The massive withdrawal of cash
from Deposit Money Banks by
politicians and their associates in
preparation for the general elections
has led to shortage of cash across
bank branches in the country.
It was gathered on Thursday that
several billions of naira had left the
banking system between December
last year and this month as different
political parties spent huge amounts
on their campaigns.
“Many banks are having it rough in
terms of liquidity. Huge deposits
running into several billions of naira
have been withdrawn for election
campaigns by politicians. This has
affected some of the banks. So,
liquidity issue is of utmost concern
right now,” a top official of a tier one
bank told our correspondent.
According to other sources close to
the situation, some lenders have
had to postpone some obligations
due to liquidity problems.
“Banks have been calling and
pleading with some investors not to
terminate maturing fixed-income
debts as a result of liquidity
problems; some bankers are also not
lending not necessarily because of
uncertainties in the economy, but
due to lack of liquidity,” a banker
added.
A number of politicians, he said, had
also sold their properties below the
real values in a bid to raising funds
for campaigns.
Our correspondent, who visited
some bank branches in Lagos and
Ogun states on Wednesday and
Thursday, observed that hundreds of
customers came to withdraw money
from their accounts more in
anticipation of problems during and
after the presidential election on
Saturday.
However, many of the customers
were disappointed because they
could not get the amounts they
requested across the counter and
Automated Teller Machines.
Bank officials said some customers
were making panicky cash
withdrawals to make provision for
their families in case of security
problems after the elections.
A bank official told our
correspondent that it was a sign of
liquidity problem for banks to keep
giving excuses of network
breakdown and employ delay tactics
to force some of their customers to
leave in frustration without being
unable to make withdrawals.
The Managing Director, Afrinvest
Asset Management Company
Limited, the research and investment
arm of Afrinvest West Africa Limited,
Mr. Ola Belgore, said political
spending in the run up to elections
usually affected the banking system
and the economy in general, citing
the examples of what happened in
previous polls.
Belgore is of the opinion that some
banks are currently experiencing
liquidity problems because a
significant part of the huge funds
leaving the banking system for
election campaigns is currently held
in the informal sector.
This, he said, was so because a
major part of the population was
still unbanked.
“Even though there is a lot of
outflow out of the banking system,
the bulk of it is being stored in the
informal sector at the moment
because a large number of Nigerians
are still unbanked,” he noted.
The Managing Director, Dunn Loren
Merrifield Asset Management
Limited, Mr. Tola Odukoya, who
stated that the relationship between
political spending and the banking
system was usually an inverse one,
noted that the onset of the general
elections had had serious adverse
effects on the financial system.
According to him, beyond the
political spending, the increased
risks occasioned by the general
elections have also made several
foreign portfolio investors to hold
back from investing in the country.
This, he said, had led to major
drawbacks in economic activities,
adding that “the effect of the onset
of the general elections on the
financial system has not been
palatable.”
Outlining other factors that had
compounded the banks’ liquidity
problems, the investment expert
said, “The effects of monetary and
fiscal policies in the last several
months have also impacted
negatively on banks’ liquidity. The
effects of the lower crude oil prices
on the economy means the federal
and state governments now have
less money to share.
“We also see the increase in the
Cash Reserve Ratio of public sector
deposits to 75 per cent as a factor.
On the back of this, we also see the
implementation of the Treasury
Single Account; this means banks
do not have access to funds
belonging to the Ministries,
Departments and Agencies of
government. From these, a lot of
liquidity has been sucked out of the
banking system.
“The adverse effect of the not-too-
favourable economic conditions in
the last six months and the
inflationary effects of the
devaluation of the naira have
reduced the income of the average
household; this has also led to
reduction in household savings. So,
it will be difficult for banks to be
very liquid in the face of all these
factors. Some banks may be more
liquid that the others.”

PUNCH Newspaper.