Different
strokes for regulators
By Yemi Kolapo
Before
the mother of all regulatory failures crippled the
biggest
names in the global financial
sector and
threw the world into turmoil, Nigerian banks and the
Nigerian Stock Exchange were the country‘s most
exportable success stories aside soaring foreign reserves
and the then stern fight against corruption.
But the follow-on economic
hurricane dressed our celebrated banks and stock exchange
in
new robes of incredulity
in no time and exposed hidden vices at a time they needed
all the cover. Drying credit and record stock market
losses,
which drove many families into financial chaos
even before the second round effects of the global crisis
immediately made monsters out of these hitherto coveted
brides.
Of course, regulators and policy makers mustered all
known tactics to tell Nigerians that all was well, but
the atmosphere was too tense for unverifiable talk to
thrive.
For the banking industry, even though the consolidation,
which saved it from going the way of its big brothers
in the West pitted some groups against each other, the
fact that the banks came out of the exercise, stronger
and better remained incontestable.
However, experts did not go to sleep over that, knowing
full well that if global financial assets built painstakingly
within three decades could as a result of negligence
and greed shed a huge $2.8tn in few months, then the
N3.75tn total capitalisation of Nigerian banks as at
the end of 2008 could also disappear in a jiffy given
the same scenario.
The
banks‘ contribution to the phony bustle in
the capital market, as well as its eventual downturn,
their deviation from developmental functions, and lack
of respect for regulators‘ guiding policies, which
pushed lending rates up north perpetually, further gave
the impression of weak regulation even though the Central
Bank of Nigeria reiterated that there was no cause for
alarm.
But
the resultant de-marketing runs on big banks threatened
the banking sector consolidation
and exposed the apex
bank to coordinated criticism while still battling with
failing macroeconomic stability. The realisation that
this unfortunate scenario could snowball into further
economic catastrophe, therefore, led to urgent actions
by stakeholders to ensure that the banking industry retained
the people‘s confidence.
The
need to act fast became more pressing when the World
Bank prioritised restoring
confidence in the banking
industry over stimulating growth through tax cuts or
spending increases if countries‘ finances must
be oiled.
But confidence would not be restored unless the banks
could prove their capacity to perform their core roles
creditably well, international finance experts said.
As a step forward in Nigeria, therefore, banks agreed
with the CBN to halt the upward movement of rates and
seal maximum lending rate at 22 per cent. The departure
from deregulation might have its dark sides but unusual
times call for unusual actions. One good thing about
this crisis is that perplexed regulators no longer discard
useful suggestions.
In
my article, ”Beating banks to the lending rate
game”, I said one negative side of a rate peg was
that the banks could introduce several offside charges
that would raise effective interest rate, and in the
process, drag unsuspecting borrowers into unserviceable
loan positions. This was in order for many analysts.
But my advice that ”banks that attempt to play
on the intelligence of borrowers by going beyond the
peg or introducing unwarranted rates should be reported
with facts for sanction by the CBN” met with laughter.
Reacting
to the piece, an informed reader, who is also a legal
expert, said, “I didn‘t
expect that you would be fooled by the bankers. The
peg was just
a gentleman agreement between the banks and their friend,
the CBN. The CBN cannot punish any bank for defaulting
because it is voluntary. Your advice that we should approach
the CBN to sanction banks that refuse to lend to us at
22 per cent is laughable because they are only engaging
in cheap talk.”
And as if the CBN was privy to the text message, it
saved my face by debunking the insincerity allegation
and listing sanctions against errant banks.
After its board meeting in Abuja on Monday, the apex
bank said it would, henceforth, suspend any chief executive
officer or official of a bank that charged interest rates
above the maximum approved rate of 22 per cent in addition
to three stage of a N50m penalty.
With this pronouncement, the CBN seems set to rubbish
any errant bank toeing the path of soiling its regulatory
image. Yet, we cannot rejoice until the first culprit
truly finds itself in hot soup, and this can only happen
if desperate loan-seekers do not aid the banks in defaulting.
It is true that cost of fund is high but the banks should
be safe well below 18 per cent, especially now that they
can borrow at a cheaper rate from the CBN with the latest
reduction in the Monetary Policy Rate from 9.75 per cent
to eight per cent.
But
it‘s different strokes
for different folks. For the NSE, hiring foreign investors
to instil confidence
in the Nigerian market will not move an ant. The rot
in activities, which precipitated the market into crisis
before the global version came knocking must first be
addressed. But how can this be addressed when the knotty
issue of the regulated playing the regulator remains
unresolved?
It is very easy to call the Securities and Exchange
Commission names for not living up to its regulatory
expectations as regards the stock exchange, however,
ignoring the politics of appointing and firing in government
institutions where power brokers call the shots amounts
to ignoring the obvious.
Reacting
to people‘s perception of the NSE as
a fraudsters‘ haven, the Exchange on Wednesday
read an empty Riot Act to stockbrokers over sharp practices.
One good side is that in its decision to come down hard
on market cheats, the NSE is gradually shunning its ”know-all” attitude
to listen to stakeholders even though salient issues
are left untouched.
But
the Exchange, in its reaction, unwittingly revealed
that it had all along connived
with criminals to push
investors into serious losses. Or how else can one interpret
the statement by its General Manager/Head, Market Operations
and Information Technology, Binos Yaroe, that ”the
people who are involved in these kind of practices know
themselves, and we know them too, and so, we are appealing
that they stop these activities for their own good”.
Arrant nonsense! If the culprits that contributed to
the woes of investors are known, why haven‘t they
been nabbed if there is no jiggery pokery?
Considering
the extent of the market crisis, I will advise the
Federal Government
to call an urgent stakeholders‘ meeting
where the whip will be rightly handed over to the regulator.
The capital market must be thoroughly cleaned up for
the economy to progress even if it takes showing its
dangerous Mafiosi the way out. We cannot continue to
run an Exchange that answers to nobody.
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