CBN as misguided Father Christmas

By Les Leba
In view of the apparently ‘boundless’ funds at the disposal of Nigeria’s Central Bank for its independent interventions, observers, including the National Assembly have frowned at the proprietary and the shrouded protocol surrounding the values and the choice of beneficiaries of the apex bank’s bonanza.

The CBN, however, insists that these interventions are in consonance with its enabling Act, and therefore distinguishes its cash gifts as Corporate Social Responsibility (CSR), in furtherance of its primary mandate for “price stability” to drive real economic growth.

The following examples of CBN interventions in some sectors are by no means exhaustive; for example, Bayero University, Kano, has so far collected N1bn out of a projected N4bn donation; the University of Benin similarly got an ‘awoof’ of N500m a few months after Lamido Sanusi received an honourary award from that university.  Lately, the media reported CBN’s donation of N10bn for infrastructure capacity and manpower development at Uthman Dan Fodio University, Sokoto.

The Vice Chancellor of University of Lagos, Prof. Rahman Bello, had earlier also confirmed a N10bn project intervention from the CBN!  Accordingly, Mr. Kabir Nuhu Koko, CBN Deputy Director for Project and Planning similarly confirmed that the CBN has selected “six secondary schools, six tertiary institutions and six public sector institutions across the nation’s six geopolitical zones for its intervention in 2013".

The criteria for selecting beneficiary institutions from each geopolitical zones are probably only known to CBN.  Nonetheless, some observers may be concerned that the establishment of a “project and planning services department in the CBN may also be another wasteful duplication of the existing primed capacity and manpower structures of the Ministry of Education”.

In similar vein, CBN’s donation of N100m to victims of Boko Haram menace in Kano and the apparent afterthought of extending similar financial assistance to victims of the bomb attack at the Catholic Church, Madalla, Niger State, appear to also duplicate the functions of the National Emergency Management Agency.

The value of the above social interventions, however, pale into insignificance in comparison with the trillions of naira empowerment to prop up banks and grow the economy with onward low cost loans to the real sector. The intervention funds of well over N3tn in the banking sector include the initial N620bn injected to rescue 10 banks in 2009; additionally, over N600bn was expended by AMCON to recapitalize the three bridge banks in 2011, while about N1.725tn was also spent by AMCON to acquire the non-performing loans of banks.

Nonetheless, CBN management insists that the interventions in the banking sector are loans and not expenditure; besides, according to the Governor, CBN is “empowered by its enabling Act to invest in debentures”, in institutions such as Bank of Industry, where it intervened in sectors such as aviation, agriculture and small and Medium Enterprises.  According to the Governor “as long as loans are not expenditure and we are empowered to grant loans, then the legality of our action… is not questionable”.

Furthermore, according to Sanusi, CBN’s spending does not require appropriation since it is provisioned for outside the nation’s consolidated revenue fund, as “its expenditure provisions derive from the proceeds of its investments and loans or printing money, both of which are covered by the CBN Act.”  In other words, the funding for CBN’s various CSR interventions are sourced from its profits; nevertheless, the investment portfolios that generate the funding of CBN’s huge CSR interventions may still need clarification!

Sanusi also claims that CBN’s intervention in the rescued banks was defined by “its statutory role as the lender of last resort, in the context of providing liquidity in the system when banks face liquidity challenges in meeting their obligations”; Consequently, “if CBN does not lend money to banks or government, then you don’t need a Central Bank; to lend money is why we exist”.

The preceding may sound economically bizarre in the light of the recent belated recognition by the same CBN Governor that the unyielding pressure of surplus cash in the system induces the aberrant reality of government impulsively borrowing back its own funds from banks at rates of interest between 13 and 14%.

Thus, despite over N2tn cash ‘loans’ for banks’ support, the apex bank simultaneously also inexplicably borrowed trillions of naira of government deposits from the same banks!!  The CBN claims that the bailout funds were strictly loans to the banks, but pray, what rates of interest did the banks pay in comparison to the cost of government’s borrowing from those same banks, which also have custody of government’s interest-free deposits?

It would require super-human creativity to make such a business model profitable enough to sustain CBN’s liberal largesse to its beneficiaries, especially when the funds borrowed by the apex bank are simply sequestered (kept idle)to reduce money supply and the threat of inflation rather than a strategic application to any interest-yielding or capacity-building investment.

Evidently, the current balance of over $40bn self titled ‘CBN own reserves’ could never have been accumulated from such an impractical business model; the awkward reality, of course, is that, while  CBN’s dollar reserves keep increasing with minimal yield and impact, the government still goes cap in hand (till date) to seek domestic and external loans at oppressive rates of interest.  Instructively, the more CBN substitutes naira for dollar revenue in monthly allocations, the higher will be CBN’s reserves, while the burden of surplus naira will similarly increase to instigate the ‘curse’ of high interest rates and government borrowing back its own funds.

Regrettably, however, the CBN has failed to achieve its constitutional mandate for price stability while the banks remain resistant to supporting the real economy. The impacts of bailout packages in the US have since repositioned both the automobile and mortgage subsectors; curiously, however, CBN’s sectoral interventions have failed to produce the desired impact; for example, the N35bn to Air Nigeria may have become money down the drains!  Worse still, the CBN continues to borrow back government deposits at double-digit interest rates, even as you read this article.

SAVE THE NAIRA, SAVE NIGERIANS