How new cash reserve policy will breed corruption, by expert



• Canvasses review of CBN Act

• Ban on Bankers’ Committee meetings

A development economist, Mr. Odilim Enweagbara, has faulted the reduction of banks’ Cash Reserve Requirement (CRR) for public sector deposits in the country, saying it is counter-productive and could breed corruption.

The Central Bank of Nigeria (CBN) had, during last month’s Monetary Policy Committee (MPC) meeting in Abuja, harmonised the CRR for public sector deposits with those of the private sector from 75 per cent to 31 per cent.

The CRR, as a monetary instrument, stipulates, in percentage terms, how much of banks’ deposits they could keep with the regulator for some form of interest accruals. The CBN oftentimes uses the CRR as a liquidity-tightening measure to starve deposit money banks (DMBs) of funds in the form of naira that ordinarily could have flooded the economy.

With the reduction, however, banks will now have more funds in their coffers from which to lend to critical sectors of the economy.

But Enweagbara, in a chat with The Guardian, contended that the reversal has cancelled all the gains of what he described as the sound economic policies by the immediate past CBN governor, Mallam Sanusi Lamido Sanusi. He called for immediate review of the CBN Act to remove the mandate of monetary policy formulation from the apex bank’s governor and his team, just as he wants the Presidency to directly supervise the CBN in the interest of the economy.

On May 18, the CBN, in one of its policy decisions at the MPC meeting, harmonized the two sector CRR regimes, saying it was discriminatory, limiting the economic space and could inspire moral hazard. Before that date, the CRR on public sector deposits was 75 per cent while the requirement for private sector was 20 per cent. CRR being one of the liquidity management tools is the minimum percentage of customers’ deposits a bank must hold as reserve with the CBN. It limits the banks’ chances of over exposing customers’ deposits.

The CBN Governor, Godwin Emefiele, while explaining why the CRR had to be harmonized and how the MPC arrived at the decision, noted that monetary policy is gradually approaching the limits of tightening and would, therefore, require complementary fiscal and structural policies. “In view of these developments, the committee decided by a unanimous vote to retain the current tight stance of monetary policy. One member voted to increase CRR on private sector deposits from 20 to 25 per cent and retain CRR on public sector deposits at 75 per cent,” Emefiele told newsmen at a briefing at the end of the meeting.

Enweagbara expressed concern that the reduction of the public sector CRR will promote corruption by public office holders who may move their establishments’ funds into fixed, high-interest yielding deposits to enrich themselves.

“For example, if a governor, minister or director general puts N10 billion budgeted for capital projects in one year into a fixed deposit at 15% interest, he would have made a whopping sum of N1.5 billion just by illegally moving some public money from current account to a fixed deposit account.

“As public sector deposits benefit public office holders, so do they benefit banks as demonstrated by the kind of astronomical profits these banks declare year-in-year-out simply by lending the same money belonging to government to government. But in July 2013, the then CBN governor, Sanusi Lamido Sanusi, brought the fraud to an end by not only increasing the CRR on public sector deposits from 12% to 50% that month, in January 2014, he went further to increase it to 75% and with a promise to further increase it to 95%. Alarmed, the banks and the public officers were quick to stop him at all costs and he was suspended.

“Those who didn’t understand how Lamido Sanusi had stepped on powerful toes, by increasing CRR, wrongly attributed his suspension to his embarrassing whistle-blowing which exposed the billions of dollars missing from the NNPC. But, in reality, it was the ongoing increase of CRR on public sector deposits and his latest threat to further increase it to 95 per cent.”

Enweagbara said: “Unlike in most countries where either CRR on pubic deposits is mostly 100% or it is illegal to put public money in any form of interest-yielding fixed deposits, public officeholders in Nigeria have illegally moved public funds from their non-interest yielding current accounts to high interest yielding fixed deposits, and done so to capture the huge profits emanating from that for selfish gains.

“During the recent Monetary Policy Committee meeting of the CBN, which took place between May 18 and 19, 2015, a monetary policy coup took place without Nigerians knowing it. On May 19, the Emefiele-led CBN reversed all the gains brought about by Sanusi since January 2014 by reducing CRR on public sector deposits from 75% to 31%. This reversal has since become inevitable since most banks’ huge annual profits are dependent on this fraud having long been lobbying for this reversal.

“It is this money put in fixed deposits that banks go ahead to lend back to government at exorbitant interest rates. This year alone, government is spending N943 billion not in paying for the loan, but simply in service of our so-called N12.06 trillion domestic debt owed mostly to these banks. This, unfortunately, did not include the billions of dollars recently lost to the banks when the CBN falsely defended the naira at N155 from July 2014 to October 2014 while the fall in global oil prices was depleting the country’s foreign reserves. Instead of the managers of our monetary policy to patriotically do the needful, they artificially kept the naira so high to deplete the country’s scarce foreign reserve accounts.

“Even when these managers seemed to have finally come to their senses, rather than fully devalue the naira, they still preferred self-serving cosmetic measure which led to such minor devaluation from N155 to N168. This was carefully done to ensure that the banks and their foreign partners in foreign exchange speculation buy up all the dollars the apex bank made available in its false defence of the naira.

To fully understand how much the decision not to fully devalue the naira from N168 per dollar to about N200 per dollar cost the country, imagine how banks and their foreign partners in currency speculation were handed free N32 per dollar until they gradually dumped the naira.

“Let us now see the actual money wasted. Since the CBN spent $5.0 billion to keep the naira artificially high, let us multiply N200 per dollar by $5.0 billion spent on this false defence of the naira (200 x 5.0 billion = N1.0 trillion). This money was wasted between November 2014 and February 2015 because of the disjointed policy of the CBN.”

According to the development expert, “recent actions of Emefiele and his deputies have unapologetically proven Mayer Amschel Rothschild, founder of the Rothschild international banking dynasty, right. Rothschild, in 1802, bragged that ‘The man who controls Britain’s money supply controls the British Empire. And since I control the British money supply, I control the British Empire.’’

“The question we’ve to ask ourselves is: why should a group of unelected, so-called technocrats have the kind of enormous power and use it as it pleases them, including pursuit of narrow interest, at the expense of the nation’s economy? If the president cannot oversee how the monetary policy of the CBN is conducted, how can he achieve his economic campaign promises, the reasons for which millions of the citizens elected him into office?

In order words, why is the president who should from time to time present his economic performance card to the electorate is not allowed to use his official power to direct the monetary policy decisions of the country? That is why the presidency should be fully involved in the formulation and implementation of best monetary policy that should engender economic development, as it is the case in developed economies like the US and China.”

Enweagbara said for this reason, the president should waste no time in repealing some sections and subsections of the CBN Act of 2007, which gave independence to a tiny group of people who, not being politically neutral in the decision-making, always get away with their alleged anti-economic growth monetary policy flip flop.

According to the expert, another absurdity in the Act is allowing the governor to chair CBN’s Board of Directors — the supposed watchdog. He said good governance and transparency not only require the board chairman to be either a former president or vice president of Nigeria, the 12-man board should be reduced to a seven-man board with only three members from the CBN.

He recommended that the amendment of the 2007 CBN Act should include the insistence that all the MPC meetings of the CBN — particularly its interest rate and exchange rate policy made to foster credit flows in ways that facilitate an orderly economic growth and job creation — are fully and rigorously scrutinized by the Presidency along with the relevant National Assembly committees before any policy is adopted.

“Also, the amendment should explicitly ensure that no longer should the apex bank governors and their deputies be appointed straight from commercial banks; after all, the U.S. hardly appoints its Federal Reserve chairmen straight from a commercial bank. Former bank chiefs should not be appointed into the country’s apex bank until, at least, five years after leaving the banking sector.” Enweagbara argued that “This way, we can prevent the ‘revolving door’ and ‘industry capture’ being witnessed today, particularly the recent increase in CRR on public sector deposits. For this reason, the amendment should also empower the president to at least suspend, if not remove, the governor or any of his deputies anytime he believes their monetary policy is not in line with the president’s economic agenda. Because the CBN management’s allegiance to the commercial banks is manifested at the Bankers’ Committee meetings, where banks’ interests such as their demand for high interest rate regime and strong and stable naira are lobbied, the amendment should include outlawing Bankers’ Committee meetings.”

The development expert further said “Besides amending the 2007 CBN Act, there is the need to quicken the enforcement of the Treasury Single Account (TSA), which the immediate past administration came up with at the tail end of its tenure. If fully implemented, at least, TSA will make it extremely difficult for banks to grow their portfolio on MDAs while at the same time assist them to corruptly divert public funds, particularly trillions of naira internally generated.”

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1 Comment
  • curtis uwuigbe

    This same argument of not allowing Commercial Bank Chiefs and their Deputies go straight from their banks to the CBN applies to inviting ex-World Bank and IMF Chiefs/Experts to the Nigerian financial systems. At best, they should be advisers but not the people who make and take the final decisions.