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Monday, July 19 2004 Home     Our Mission     Contact Us
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N25bn capital base: Senate drills Soludo

Sam Akpe

GOVERNOR of the Central Bank of Nigeria, Prof. Charles Soludo, definitely knew his new task as the helmsman of the country’s apex financial institution was not going to be an easy one. But what he might not have expected happening very early in his tenure was having to confront the members of the upper legislative chamber, the Senate, over an issue as touchy as raising the capital base of banks to N25 billion by December 2005 when some of them were still struggling to meet the N2 billion initially set for them to meet by January next year.

For this reason, Soludo will be appearing before the Senate Committee on Banks, Insurance and other Financial Institutions on Monday (today) to defend the action of the CBN in this regard. Defending the position of the Senate to invite Soludo to appear before it, the Vice-Chairman, of the Committee, Senator Farouk Bello, who has been very outspoken since the issue came up, said that in spite of the legality of Soludo’s action, there were sufficient grounds for the National Assembly to over-rule the CBN. At present, Bello said, the action of the CBN has the potentials of threatening the peace, order and good government of the country since the pronouncement had panicked the system, leading to run down of small banks. The result, he said was that depositors in such small banks, which cannot meet the paid up capital level set by the CBN, would start withdrawing their deposits from the banks.

Bello said, “However, these banks have already given loans to others. And as money is being withdrawn, loans given out are not being repaid. This will make banks unable to meet obligations of the depositors and will lead to bank distress. The main point, however, is that as this is happening, thousands of depositors will lose money. Thus, an action that was intended to enhance efficiency of the system will turn round to be an action that is catastrophic to the system.”

But more worrisome to watchers of events is the issue of unemployment, which the action of the CBN would likely generate. CBN is looking at about 10 banks surviving from the existing 89 banks. That means at least 75 banks will surely go at an average of 1,000 employees per bank. Implication: about 75,000 graduates are likely to be dumped in the labour market. The situation certainly looks dicey for Soludo and the Senate.

One question has, however, continued to agitate those in support of the invitation of Soludo by the Senate: Does the Senate have the power to invite the CBN governor over such an issue not directly listed as part of its functions, especially when it was not consulted by President Olusegun Obasanjo before Soludo’s appointment? Senator Victor Ndoma-Egba, a lawyer, said in an interview that the powers of the National Assembly in lawmaking was not in any form limited as long as the issue involved falls under the Exclusive and certain aspects of the Concurrent Lists. He said the National Assembly has the constitutional competence to take away the powers from the CBN where it was justifiably clear that such action would be in the interest of the peace of the country.

Just after Soludo was announced as the CBN governor, politicians at the National Assembly, who knew about Joseph Sanusi’s retirement but never read the constitution, suddenly realised that the president can appoint the CBN governor without any consultation with them. If they believed otherwise, then they were somehow right because in other democracies, appointment of a CBN governor must always receive the blessing of the National Assembly.

For instance, Chapter 11 of the Bank of England Act 1998 as amended states: “Be it enacted by the Queen’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal and Commons, in this present Parliament assembled and by the authority of the same as follows…there shall continue to be a court of directors of the bank; the court shall consist of the governor, two deputy governors and 16 directors of the bank all of whom shall be appointed by Her Majesty…”

Established in 1913, the Federal Reserve Board, which is the American equivalent of the CBN, has a governor appointed by the president but scrutinised and confirmed by the Senate. The Federal Reserve Act states that the board of governors of the Federal Reserve System “shall be composed of seven members, to be appointed by the President, by and with the advice and consent of the Senate…” Somewhere in section Two of the Act, it states “Of the persons thus appointed, one shall be designated by the president by and with the advice and consent of the Senate, to serve as chairman of the board for a term of four years and one shall be designated by the president, by and with the consent of the Senate, to serve as the vice president of the Board for a term of four years.” It is believed among the Americans that except the supervisory role played by the Senate is maintained, the president might handpick anyone to do his biddings.

While the appointment of the governor of the Bank of England and the equivalent in the United States of America is always done with the consent of the Parliament, it is not so in Nigeria. Analysts have argued that where elected representatives of the people with various interests are not involved in deciding who manages the economy of the nation, there is bound to be a problem. It means that the president can just wake up one day and pick any of his cronies to run the CBN irrespective of experience and capability.

As Soludo appears before the Senate Committee on Banking, Insurance and Financial Institutions today, the senators may not even raise this issue because it would be too late. What they may seek is the justification for the increase of the banks’ capital base from N2 billion to N25 billion. Any action they would take, if they were not satisfied with the explanation of the CBN, would be based on certain salient factors. Principally, they will consider and accept the fact that the CBN Decree vests in the governor the powers to do what Soludo did. Section 9 (1) of the Banks and Other Financial Institutions (Amendment) Decree of 1999 states that “the (CBN) shall from time to time, determine the minimum paid-up share capital requirement of each category of banks licensed under this Decree,” Sub-section Two of the same section says that any failure on the part of the banks or other financial institutions to meet with the deadline set by the CBN for such a purpose would lead to revocation of license. There is no aspect that says the CBN must first obtain permission from anywhere to do so.

But in exercise of its legislative competence, the National Assembly may want to invoke certain sections of the constitution to invalidate this section of the CBN Act. It may take a second look at and implement Section Four of the 1999 Constitution that vests authority in it to make laws “for the peace, order and good government” of the country with respect to any matter included in the Exclusive Legislative List. Sub-section Four of the same section indicates that the National Assembly also has the powers to legislate on any matter stated in the Concurrent List in Part 2 of the Second Schedule of the Constitution. Under Part One of the Second Schedule of the Constitution, the National Assembly is authorised to make laws covering bankruptcy and insolvency, banks, banking, bills of exchange and promissory notes.

Soludo is a core professional in the business of macroeconomics. A close scrutiny of his curriculum vitae reveals a lot. He obtained his three degrees and then professorship at the University of Nigeria, Nsukka. He has been trained and involved in research, teaching and auditing in such mouth-twisting disciplines as the multi-country macro econometric modeling, techniques of computable general equilibrium modeling, survey methodology and panel data econometrics, among others.

Soludo studied and taught these courses at many Universities. These include Oxford, Cambridge and Warwick. He was also a visiting professor at the Swarthmore College in the United States. He has co-authored, co-edited and authored about ten books on this subject matter.

Little wonder then that when Obasanjo needed a special adviser on economic matters, he did not look very far. And while advising the president on macro-economic issues, he must have been making passing comments on how Nigeria’s banking industry is so saturated with incompetent banks to the extent that sound government economic policies were being frustrated. Obasanjo heard him. Today, Soludo is the governor of the CBN.

The Punch, Monday July 19, 2004
Copyright 2003 - 2004 Punch (Nigeria) Limited. All Rights Reserved
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