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Unintended fallout of publication of banks debtor lists may jolt economy – Lemo

By on July 27, 2015

Former Deputy Governor, Central Bank of Nigeria and Chairman, Lambeth Trust and Investment Company Limited, Mr. Tunde Lemo, in this interview with Festus Akanbi, speaks on issues ranging from life after his exit from the apex bank, trends in the banking sector, including the planned publication of lists of delinquent debtors of banks and outlook of the Nigerian economy in the second half of the year
Can you tell us your experience about life in retirement after your exit from the Central Bank of Nigeria one and a half years ago?
The word retirement does not apply here for people who are still active because you can move from one career to the other and I guess what you are trying to say is since my exit from the CBN what has my experience been? But the fact is that I have never retired and I don’t really believe anybody should retire. You can age gracefully and wind down as your health permit you to do. In the last one and a half years since I left Central Bank, life has been interesting. I think for a very active public officer of my cadre, when they leave office, it is expected that they, for at least one year or more, shut down, think about the schedule you have been through in the last 20 to 30 years and step out and reflect on what has happened, what you have done and what you have not done to help people.

This will help to mentor those coming after you just as you will realise there are few things you didn’t do right. You would have learnt by saying maybe if I had done it this way, it could have been better. It will also help to enable you use your experience. The fulfillment you have, particularly when you get to the society, you will begin to see that because of what ABC did, the society has become better for it. That comes with fulfillment and that also empowers you to really go out and influence the youth. If you can do it right, after office, you will savour success and it will give you satisfaction that money cannot buy and that is basically what my experience has been.
Stepping back and see banks now very strong, very resilient and comparing them to where they were in 2003, before I joined the central bank of Nigeria,  I will say glory be to God.
When I travel out of the country and I see Nigerian banks in other parts of Africa playing key roles and not as bystanders, there is that inner joy.  I always thank God for the policy initiatives during our own time. I was part of it and that is the result we are seeing. When I look at the energy sector today, and I see big ticket transactions which Nigerian banks are financing, whereas in the old days, they were just onlookers, you would have to fly in a foreign bank to do the job and today, they can on their own, through clock deals finance LNG projects, finance multibillion dollars projects, I just nod with satisfaction that glory be to God.
In terms of the payment system in Nigeria, you should look at what digital payment system has done in the country. How it has helped social safety net. Today, many of the people who look to us from the village 10 to 15 years ago didn’t have access to us. There was no way we could assist them but today, just with a text message,  you can say dear uncle, I’m broke, send  N10  to me and within a short space of time, the money is there in his account . This is one of the reasons why we haven’t been having social upheavals and unrest. You begin to wonder what is happening in those states that have not been paying salary up to seven months and you have not been seeing their dead bodies on the street. It is because they were being taken care of by others. It is the payment system that facilitated this. Look at the way it has helped Nigeria’s GDP. Look at the way it has helped in curbing the incidence of home breaking. You no longer hear of armed robberies, of people breaking into homes because when you break a home now, what will you get? You may end up getting nothing because everybody now have the knowledge of efficient way of taking care of money whenever you want to spend it through your ATM, through mobile banking, through e-banking.
Somehow, it has helped to take care of corruption because people now have direct means by which they receive their salaries. I understand, in some places, when salaries were collected, the foremen would deduct illegally before the salaries were released, but today, the worker will just get a salary alert and the money will be in his account. Today, I sit back and give glory to God that the 10 years’ service at the CBN had not been a waste.

One of the innovations within this period you talked about is the shared services among banks; to what extent will you say this has been embraced by all the banks?
Shared services stand on five planks. The first of course is the cashless policy. How do we conduct our services in such a way that you depend less on cash. Today, the menace of bullion vans has reduced substantially. In those days, every bank had fleets of bullion vans, you don’t see that anymore, we now have bankers’ warehouse where two or three specialised companies do that for others, that is part of shared services. In other words, banks should be banks, and they should not be running transport or be getting armoured vehicles all over the place.

You also need to look at investment in computers. Although that has not been concluded but banks have gone far in that in ensuring that they have data centres that they can jointly invest in and plans are ongoing with other service providers to take a good advantage of that services. When you step out and see other key areas where banks are already collaborating, like the Banks Verification Numbers exercise. That is part of shared services. We have a very robust data bank that will capture customers’ identities to take care of identity fraud, to take care of so many things on behalf of the entire industry. The BVN that NIPSS is anchoring is an industry initiative. Today, when you have account in 10 banks, all you do is to go and do the BVN activity in one of those banks and of course the information is made available to others, so shared services philosophy has gained grounds and it has assisted banks to reduce the cost of operation.

Why does it appear as if the federal government is reluctant to allow the naira to reflect its actual value? What do you think should be done to save the naira in the current circumstance?
First, I don’t think it is right to say that government is reluctant to let naira find its true value. It is not right because the central bank that I know is autonomous and government does not dictate to central bank on the value of the naira. The government will be happy if naira is devalued. Why? Because the bulk of their revenue is in dollars and if there is devaluation, they will get more naira to spend and so it will help to reduce the funding gap that we are talking about. So if you ask a governor or a president, he will prefer devaluation so that there could be more naira on the table to spend but that is really not how it happens.
You have to look at economic fundamentals. Nobody that understands this economy will tell you whether or not the value of the naira today is what it is supposed to be…whether it should firm up or go down. The value of a currency, whatever it is today is a reflection of the economy. It is a reflection of where we are based on the economic fundamentals and looking at the significant shock we have had in the oil price, one can understand why it is where it is and there are few things we can do to firm up our currency. Let  me give you an example, prior to now, look at cedi, the Ghanaian currency had depreciated far more to dollars than naira in the last three to four years but there were few adjustments that were made by Ghana and in the last one week, there has been appreciation of cedi. So what I believe we should do in Nigeria is how to make such adjustments because the economic agents responsible for the flow of dollars understand the system more than we do and when they look at those structural rigidities, they hold back. They look at it once they are not satisfied and they see the way we conduct the economy, they will not take a bet on your currency because they are rational economic agents and I give you few examples. We have been talking about the dynamics of oil price. Why do we have to be subsidising fuel price. It is very unnecessary.

If we were afraid before when oil price was high, we should have taken the opportunity when it was low to take off the subsidy; the past government was playing to the gallery by reducing the price of litres of fuel from N97 to N87 ostensibly because of the election which was very unnecessary. We should have deregulated. One of the benefits is that the refinery we do not have will come on stream if we deregulate. There is no way private sector operators can set up refineries if we do not deregulate the prices of fuel because their numbers cannot add up. If subsidy is removed today, the refined product may be sold at N138 or N140. I think N30 is not too crazy because people who should buy are buying between N100 and N110. Others who think they are buying cheaper haven’t factored in the inconveniences they suffer. For instance, it took me up to one hour to get to my office from my house, a journey which supposed to take me not more than 15 minutes.

You lose a lot when you have invested up to half a day all because you want to buy cheap fuel, by the time you put in the opportunity cost, it is even costlier than the price when it is deregulated. So the poor man you think you are protecting is actually being exposed to uncertainty and commercial drivers are building that uncertainty into their prices because a journey that supposed to cost N500 now costs N800. Meanwhile, if you deregulate and you allow them to buy at N130, there will be no queue anywhere and then everybody will be happy and the overall benefit is that you will then begin to see investments in the downstream sector that will then bring the price down to a new equilibrium of say N100.
So coming back to the value of the naira, when we begin to do that, over N2billion that the government is using to subsidise fuel will be available for social services, our import bill will go down and with this, value of the naira will firm up. Let us also look at our lifestyles; we don’t have the business of importing the first 10 products we import into the country-refined products, rice, sugar, wheat and so on and so forth. It is only Nigerians I know all over the world that do not eat what they produce. Today, 170 million Nigerians are providing jobs for those who produce wheat overseas, we are providing jobs for those who produce rice in Thailand by importing rice when just one state can produce 5,000 metric tonnes. Our consumption is five million metric tonnes. Just 10 states in the middle belt can supply all the countries of Africa and when you run the numbers and you no longer need that, the rate of the naira is a balance between demand and supply of the dollar. When you do that often, you will see the rate firms up even to N150 even now currently, the depreciation of the naira should be an opportunity for exporters.
For Nigeria now to even reach out to other markets outside the country, it is only in Nigeria that we always bemoan our losses. People in other climes are very happy when there is depreciation of their currencies. Most major currencies in the past one year have depreciated against the dollar. Virtually every currency has depreciated against the dollar. What is happening in Nigeria is not sad news but what is sad is that the benefit we should take as Nigerians are not being taken. A depreciated naira would have meant more competitive products all over the world. Let us run a diversified economy and behave the way other people behave and we shall have the result.

How do we explain the wide margin between the official and black market rates of the dollar?
That in my view is what the central bank should look at. I believe our development partners, that is the IMF and World Bank will be unhappy at the development because this is what they called multiple exchange practices. There is no way you can have a complete convergence, in a developing economy, in a currency that is not freely convertible because of the documentation requirements for official funds, there is still going to be little difference but that difference shouldn’t be more than five to seven per cent. When it is up to 10 per cent, then it is becoming very worrisome and that is what should be looked into and I think it is because of this regulation, this strong rules about   what officials think it should be. We can use tariffs and other things to correct consumption. If we allow multiple exchange practice, it will not help capital flow because the supply of dollar will dry up, it is also going to hurt our economy and then there will be arbitrage opportunities. Even angels will fall into the temptation that if I get money at subsidized rate, I can arbitrage and move it in at another rate. We should discourage arbitrage opportunity; I think there should be concerted efforts to close the gap.

What is your view on the directive by the Central Bank of Nigeria to banks to publish names of delinquent debtors at the end of this month considering the protest of the Lagos Chamber of Commerce and Industry against the directive?
For me, the central bank has been my constituency; I don’t have sufficient information to know the mind of the authorities on why the naming and shaming is what is needed at this time.  I will not criticise central bank but I will like to find out what indeed is the reason for that because I’m not sure that is what I see in other parts of the world. First, the customer-bankers relationship is supposed to be confidential and there are a thousand and one different reasons why loans go bad. I agreed that there are bad boys, there are serial debtors who must be dealt with but there are several other ways by which they can be dealt with but when you throw away the baby with the bath water, it is bad.

There are some people in marginal business, maybe because of the structure of the economy in the last few years-unanticipated shocks may have meant that their businesses were not in the right direction. If you go ahead to publish the names, you may even kill them by so doing because people will begin to disparage them and avoid doing business with them. There may be unintended consequences and that is why I think they need to take another look at the directive but again, without condemning them because I don’t have all the facts on the table, there may be other reasons why, I better not jump into conclusion that they are wrong, but I will want to know if possible why this is so but I will counsel because of unintended consequences.

Will you say anything has changed in the banking industry between the period you managed Wema Bank as chief executive and now?
There have been positive changes between then and now. In those days, the biggest banks then had a total shareholders fund of around N25-26 billion. I remember, by July 7, 2004, Governor Chukwuma Soludo came up with the consolidation idea, only two banks then could beat their chests and say they had no problem with the minimum capital of N25 billion. There were so many marginal banks with N1 billion and so many that even had negative capital.

If you look at their bad debts and so on and so forth, many of them were technically insolvent even though they were still allowed to operate. We had 89 of them but today, we have only 23 to 25 but they are very strong and very active. I think today’s banks are very strong and very resilient and I want to say it is because of the activities of the regulators, not just central bank but NDIC and other stakeholders in the safety net activities. I think there have been significant changes. When you also look at the way business is conducted, they are more technologically savvy now. In those days, electronic payment had not gained ground as it is now. Many of them are now internationally active and there have also been stricter rules around risk management, stricter rules around concentration and so on and so forth. They were not there before and so, the stake is higher now and then of course, the level of sophistication is higher and the banks are better for it.

So what will you say about Wema Bank as it is today?
We thank God that Wema Bank has turned 70 and it is the only surviving indigenous bank. That feat has not been surpassed by any other banking institution. At the time we left Wema Bank in December 2003, Wema was then one of the top 10 in terms of size out of 89 money deposit banks. Then we had consolidation, and then we had crises and so on and so forth. They weathered through the crisis and today, they are where they are. When you look at their demographics, the first thing you see today is that you see much younger people in Wema. There has been shift and so a lot of them have experience in new generation banks which they have brought to bear. It is an institution that has been rejig, an institution that now has a combination of the legacy of the past which is an advantage in banking because you have been in this terrain for several years, you have learnt so many things, one of which is resilience and yet with the modern skill that any young bank would boast of. I think Wema is a bank to watch, a bank that would be much greater and I’m happy that it is a better place than it was before.

How achievable is the dream of the bank to apply for a national licence?
The bank has more than what it takes to return as a national bank. Let me also tell you something about Wema Bank. Even when they had a national licence, at the time I left, 80percent of their business was concentrated within the geography that they are operating now even as a regional institution. It was because CBN then had just one authorization for everybody, whether you were operating only in Lagos, like IBTC of old, or you were operating all over Nigeria like First Bank of old, it’s the same authorization we had, you just have to decide which part of the geography you want to concentrate on for your business.

Then central bank came up with differential capital and given what they had, where they were coming from and the difficulty they had then, it was smarter for them then instead of looking for money to make up N25 billion, since they had a little more than what they could make do as a regional institution and bearing in mind that 85 percent of their business is within that region, they then decided to optimize capital by saying that instead of looking for additional N15 billion, let’s optimize this capital after all, we are already where a regional licence would keep us , so we are not losing anything. But in the past six to seven years that they have been there, they have expanded the frontier, they have developed the brand and they have repaired the institution and I think they are strong enough now to have national authorisation. I know the people who are there, their skills and professionalism and I know they are as good as any other banks with national licence authorisation. My view is if they have the capital, the central bank will give them a national licence because they have what it takes. The current CEO, was ED in Skye Bank and Skye Bank is one of the top four today and it is ditto for so many others there. I don’t have any doubt at all that it is achievable.

With six months gone in the year, how will you assess the state of the economy and how will you describe the outlook for the year?
It’s a mixed grill in the sense that in the last quarter of last year, we saw the problem with the oil price shock, and then as we were grappling with that, we were neck deep in an election, it was an election year. The fever actually started in the second half of last year up to the first quarter this year. We were distracted by elections because of the uncertainty around the election, because the way politicians were speaking, it was as if there would be no April 1.

That affected the economy. New investment decisions were not taken on time because nobody was clear about what post-election Nigeria would be. This flowed down to the first quarter, together with the oil issue. In the second quarter, it was a pleasant surprise; there was a change of baton in a very crisis free manner which of course was a plus. I remember that the gain in the capital market that day was unprecedented, the highest in the 50 years history of the Nigerian capital market. But that euphoria is gone now and the reality is dawning on us now.

Yes, there is change, but the economic blueprint of government is what we need to see now. Thank God this present government has started well. First, we are going to see significant fiscal restraint. From the nature of Ahmed Joda Committee, you can now see that the present administration is unhappy with the bogusness of the public sector, so it’s going to shrink, even public sector in states will shrink because many of them are almost becoming insolvent, they are owing six to seven months’ salaries, so there is going to be significant shrinkage in the public sector. What we like to see is for Buhari to come back from the US and then begin to roll out the economic blueprint. That is important for the private sector so that the sector can then begin to project how they want to run. For me, I think they should fire the bullet by announcing the removal of subsidy. That will also help to free up resources for the much needed social service.
However, there is still significant headwind and which is the future price of oil. In the last few weeks, we have seen the price of oil flowing from about $59 dollars to about $54, about nine percent shrinkage. Three things have happened in the world that may sustain the present low price of crude oil. First is the shale oil in the US. Two, is the deal in Iran that promises to release more oil into the international market and that will deplete the price of oil and if you run the numbers, it not very cheery at all. Currently, we are producing about 1.9 million barrels per day. The budget was predicated on 2.2 or 2.3 million. The benchmark price is $52 and we are already $54. If you multiply $54 by 1.9million barrels per day, it is actually short in expectation than $52 which was predicated on 2.4 million barrels per day. So if you do that, there is already some cash flow problem and this may be exacerbated by the continued slide in the price of oil and so that is a very serious headwind which we will contend with which is why we need to sit down as a country and change our lifestyles . Government should be able to rein in a lot of money for social services. It shouldn’t be business as usual.

A situation whereby only 20 percent of the federal government’s budget is going to social services will not be helpful to this economy. We should implement Oronsaye committee report.  Managing 601 parastatals is too bogus. We should marry that with Ahmed Joda Committee that prescribes only 19 ministries. You may talk about the constitutional lacuna but, depending on the way you interprete it. If the constitution says you must appoint ministers from all the states of the federation, you can say for now, I’m appointing in these areas, when I’m changing my cabinet, I will then go to areas where I have not appointed ministers from.

But it is important we save money, it is also important we allow the private sector to ensure those bottlenecks are removed. We should continue to pursue privatisation and free up resources in the public space to the private sector so that we run businesses efficiently. That is the only way. And then, of course, we should change our lifestyles as Nigerians. We don’t need to import most of the things we are importing today. If we then do that over time, naira will firm up. It is now between N240 –N245 at parallel markets. By the time we stop those importation, I see a new equilibrium of naira-dollar rate of maybe around N190-N200 at least, within the next few months if we do what we are supposed to do.

In your views, what should be Nigerians’ expectations from President Buhari’s visit to the US?
It is not so much about the US but the leadership role the US is playing. When you travel to western countries, even in faraway China, the image of Nigeria is not good at all. It is battered, and then when you begin to repair that image from the world economy capital it is a very smart thing to do. The moment US begin to do business with you, other countries will follow suit. Europe and other continents will follow suit. So image management matters, particularly the way we deal with corruption and this government has started well and the new leadership is known for its anti-corruption stand. There is a consensus, even among opposition that this man is above board and he is going to painstakingly assemble people of the same colouration and to me, that signals a change, a complete departure from the past and that impression matters a lot in the international community because they will then begin to see a new Nigeria. We should walk our talk; it should not be about saying it.

Transparency International and other international agencies will come and test whether you did what you promise to do, I don’t have any doubt at all. When we begin to do that, then investors will take us seriously. When you crunch figures and look at investment opportunities in Nigeria, they are far better than other climes, but what they do is to dilute that opportunities with the risk which they see as very high but when that risk element is taken off then you will see a deluge of foreign investments coming into Nigeria made up of 170 million people, very young and vibrant workforce, highly educated people, highly professional now with better integrity. I can tell you, before long, Nigeria will be reputed to be the fastest growing economy in the world.
That is one, and then there are other expectations from the US. US should also be able to hand-hold Nigeria in the fight against Boko Haram as you know; they also had their own experience on counter-terrorism. They are going to look seriously at that. They were engaging the former regime but at a point, they pulled back because of human rights record, the military aid and all other assistance disappeared but I think now they will resume that.
They will also assist us in strengthening institutions in Nigeria. Institutions have to be strengthened; these include the Central Bank and so many others that are needed for good governance. The hand-holding and all of that is what is also expected from the trip.

 

[ThisDay]