A Review of the Nigerian Energy Industry

CBN’s actions, pronouncements triggered banking sector fraud, market crash – Operators

Michael Eboh

4 December 2011, Sweetcrude, Ijebu Ode – The various pronouncements and actions of the Central Bank of Nigeria, CBN, in the last couple of years have been the major trigger for frauds in the banking sector and collapse of the capital market, market operators and financial analysts have disclosed.

According to the operators, who spoke at the 2011 National Workshop of the Capital Market Correspondents Association of Nigeria, CAMCAN, in Ijebu Ode, Ogun State, yesterday, the crisis in the Nigerian financial sector would have been averted if a different approach had been taken in addressing critical issues in the market.

In his paper titled, Demutualisation of the Nigerian Stock Exchange, NSE: Challenges, Prospects and Expectations, Mr. Victor Ogiemwonyi, Managing Director, Partnership Capital Investment Plc, said the CBN’s pronouncement that only banks with N100 billion capital base will be allowed to manage Nigeria’s external reserves triggered the massive fraud in the banking sector.

He said most of the banks resorted to sharp practices to raise the required funds needed to shore up their capital base, while a number of the banks engaged in sharp and unethical practices with the huge capital which was found to be idle in their books.

According to him, the first capital raising exercise, where banks were asked to shore up their capital base to N25 billion, went very well, while the crisis started when the CBN’s pronouncement on external reserves management led to the banks coming to the market to raise more funds.

“That, in my opinion, is what triggered all the manipulations that happened in the banking sector. Before then, the process went very well; it was very transparent, it was after then that the entire crisis started. “In this case banks that had less than N25 billion were being asked to managed N100 billion. It is like in any individual,” he noted.

However, Managing Director of the Central Securities Clearing System, CSCS, Mr. Kyari Bukar, represented by Mr. Vincent Ukoh, Assistant General Manager, Finance, said the problems started since the directive that banks shore up their capital to a minimum of N25 billion.

He said most of the banks did not actually raise the stated amount, but did it through book balancing, doctoring their books to reflect the funds.

Onyema added that same thing happened in the quest to raise N100 billion, noting that investors were deceived to invest in most of the banks, unknowingly supporting the fraud that was being created by the banks.

Also speaking, Mr. Tunde Adeyemi, Managing Director, DHTL Capital Management Limited, said that CBN actions and pronouncements have negatively affected the capital market in no small measure.

He said thre CBN criminalized credit by publishing the names and going after banks’ debtors, instead of seeking ways to manage the debts, adding that majority of the stockbrokers in the market were affected.

Adeyemi stated that stockbroking firms no longer undertake marketing to woo investors into the market due to fear that the banks, in the name of debt collection, will swoop in on the funds collected from their clients.

He added that the massive lay off of employees that followed CBN’s intervention in the banks had a ripple effect as a number of the banks’ staff were clients of stockbroking firms.

The DHTL helmsman said the sacked employees could no longer afford to invest in the market and this contributed to the lull and decline recorded in the market.

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