Are Bankers Really Killing the Economy? By Abubakar Suleiman Forwarded by Amina Ado As
a banker, I was naturally dismayed when I saw the back page of the PUNCH
of Nigerian
banks are some of the most competitive work place on earth.
Our work hour is humorously referred to as 5 to 9 instead of the
traditional Nigerian
banks are not 100% free of the charges of corruption against the
country. Banks are known to
have taken advantage of the system to engage in FX frauds and paying
brokerage to government officials, and to a lesser extent engage in
money laundering. Nigerian
banks have not financed long term projects and have fairly inadequate
investments in the productive sector.
Nigerian banks (most of them are less than 20 years old) are not
western banks with centuries of experience and no decree on earth can
make that happen. When our per capita GDP reaches US$9,120 ( And
coming down to the business of lending, I want to make this very clear,
banks can only lend what they get. If
we receive overnight money (current account, call deposits) we put it in
treasury bills and other liquid assets.
If we get 30 day money, we seek for 30 day assets.
A bank’s primary obligation is to ensure that it is able to pay
depositors on demand and that can only be achieved if your balance sheet
is structured to ensure that your obligations (liabilities) do not fall
due before your loans (assets). Sir,
the banks will become distressed if they use short term funds to finance
long term manufacturing and agricultural projects.
You
might ask; why cant Nigerian banks attract long term deposits? The whole
country is built on political inconsistencies and policy summersaults!
In the last Monetary Policy Circular, the government gave the banks till
December 2005 to meet the minimum capital requirement of NGN2billion.
Six months later, the most respectable bank chairmen and CEO’s
in the country (admittedly a few scoundrels were present) were assembled
by the CBN governors and told, in fairly rude terms, that they must
cough out NGN25bn, merge or be liquidated! And they were not to ask why.
And you expect people to place money in banks for one year?
It is on record that the government does not respect tenure
contract signed by parastatals when withdrawing government funds.
If a bank had lent that money to a manufacturer, how will that
bank terminate the existing contract and repay? According
to the President, banks charges 25% in a 19.4% inflationary economy.
If we pay depositors less than 19.4%, their investment will have
a negative real yield. Yet the maximum lending rate is 19%. Bank
deposits attract approximately 3% reserve (CRR), liquidity (SLR) and
insurance (NDIC) costs. Add this to your inflation figure and you get
22.4% as the break-even deposit rate. Assuming investors expect their
money market funds to grow, in real terms, by 5% and you get 27.4%. Add
the banks' cost of business (Say 5%- considering the state of
infrastructure and security) and you are at 32.4% without any margin.
And, I forgot to mention the 10% withholding tax!!! Please sir, how can
this add up to a profit? Banks
are expected to lend at 19% yet government parastatals places funds with
banks above 20%. Mr.
President wants banks to provide equity funding for companies but not
have control over these entities. That
is what the capital market is for. By
their very nature, the money markets attract tenured funds which banks,
as custodian, cannot invest in equity without the consent of the
depositors. Everybody
complains of interest cost and blame banks for the woes of
manufacturers. When are the manufacturers going to put in their own
equity and recapitalise instead of depending entirely and perpetually on
bank loans? If their business proposition is profitable and they are
willing to dilute their shareholding, let them go to the capital market.
Maybe it is time we re-evaluate the cliché that manufacturers
are not making money because of finance cost.
The prices of manufactured goods, as represented by the consumer
price index (CPI), tend to rise faster than the maximum lending rate.
So if a manufacturer takes a loan and buys inputs at today’s
price, in three months, the goods will be sold as fairly higher prices
than is represented by their input cost.
Besides, there are lots of manufacturers that are not dependent
on bank loans but the fortunes are no better.
Nigerian manufacturers cannot compete because I
hear all the people that ran down our educational systems are not only
sending their children to schools abroad but are now queuing up to build
private universities (I hope it is not with bank loans).
I also know that we do not have a single hospital in this country
that is good enough to cater for our cabinet ministers (even for basic
check-ups). We are begging
white Zimbabweans to save are agricultural sector (good thinking) but
thank God our banks are holding their own.
It is interesting that not a single bank chief has been jailed
for all the rent seeking and FX round tripping.
It is regrettable that 11 weak (or is it distressed?) banks are
allowed to continue to operate, some with negative equities!!
If banks supervision was allowed to function efficiently, these
institutions will either be fixed or liquidated, not allowed to operate
side by side with efficient and safe banks.
And
If I may ask, why is mercantilism so attractive?
Why does the system allow merchants to prosper while farmers and
manufacturers suffer? Why is
it cheaper to import petrol than to refine it? I
tell you something-banks are victims of their own success.
Everybody knows that oil company workers earn far more than banks
and that telecom has all but overtaken banks in compensation.
And where does this money go? If you earn one million in You see, the banks are not the one killing the economy, our rulers already did that. And until we have a leader that can stand up publicly and confess that they have failed the people over the decades instead of giving national awards and hosting expensive sporting events, we will continue to look for people to blame. And bankers make very nice fall guys. |