Dr. Oladimeji Alo on the Economy and the Banking Industry
Category: Money Market
October 26, 2011 / Proshare Web TV
In this exclusive interview with Temple Asaju, Proshare’s News Editor – Dr. Oladimeji Alo, Former Director General of the FITC and Currently MD/CEO of Excel Limited discusses issues relating to the banking industry, recent decision of the MPC, the fuel subsidy removal and the recently concluded recapitalisation exercise.
Q: Based on the theme for the Chartered Institute of Bankers of Nigeria’s 2011 Annual Lecture, what model would you recommend for the Nigerian Banking Industry? There is nothing fundamentally wrong with Universal Banking, same way there is nothing wrong with mono-line banking. My worry, as expressed today at the annual lecture is that we move from one system to another without adequate discussion with a broad spectrum of stakeholders for their input, or so it would appear.
I think that it is not just for us to follow what they are doing in the United Kingdom or what they are doing in the United States of America, wholesale - We should take a look at whatever we have in our system; lets analyse it and that analysis should be done by not just one institution, before we move to the next one, otherwise we will find ourselves in a situation where we move from A to B and then back to A – quite an expensive adventure. That’s the only concern I have. I see nothing wrong with Universal Banking in concept and ditto mono-line banking; but if you must make a choice let us have a more inclusive dialogue before we decide what is best for us.
Q: What is your take on the new key-bench mark lending rate of 12.5%, increased by 275 basis points?
Well, as an individual, I had an occasion to mention that I find it strange that once in a while the CBN publishes rates and they don’t see anything wrong with the very wide margin between rates charge by banks on loans and rates paid for Fixed Deposits. This is the first time in a very long time that I have seen the rates for Treasury Bills even higher than the rate the banks are offering. The Treasury Bills are issued by the Federal Government and it is the safest investment anybody can have and I think even if we had such a disparity it should be for maybe two months or more but we have had it for a year now, so I think something is fundamentally wrong.
With such a gap, we are discouraging savings, at the same time the banks are merely taking deposits and buying Treasury Bills Rates and sitting on the money. Also banks are not lending, so the earlier we correct it, the better.
Q: What can you say about the Fuel Subsidy Removal, do you see this coming at the right time?
I have always been in favour of the removal of fuel subsidy but of late, as I listen to the debate going on, I begin to get worried about what is really going on. In principle, I don’t think the ‘subsidy’ has played the role it was intended to play. In other words, only very few individuals or corporations benefit from the subsidy. In fact, as we speak now - it is only in places like Lagos and perhaps some other areas that you might be able to buy fuel at N65.00 per litre, I understand in some parts of Nigeria, they buy at a much higher rate. So the question is what is the point in the subsidy?
The other challenge therefore has been that we had removed fuel subsidy at least two or three times in the past, how come we get locked in this problem on a cyclical basis? Why don’t we allow a situation whereby the fuel prices adjusts itself over time rather than fix a rate by fiat and create this huge problem that we have today. So if I may just answer your question; one, in principle, I am in support of the fuel subsidy removal but I think that we should have a structure that will ensure that we do not get into this problem going forward.
Q: What can you tell us about the downtrend of the Financial and Capital Market, can the Monetary Policy Rate and the Fuel Subsidy Removal restore Market Confidence?
Well, for me, the monetary authorities are doing their best, but what they are doing looks like fire-fighting and unless you address the fundamentals, all that this would secure would be no more than some stabilities for one week or two weeks and then three weeks down the road you begin to have some problems. Why am I saying that?
I am concerned that Nigeria as a country has really not come up with any package to deal with the Global Economic Crises. We are going on as if everything is okay. We are still talking about large number of ministries and extra departments and large salaries for Senators and House of Representatives Members and a Hundred and One Special Advisers. We are spending and going on as if everything is okay. All over the world, every government is talking about what can be done to rein expenditure of government and to embark on an austerity measure. In my view, Nigeria should have been in austerity eighteen months ago, so we are eighteen months behind time and my concern is that when the whole thing will blow up, our case might be worse than that of Greece. So we need to begin to drum it to the people’s consciousness that our economy is not in the right shape. There is no point pretending and we need to begin to take steps. So how should we approach this? First, cut down the number of Ministers we have, cut down the number of Special Advisers, rationalise the agencies, bring down what these politicians are earning in the Houses of Assembly, most of them are part-time anyway and send the right signal that the country needs to adjust its economy.
Look at what is happening now, we are spending approx. seventy percent (70%) on Recurrent Expenditure and spending just less than thirty percent (30%) on the much need capital vote - where can we go from there? ...listen to the gentleman who spoke from RBC, Canada... what they have done to their debt and all of that... again, these are issues that we are not addressing.
The Obasanjo regime did well to at least bring down our external debt, but what has happened since then? Virtually every state is borrowing all over the place, the question is; what are we doing from the fiscal part of our equation? There is only so much the CBN can do, there is so much the regulators can do unless their efforts are complemented by that of government in terms of the seriousness to address our spending pattern, consumption pattern and our economic management we are just wasting time.
Q: Are you optimistic that the Nigerian Banking system is heading in the right direction?
That’s a difficult one to answer because for me, I don’t like the way the banks were acquired. I feel it is something that calls into question the integrity of the regulators because I believe that integrity is very critical. If you say you are giving them up to the end of September to recapitalize, then give them up to that. But if you did not announce that, then you are under no obligation to wait on any of them but once you announce that as a public policy, you do not then come back two months before that time to say you are nationalizing them because they are in critical condition. Those kind of conditions, do they happen just over one week? For me, that is something that in itself puts at risk the integrity of our regulators, because next time people will begin to second-guess what the regulators say.
Having said that, of course there is nothing new in government coming in to take actions when they find that one or two institutions pose a risk to the system but the question is all these things must be done in a way that is transparent, in a way that is properly explained so that people will not begin to spin stories around. To make myself clear, I do not see anything wrong or unusual with nationalization, because it is done not just in Nigeria and but other parts of the world, if the authorities find that it is necessary. The only thing I question is; why make an announcement and give a deadline and you do not wait for that time to come..., it is as if you are laying in ambush to get them on board. Also, subsequent explanation as to why that kind of ambush has to be done has not been given. Now what does that mean in moving forward, and the confidence that the public has for the regulatory pronouncement?
Q: What is your take on the procedures for acquiring the acquired banks?
The acquisition, if you follow what has been going on, I do not see anything wrong with the acquisition because this followed the right process, an EGM of each of the banks to approve the resolutions, Court-Ordered processes been followed, Regulatory approval, The Security and Exchange Commission’s approval, Central Bank of Nigeria’s approval... the only one I may comment on is the ‘cat and mouse’ relationship between the shareholders associations and the authorities. That, I am sure was not properly managed, to the point that because the nationalized banks were nationalized, it kind of put the banks involved in the acquisition under pressure... So to me, that pressure in itself would make the entire process not to be what you would call a voluntary thing; “it is like you have the sword of Demagogue behind you... and that you saw what happened to your cousin two weeks ago? You better go and meet him and agree to this merger... otherwise we will nationalise you, and if we nationalise you, your shares will become zero...” so you can see that all the Court-Order EGMs went smoothly thereafter. Again, we need to sit down and examine all that in the future and see whether there are better ways of doing those things.