries. There was also the abandoned projects syndrome, increased import of almost anything until government was forced to place a ban on foreign currency trafficking because it was being abused.”

Must the nation always depend of oil revenue for its GDP growth? What policies is he making in his on position as the nation’s apex bank governor in ensuring economic stabilities in the areas of agriculture? Has he forgotten the effect of policy somersaults on the masses? What actually are his achievements in the area of micro-finance banks, interest rates. Yet also to be forgiven is the politics he played in the uniform year ends for the financial industry? It is a pity what our leaders are turning us into. With this kind of comments, the African nations in general are being portrayed as beggars. But we are not.

Such missteps do not send good signals to Nigerians and foreign investors because what these pronouncements and subsequent contradictions show is that either the CBN does not understand the economic problems confronting the nation or they have intentionally decided to confuse or misrepresent the facts to the nation. These types of inconsistencies will eventually result in a great loss of confidence, because what it indicates is that if the CBN is unable to determine what the problems of the economy are, a solution may not be forthcoming or formulated to fix it.

A popular maxim says a person tries his whole life to rebuild a day tarnished reputation. No matter what, the history has been re-written of Prof. Chukwuma Soludo as the most confusing governor of the central bank of the Federal Republic of Nigeria. And that is who Soludo is, a man without solution.

Story by Dman John.

FED GOVERNMENT LAUNCHES N50 BILLION MICRO CREDIT FUND

The Federal Government has affirmed its commitment to micro credit aspect of the economy with the launch of the N50 billion Micro Credit Fund. Dr. Goodluck Jonathan, the nation’s Vice President who represented President Umaru Musa Yar’Adua at the 3rd Annual Microfinance Conference and Microfinance/Entrepreneurship Awards organized by the Central Bank of Nigeria in Abuja, said that it was in recognition of the fact that access to finance is a powerful tool for moving people out of poverty into economic prosperity that the Federal Government launched the N50 Billion Micro Credit Fund (MCF).

While declaring the conference open, the President in his address, commended the CBN for the implementation of the Microfinance Policy, Regulatory and Supervisory framework launched in 2005, he noted that other similar measures adopted includes the 7-Point Agenda and several economic reforms.

The Governor of the CBN, Professor Chukwuma Soludo, in his address, underscored the effects of the current global financial crisis and highlighted the need for microfinance banks to re-position for better service delivery to their target clientele. He noted that in spite of the financial meltdown, the CBN is still committed to maintaining the value of the Naira, stable exchange and single digit inflation.

He reiterated the commitments of the CBN to the development of the microfinance sub-sector through the strengthening of regulatory frame-work capacity building like the introduction of the Entrepreneurship Development Centres and Certification programme for the operators of MFBs and the release of guidelines for the establishment of the credit bureau, Deposit Insurance, Agricultural Credit Guarantee Scheme (ACGS) and Interest Drawback Programme (IDP). Professor Soludo called on state and local governments and high net worth individuals, to establish MFBs, especially, in view of the un-even distribution of MFBs nation-wide.

Cancellation of uniform year-end saves banking sector …bank stocks now best buys – experts

As published in the Sept. 28, Iss. 33. Site Admin. ol’Victor Ojelabi

The idealism of Central Bank governor, Prof. Chukuma Soludo, did transform the nation’s banking industry. From a motley crew of pretender-financial institutions, Prof. Soludo presented to the nation on the first day 2006 a manageable community of 25 banks that have passed his test of the N25billion mark.

On the attainment of this feat, believed before 01-06-2006 to be an impossibility, the Nigerian banking public celebrated the Professor of Economics and, of course, got inebriated with the promise of greater things to come from the banking sector. Banking experts caught on to propelling excitements steaming from the office of the CBN governor, “with more money from consolidation, banks were going to drive the active sector” was the chorus.

The industry did make a jump to new levels of growth, Nigerian banks, have since 2006 been involved in financing billion plus naira projects in the hefty oil and telecommunications sectors, that was unheard of in the pre-consolidation era. Personally, I am enamoured with the gleam of glamour and high tech platforms on which Nigerian banks dispensed financial services to the public.

The banking consolidation certainly has an impact in galvanising a trendier banking culture and it shows in the lifestyles of bankers and their institutions that have become celebrities in the public place with each competing for media attention in a rather morbid claim to the nation’s number one ranking in the banking sector. So much that Nigerians were regaled with figures of banks that had crossed the one billion dollar shareholders’ fund, some other countered on their multi-trillion naira asset and all that. For the naïve watcher of the banking sector, the easy conclusion would be a sector that is vibrant on all measures of indices. The investing public was apparently taken in, for good reasons too, banks had become the main drivers of the Nigerian Stock Exchange, accounting for the biggest chunk of trading activities in the market in terms of volume and value.

All these together must have emboldened the CBN governor to push farther his idealistic template to ensure a banking industry that can compete with any other across the world on credibility of operations and status ranking in translating turnover to profit. Unfortunately, this altruistic illusion was the undoing of the CBN governor. Soon after he announced that the nation’s banks must all adopt the same December year-end, all manners of strange things started happening.

The same year-end implies that each bank would stand alone in presenting report of activities to investors. This would provide the basis for comparing the profile of banks against one another and of course, lend credit to claims by each bank.

Then a state of near stultification of the ordinary banking operations commenced. Banks started a desperate hunt for deposits to shore their vaults in the run up to the year-end deadline. To secure these deposits, banks were ready to obligate themselves to very high interest rate. There were clear signals that the economy was grinding to a halt as banks lending activities were thrown to the back offices in preference for deposits drive.

The inter bank rate, the rate at which banks lend themselves money sprinted beyond the year on year average, there were suspicion that banks needed to use this borrowed funds from other banks to make their books look good.

The signs of trouble were noted in the CBN Quarterly report but not many gave much thought to it. The report notes that “With tight liquidity conditions in the money market, following the upward review of the MPR from 9.0 to 9.5 per cent in December, 2007, deposit money banks (DMBs) accessed the CBN lending facility more frequently to square up short-term positions. Consequently, a cumulative sum of =N=8,658.91 billion was granted to DMBs on overnight basis in the review period, compared with =N=523.91 billion in the preceding quarter.”

The report further asserts that “available data indicated mixed developments in banks’ deposit and lending rates in the first quarter of 2008. With the exception of the average savings deposits and seven-day savings rates which, fell by 0.26 and 0.16 percentage points to 2.97 and 5.38 per cent, respectively, all other rates on deposits of various maturities rose from a range of 7.75 9.90 per cent in the preceding quarter to 9.48 10.71 per cent. On the other hand, the average prime and maximum lending rates fell by 0.44 and 0.07 percentage points to 16.05 and 18.17 per cent, respectively. Consequently, the spread between the weighted average deposit and maximum lending rates widened from 15.01 percentage points in the preceding quarter to 15.20 percentage points. On the other hand, the margin between the average savings deposit and maximum lending rates narrowed from 10.77 percentage points in the preceding quarter to 10.31 percentage points. The increase in interest rates during the review quarter was attributed to the upward review of the MPR in December, 2007. At the inter-bank call segment, the weighted average rate, which was 8.25 in the preceding quarter, rose to 10.30 per cent, reflecting the liquidity squeeze in the inter-bank funds market.”

The CBN was rather being merely academic with its reasons for the lending rates’ differentials and liquidity squeeze, by the time the reports for subsequent quarters are made public the spiking of credit relationship between banks on one hand and with the CBN on the hand, would tell of the tension that would have run the banking sector aground if the CBN had gone ahead with same year-end policy.

The unusual tempo of activities in the sector eventually got the CBN scared of the dire consequences if it insisted on going ahead with the same year-end policy. It was obviously a beaten Prof Soludo that informed the nation of the CBN’s decision to cancel the same year-end policy as a result of what the apex bank described as observed unhealthy trend/development in the industry whereby some banks were mobilizing deposits at very high interest rates that were inconsistent with economic fundamentals which was becoming a threat to market stability.

The CBN confirmed in the public announcement that it was compelled to cancel the same year-end policy “in the light of the developments in the economy and the misplaced perception that the interest rate trends are linked to the requirement of a common year end and therefore decided that the year end will no longer be a requirement. Consequently, each bank and discount house is at liberty to adopt its own accounting year end as it deems appropriate and can inform the CBN accordingly.”

The announcement has certainly calmed the brewing storm in the sector, so it is back to business as usual. Banks will continue to declare enormous profit, banks would continue to inundate the investors with sparkling financial positions and because banks drive the national economy in an awkward inverse relation to the active sector that should, in the ordinary sense of economics, drive the national economy, banks would continue to make more money than any other sector of the economy. This is why any investor wishing to make the fast break in the stock market should now start hunting for banks’ stocks. With the exception of Unity Bank and Wema Bank that are currently on suspension, all consolidated banking stocks listed hold great prospects, principally because bankers know how to play the Nigerian economy better than any other sector player. This is a lesson in fundamental consideration in investment decision making.

WE ARE VINDICATED

Since mid-2007, we had stridently made calls for reformation of the Nigerian stock market, we had published stories of infractions that threaten the integrity of the market, we had revealed manipulative antics of some operators and their collaborators, and had asked for more pro-active monitoring and supervision of the market, especially in transactions involving moribund companies. Some had hailed our courage for revealing the truth, some had vilified us, and some did not even pay any attention to our positions. But a five-month bearish run in the market has justified our position calling on all market players to play by the rules. The roll-out of emergency measures to put in abeyance the unwholesome domination of the capital market by the bears, have justified our principled position.

Yet, the surveillance continues.

FRAUDULENT CREDITS HAUNT NIGERIAN BANKS -Industry Sources Warn

Despite continued assurances made by Central Bank of Nigeria’s Governor, Prof. Chukwuma Soludo restating the healthy state of Nigerian banks, reliable banking industry sources have indicated otherwise.

The sources warn that many commercial banks’ risks exposure is quite high, this, the sources averred is responsible for the growing tension in banking operations in the country.

“Of course, most banks keep issuing spectacular financial results, declaring huge profit after tax. But we can tell you that all you see are mere accounts engineering for which financial sector regulatory authorities should be held responsible.

“It is unfortunate that the auditing processes of companies have not been criminalized, if they are, all the shenanigans happening in the banking sector would have been exposed. We can tell you that several banks have lost there shareholders funds. The same capitalised funds that the CBN Governor is hailing as the proactive measure of consolidation that have supposedly saved the Nigerian banking industry.

“But have you ever imagined to the dividends several banks declare at their year-end? If you look at their books properly, they morphed the supposed dividends in their assets account. Yet what the requirement is that funds attributable to dividend should be set aside and, indeed, forwarded to the registrars for onward delivery to shareholders.

What some of the banks do, however, is to transfer some funds to the registrars, which usually are under their direct supervision because they are the banks’ subsidiaries. The registrars just make a show of posting dividends, but then, what you will soon hear is unclaimed dividends. The truth is that the dividend warrants were not dispatched in the first sense.

“Again, So many concerned Nigerians are looking to commercial banks exposure to the stock market as the next likely cause of distress in the Nigerian banking industry, yes, we agree that the stock market may be a possibility, but more than the eventuality we expect from continued worries arising from banks’ risk exposure in the capital market is the heavy exposure to fraudulent credits granted to some highly rated Nigerian and foreign businessmen that have become more or less moribund.

“We can tell you of a celebrated businessman who owes several banks a total of about N412billion debt and as the days pass it is becoming increasingly impossible to recover the sum from him. Besides, there is another gentleman who recently stormed the petroleum products marketing sector. He secured a facility of more than N50billion to finance his diesel supply business and joined other top players in the market to slash price for competitive advantage. But now, the situation have turned bad for him, again it is becoming increasingly bad for him.

“A Nigerian branch of the group of companies owned by an Asian ranked in the list of the world’s ten richest people had on the strength of the track record of the wealthy individual behind the company wracked up about N92billion facility form different Nigerian banks. For this individual, the slide in the global financial market has badly affected his business empire that he is to talking about official bankruptcy. With such a situation what is obvious is that it would become near impossible to repay the facilities secured from Nigerian banks.

“We qualify most of the facilities so secured by these businessmen as fraudulent because the processes of securing are often compromised. We have investigated how conniving accounts officers of some of these banks compromise the whole process of risks and collateral valuation. These account officers are usually promised a percentage of the amount to be loaned out; they forward favourable reports to the management, again, there are members of the management who are insiders to these compromised processes; they easily approve the reports for their personal gains.

“What all these boil down to is that if the CBN Examiners properly conduct the review of the books of most of these banks as required, the revelations will be shocking. On this basis, we want to warn that depositors’ funds with several Nigerian banks are at risk. People should start becoming cautious as they relate with their banks. Just a small slip could cause a lot of damages to depositors’ funds.