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“how Banks Make Free Money From Govt. Funds” –CBN Governor - Business - Nairaland

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“how Banks Make Free Money From Govt. Funds” –CBN Governor by Islie: 11:56am On Apr 15
By Henry Boyo



The oppressive impact of the myriad charges on the transactions of every owner of a bank account in Nigeria was subject of discussion, in this column in recent weeks. Media reports have also suggested that these charges, may contribute trillions of Naira income for banks annually. Indeed, the income from retained stamp duty charges, alone, may have exceeded N6 trillion, if figures bandied by NIPOST and agents are ultimately verified.

The substantial incomes from bank charges, invariably, supplement hundreds of billions of Naira income from the regular and extremely profitable business of granting loans to the CBN, States and Federal Governments and several businesses and account holders nationwide.

The above title “How Banks make Free Money from Government Funds” (www.lesleba.com) was first published soon after key decisions made at CBN’s MPC No. 90 of 22/23 July 2013, were announced. Notably, over 5 years thereafter, the question still remains, whether or not the oppressive, financial absurdity, which incumbent CBN Governor Sanusi Lamido Sanusi condemned, in 2013, still prevails today? A summary of that article follows, hereafter; please read on.

“…First of all, you have got liquidity surplus in the banking industry; … there is over N1.3trn or so sitting in banks and belonging to government agencies. Now basically, they (these funds) are at zero percent interest, while banks are lending about N2trn to the government and charging 13 to 14 per cent! Now, that is a very good business model, isn’t it? Give me your money for free and I lend it to you at 14 percent; so why would I go and lend to anyone?” (Lamido Sanusi, CBN Governor, July 23, 2013)

“The above statement, which corroborates views regularly canvassed in this column, was Sanusi’s defence of CBN’s Monetary Policy Committee’s decision to raise the existing CRR (Cash Reserve Ratio) of 12 per cent to 50 per cent on all public funds, domiciled in commercial banks, in order to reduce the inflationary threat from aggressive credit expansion by banks.

“Invariably, larger cash deposits create liberal opportunities for banks to leverage on such deposits, to expand credit and thereby increase public and private sector spending, which may, inadvertently, drive higher inflation rates.”

“Thus, this latest requirement for banks to hold higher cash reserves is really an admission that the existing 12 per cent CRR, unduly, instigated credit expansion and drove higher inflation rates.” “Some critics may however, regard the much higher CRR as inappropriate, since it would also further reduce the already inadequate credit to cash beleaguered businesses.”

“This column has, consistently drawn attention to the patently reckless strategy of banks lending their so-called surplus funds (excess liquidity) at atrocious interest rates to the same CBN, which ironically, induced the systemic excess cash supply!!

“Thankfully, Sanusi may have finally recognised, according to him, that “If you want to discourage such perverse behaviour, part of it is to basically take away some of this money; a reserve requirement is therefore, supposed to make sure that the excess liquidity in the banks’ balance sheet, is evenly distributed”. Nonetheless, if CBN fails in practice, to ensure strict compliance with the new 50percent CRR policy, systemic surplus cash will persist and expectedly drive higher inflation rates with disastrous consequences for cost of loans, consumer demand and economic growth.”

“Nevertheless, Sanusi’s fear that even the higher CRR may not adequately cage inflation is probably embedded in his warning that “if spending continues, and we are concerned about the liquidity conditions, we foresee in the nearest future, continued increase in the CRR across board….” Consequently, if surplus cash deposits persist despite the new measure, CBN would further increase its already oppressive CRR beyond 50 per cent for both public and private sector deposits; predictably, this may drive interest rates beyond 30 per cent!”

“This writer has consistently decried the foolhardiness of government’s borrowing back its own cash deposits with banks, at extortionist interest rates and consequently advised instead that it would be more businesswise, for Ministries, Departments and Agencies to domicile their monthly naira allocations, internally with CBN. Regrettably our external debt strategy also follows the same self-oppressive model of borrowing what one has in undeniable excess!” (see www.lesleba.com) for “Will you Borrow Back Your Own Money and Pay 17 per cent Interest? …Ask CBN!” – 27/12/2004 and “MPR Hike: Failure of CBN’s Monetary Framework”, 01/08/2011).

“All the same, Sanusi’s new directive of 50 per cent CRR for government deposits is clearly, an uneasy half way measure, and critics may wonder why the CBN Governor cannot, in his characteristic style, take the bull by the horns, and demand that ALL government funds should be banked with CBN!”

“Invariably, total domiciliation of Government revenue in CBN, will lead to a significant contraction in systemic cash surplus, and thereby restrain inflation; regrettably, however, cost of funds to businesses may not fall significantly if government remains actively in competition with the real sector for both long and short term loans.”

“Ultimately, an enduring cure to the high cost of funds and unyielding inflationary push is to tackle the root cause of excess liquidity; i.e. to first recognise excess liquidity as the direct product of CBN’s monthly substitution of naira allocations for dollar revenue, and secondly, to also ensure that beneficiaries of the federation pool receive dollar certificates for their share of monthly allocations of foreign distributable income. This arrangement would finally exorcise the, seemingly, perennial ghost of systematic cash surplus and its train of adverse consequences on our economy and peoples’ welfare”.

“In its place, minimal, socially and industrially supportive, inflation rates will evolve with lower single-digit interest rates in tow! The naira will become much stronger, and eliminate any remote possibility of subsidising fuel prices, thus achieving the erstwhile seemingly impossible task of benignly deregulating fuel price, so that, hundreds of billions of naira saved can be ploughed into critical social infrastructure and positive social welfare programs.”

“Ultimately, the purchasing power of all income earners will improve to stimulate increasing consumer demand, which industrialists and entrepreneurs would hasten to profitably, satisfy, in a prevailing ambience of low inflation and interest rates and a much stronger naira.”

Postscript April 2019: The Treasury Single Account (TSA) which consolidated all Government funds in CBN was ultimately implemented in August 2015, based on an earlier framework developed overtime by Obasanjo, Yar’Adua/Jonathan Administrations.

Regrettably, however, TSA implementation and 50 per cent CRR still did not remove the perceived liquidity surfeit in commercial banks, as the secluded Government funds filtered into the open money market the moment MDAs made expenditures from their treasury allocations. Indeed, the Bankers’ Committee Chairman had even declared that banks’ liquidity position was not seriously affected by the reductions in CRR. Inexplicably however, after the MPC No 103rd meeting, on 23rd September 2015, CRR was reduced to 25 per cent for all public and private sector deposits and later to 22.5 per cent in March 2016. Thereafter, CBN’s CRR, MPR and liquidity ratios remained unchanged for well over 24 months, despite the attendant disruptive economic impact, until after the MPC 123rd meeting in 2019 when the MPR alone was singled out for marginal reduction from 14 per cent to 13.5 per cent!

Despite these subsisting harsh policy rates, CBN has continued to mop-up perceived Naira liquidity surplus at a rate which often correlates with Government’s annual fiscal plans! Consequently, CBN may have been compelled to pay high counterproductive double-digit interest rates to banks, in order to remove close to N9.0tn perceived surplus liquidity from the system in 2018! Invariably, conversely, the banks may have earned close to N1tn from such interest payments in 2018.

Instructively, however, banks have continued to post humongous profits annually with the prevailing business model; inexplicably, however, businesses in the productive sector have continued to wail.


https://www.independent.ng/how-banks-make-free-money-from-govt-funds-cbn-governor/

3 Likes 2 Shares

Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by hustla(m): 3:05pm On Apr 15
1st to comment
grin
Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by Ewedegubbler: 3:05pm On Apr 15
Thank God for people like Inooson that has decided to deal with them.. Evil people

7 Likes

Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by HAROLDWILSON: 3:06pm On Apr 15
Ftc
Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by ainas247: 3:06pm On Apr 15
cheesy They make money from all us from their shady business...
stamp duty etc...


Rank your business Google first page
check result below

1 Like

Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by hisexcellency34: 3:06pm On Apr 15
all these illegal charges by banks is killing

1 Like

Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by pastorcyrus(m): 3:06pm On Apr 15
Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by Kendumazy(m): 3:07pm On Apr 15
This one is government money talk.

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Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by Successimpactld(m): 3:08pm On Apr 15
useless bank
Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by Joromi12: 3:08pm On Apr 15
See useless CBN trading blames. U set MRR at 14% put CRR there too. So how will banks lemd to productive sectors

5 Likes

Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by rawfact: 3:08pm On Apr 15
Successimpactld:
useless bank

Which one in particular?
Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by DaV8King(m): 3:10pm On Apr 15
Old news.......and even with the free money they refuse to support enterprise.

These same banks expect their customers to run sustainable business at 30% interest rate on finance.

Why we no go jobless?

Why factories no go shut?

Why robbing no go dey?

CBN should dare cut the base lending rate at least 240 basis points and simultaneously drop yield on Government securities.

Let me see if the banks won't come out up in arms simply because they will be forced to start lending properly.

But never, cuz it's a conspiracy against the people

6 Likes

Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by thesolutions: 3:10pm On Apr 15
CBN should remove the word "Bank" in it name. They are too useless to be considered a bank and central Bank for that matter.

They does nothing except tormenting businesses which they have fraudulently made themselves regulators of.

Why will government funds be seating in a commercial bank when CBN, a government owned bank, is in existence.

They can't bear the risk of safeguarding government funds yet they want commercial banks to take the risk at no cost. Bunch of lazy government payroll workers.

2 Likes

Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by lilwetdick: 3:10pm On Apr 15
this is nothing new, is that not what they do to ordinary consumers.

thy infact take all our money and lend it to industrialists without collaterals

what of round tripping another way which banks make money
Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by Successimpactld(m): 3:11pm On Apr 15
rawfact:

Which one in particular?
gtbank.. charge and remove your money any how
Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by dheaven: 3:15pm On Apr 15
Only how someone makes money is where people are interested in but how they spend/losses is not their concern.

1 Like 1 Share

Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by ElRapido: 3:15pm On Apr 15
.
Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by Hotzone(m): 3:21pm On Apr 15
If u can do business with police pension what else
Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by Godlylifeoneart: 3:26pm On Apr 15
Nigeria syndrome
Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by Dickson44: 3:32pm On Apr 15
Am I the only one who didn't read this long epistle?

1 Like

Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by Xisnin(m): 3:32pm On Apr 15
Successimpactld:
gtbank.. charge and remove your my money any how
Speak for yourself.
Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by id911: 3:33pm On Apr 15
DaV8King:
Old news.......and even with the free money they refuse to support enterprise.

These same banks expect their customers to run sustainable business at 30% interest rate on finance.

Why we no go jobless?

Why factories no go shut?

Why robbing no go dey?

CBN should dare cut the base lending rate at least 240 basis points and simultaneously drop yield on Government securities.

Let me see if the banks won't come out up in arms simply because they will be forced to start lending properly.

But never, cuz it's a conspiracy against the people

It's conspiracy against the Nigerian people like you said because the people seem to me like fools. They take everything government thrown at them without any reaction.

As far as the President continue to appoint someone from within the bank to be CBN Governor, the conspiracy would continue till eternity because the Governor would always want to protects his fellow bankers to the detriment of the people. Useless country

1 Like

Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by seniwellsFX: 3:49pm On Apr 15
id911:


It's conspiracy against the Nigerian people like you said because the people seem to me like fools. They take everything government thrown at them without any reaction.

As far as the President continue to appoint someone from within the bank to be CBN Governor, the conspiracy would continue till eternity because the Governor would always want protects his fellow bankers to the detriment of the people. Useless country
very well said. Mr emefile is a for Access bank CEO/MD. So,what do we expect. Do we expect him to bite the hand that fed him? No way..
Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by Just2endowed2(m): 4:01pm On Apr 15
that is why i want o collect ajo money from my colleagues grin grin grin grin grin
Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by Pointguardusa(m): 4:04pm On Apr 15
All these banks are funny . I see deductions that I don't understand their reason.. These people are thieves . I'll stop putting money the bank. I'll rather invest or use piggy bank online.

I hate all these Uncesssary deductions. Gosh!

1 Like

Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by CoolAmbience(m): 4:10pm On Apr 15
rawfact:


Which one in particular?

UBA
Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by UrVillagePpl: 4:10pm On Apr 15
quite an epistle,,, me I cannot read jare..

read and summarize ..
iam waitin
Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by ClassicMG(m): 4:11pm On Apr 15
seniwellsFX:
very well said. Mr emefile is a for Access bank CEO/MD. So,what do we expect. Do we expect him to bite the hand that fed him? No way..
zenith bank you mean
Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by biggerboyc(m): 4:14pm On Apr 15
Ok
Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by Starz825(m): 4:26pm On Apr 15
After all the free money made..dey will pay their workers peanut...I know say Nigeria go beta..but when? undecided
Re: “how Banks Make Free Money From Govt. Funds” –CBN Governor by Chuks9000: 4:34pm On Apr 15
Is government beefing the banks?
Traditionally, banking is mopping deposits in the sectors with surplus and making same available in deficit sectors!
If you are concerned about their huge profits, then go and "open" your own.

1 Like

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