On September 7, 2018, the Chairman of the Special Presidential Panel for Recovery of Public Property, Mr. Okoi Obono-Obla, noted in a News Agency of Nigeria report, in Abuja, that the panel was continuing its investigations to “recover monies that have been taken away from the people of Nigeria.” One of such “loot”, according to the panel’s chairman is the “almost $7bn “bailout” that the Central Bank of Nigeria granted 14 commercial banks between 2006 and 2008.
Obono-Obla also confirmed that “after 13 years, these banks have not returned the money to government’s treasury.” Curiously, however, according to him, “when we enquired from the CBN the state of that money, the banks told us that the money was ‘dashed’ to them.”
It is not clear why the presidential panel made its inquiry to the CBN, but instead got a response from the banks. Nevertheless, Obono-Obla reiterated that the $7bn belonged to “Nigerians and so could not be given away, for free, to commercial banks, owned by private individuals.”
Indeed, in exchange for their bloated bad debts, which were often poorly collateralised, over N5tn ($30bn) was additionally eased into the banking sector to bail out distressed banks in 2009. Notably, however, there is still no evidence of any refund whatsoever, of the $7bn, which ex-CBN Governor, Chukwuma Soludo, reportedly “dashed” 14 banks for consolidating the mandatory N25bn capital base in 2006. Ironically, government has since borrowed trillions of naira from, and paid double-digit interest rates to the same banks with whom the CBN placed $7bn “awoof” credit in 2006.
However, the above is the title of an article first published in October 2006, soon after Soludo embarked on a bizarre escapade, which was, arguably, a scam of Nigeria’s treasury. A summary of that article follows hereafter. Please read on.
“The report that 14 Nigerian banks were appointed as ‘asset managers’ of Nigeria’s reserves was published in The Guardian newspaper of October 5, 2006. The CBN spokesperson, Festus Odoko, confirmed in that report that ‘already, $7bn cash deposit representing part of the CBN’s share of foreign reserves, presently estimated at about $38bn, had been released to bankers.
Consequently, the CBN made good its promise to invite Nigerian banks, which succeeded in consolidating a $500m capital base to a ‘foreign reserves banquet’, on the condition that they provided evidence of collaborative agreements with credible international financial houses. However, it is not clear whether or not the required MoU. between the 14 Nigerian banks and their respective international affiliates involves the adoption of global best banking practices and ethical standards, with collateral responsibility for financial integrity and profit, or if such a collaboration is simply a glorified correspondence relationship with credible international banks!
Nonetheless, critics would wonder if the 14 banks which only just succeeded in raising their capital base, with much duress to N25bn, could also raise additional capital of about N35bn so quickly to qualify to manage part of the CBN’s $7bn reserves. Consequently, the CBN may have quietly dropped this additional requirement to pursue its declared agenda of liberally empowering banks with government’s foreign reserves!
But whose interest is the CBN serving with the disbursement of $7bn of public funds with such levity? Although Festus Odoko revealed, in The Guardian report, that the appointment of the 14 banks for ‘reserves management was ratified by the Investment Committee’ on Tuesday, October 3, 2016, the $7bn ‘bounty’, curiously, was confirmed, as already shared before the report was published on Thursday morning, October 5, 2006!
Nigerians may not appreciate that with one stroke of the pen, the CBN committed Nigeria to possibly its largest single investment ever! The question, however, is whether or not the expected return from this ‘huge investment’ will stimulate productivity and employment opportunities, and improve our social welfare. If not, who will benefit from this biggest ever single investment paid upfront by Nigerians with no return? Yes! Expectedly, the 14 banks will, invariably, wear broad smiles to their overseas vaults! Although the CBN has not yet declared what returns are due from the 14 fattened beneficiaries, it is unlikely, however, that it will get more than the prevailing international rate of about three per cent interest per annum for such placements!
Incidentally, the 14 favoured banks are free to invest anywhere in the world! Thus, while Nigeria’s government goes cap in hand for foreign loans to support economic development, the CBN has simultaneously, also, ironically exposed our hard earned $7bn forex, possibly, for ‘free’, to a consortium of Nigerian banks which presently have a consolidated capital base of less than $3bn, without asking for some measure of audit control or equity participation.
Notably, Nigerian banks still do not find it attractive to lend to the income and employment-generating SMEs; therefore, a $7bn largesse may not change the attitude of banks to the real sector. The bizarre strategy of harvesting minimal or zero returns on a $7bn sovereign loan, without tenor, is starkly amplified by the CBN’s willingness to, conversely, simultaneously pay interest rates between 12 and 17 per cent for the funds it continues to compulsively borrow from the same banks!
Furthermore, if the 14 banks are free to repatriate all or part of their $7bn ‘gift’ back to the Nigerian capital market, the obvious domestic investment destination would be further patronage of government’s Treasury bills and bonds where they would earn up to 17 per cent return. Unfortunately, nonetheless, the trillions of naira the CBN borrows with Treasury bill sales are regrettably not tied to any specific infrastructural project, but are inexplicably, simply sterilised in the CBN vaults to restrain consumer demand and higher inflation.
The CBN spokesperson also confirmed in The Guardian report under reference, that ‘the $7bn represents the CBN’s share of foreign reserves!’ The question, however, is what work did the CBN do to earn and freely give away $7bn? Furthermore, the constitution clearly does not allocate any portion of dollar reserves to the CBN. Invariably, crude oil earnings clearly belong to the Nigerian people, as defined by the three tiers of government. Thus, the National Assembly would have defaulted in their constitutional role if the CBN is not invited to defend why $7bn of Nigeria’s reserves should be ‘given’ to 14 banks without any return or oversight approval by the National Assembly!
The above article was first published in full in October 2006 and republished in 2010, 2015 and 2016, with the title “Where is $7bn CBN placed with 14 banks? Not surprisingly, however, by 2009, three years after Soludo’s ‘celebrated’ banking consolidation, most Nigerian banks tittered on the verge of collapse. The 14 favoured banks, apparently, have never repaid the $7bn which may have advanced before the banking crisis. Consequently, Nigeria’s $7bn may ultimately have gone with the wind during the ensuing financial meltdown in 2009! Nonetheless, such probable default still did not stop banks from receiving an additional mind-blowing largesse above N5tn ($30bn) from lifelines extended through the CBN and AMCON interventions to prevent ban failure between 2009 and 2010!
Notwithstanding, the CBN’s misguided Father Christmas generosity, banks have clearly failed to service the real sector with cheap, loanable funds, which would stimulate industrial rejuvenation, economic growth and increasing job opportunities.
Consequently, the EFCC should closely examine the circumstances regarding the sharing and the ultimate fate of the CBN’s extraordinary package of $7bn to banks in 2006. Nigerians surely have a right to know: ‘After all, if the $7bn largesse to banks was a widely reported media affair in 2006, its refund or successful liquidation should also have been heralded by an ‘in-your-face’ media blitz.
POSTSCRIPT: SEPTEMBER 2018: Curiously, despite Obono-Obla’s recent bombshell in September 2018, press/media/public reactions against this brazen pen robbery have been, unexpectedly, rather lukewarm. Incidentally, however, acting on a request, about three years ago, learned silk, Femi Falana and Associates, approached the CBN on the platform of the Freedom of Information Act, for a confirmation of whether or not the 14 banks ultimately liquidated the CBN’s untenured credit of $7bn to privately owned banks. Regrettably, however, the CBN has till this day, ignored the FoI request, until Obono-Obla’s recent revelation.