Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala
CBN places barrier on HoldCo, subsidiaries lending
Kunle Aderinokun, Goddy Egene, Obinna Chima and Nume Horsfallâ€¨
As part of efforts to stimulate the growth of the Nigerian economy through long-term funding, the Federal Government said it intends to establish a development finance institution that will enable investors borrow fund for 10 to 15 years to invest in the economy.
The Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, disclosed this yesterday at the Renaissance Capital’s fourth Annual Pan-Africa Investor Conference in Lagos, noting that the focus of the government is to ensure that more investments are made in the economy to create jobs and reduce unemployment rate.
Thisis just as the Governor of the Central Bank of Nigeria (CBN), Mallam Sanusi Lamido Sanusi, also disclosed that the apex bank will soon introduce measures to regulate the lending between financial institutions that have adopted the Holding Company (HoldCo) and their subsidiaries.
Okonjo-Iweala pointed out that although there are a lot of investment opportunities in the economy, the much needed long term finance for such investments is lacking, hence government would “create a development finance institution that will be a wholesaler that will be able to provide long term finances and have private sector multilateral participation.”
She added that the government was equally working hard to lower the fiscal deficit down.
“In this 2013 budget, we projected a deficit of 2.17 per cent of GDP. But I think we would be even lower because we are adjusting some parameters and the contents of the budget with the National Assembly and we finish, it is likely that we may be at 1.8 per cent of GDP. So we are trying to be discipline. Nigeria spends so much on recurrent expenditure and too little on capital expenditure and that is not the kind of approach. We are spending about 74 per cent of the budget on recurrent, but our goal is to move to 60 per cent. We plan to get to 65 per cent by 2015,” she said.
Okonjo-Iweala assured investors that government would maintain the steady growth in the Nigerian economy by ensuring that the various challenges are tackled through the various ongoing reforms.
Continuing, Sanusi said the policy was initiated in order to prevent the build-up of risk in the system.
The CBN had in 2010, scrapped the universal banking model and directed banks to sell their stakes in non-banking subsidiaries or adopt a HoldCo structure. Presently, only three banks -First Bank, First City Monument Bank (FCMB) and Stanbic IBTC, operate HoldCo structures.
Sanusi explained: “We want to place a control so that if you place money with the subsidiary of your HoldCo and it is not secured, we take that from your capital. If you lend money to the parent, we take it as return on equity.
“So the idea that people can set up a bank, put in capital and then turn back and borrow it is no longer possible. So we are making it difficult for people to take deposit and trade with it.”
When quizzed on the need for the policy since there are only three banks on the HoldCo structure, Sanusi said: “We basically regulate the banking industry and you can’t say you have only three banks. If anything happens to First Bank, FCMB and Stanbic, would we have a banking system?
“First Bank alone, for example accounts forabout 14 to 15 per cent of total assets. So you’ve got banks that are systematically important and are too big to fail and you have to put in control and restrictions. We are not saying that the banks are doing it, but we have to learn from what is happening in Europe. How did Lehman Brothers happen? How did RBS happen? How did Oceanic Bank, Intercontinental Bank go under? It was by taking depositors funds and taking risks that they should not take.”
He maintained that risk management and corporate governance are not a destination, but a process, saying that the CBN would continue to watch out for anything that constitutes risk to the system so as to make sure it doesn’t crystallise.