I had a long talk with a Bank Chairman on the morning of February 3 and he described his worry about the ongoing rumour that the Central Bank Of Nigeria, CBN could move against domiciliary accounts and force the content into Naira on the back of the continued fight to salvage the Naira.
This issue have always been discussed in hushed tones until Mr Isaac Fayose was said to have blown it open in one of his many frivolous clips.
The thing now took wings and started creating some panic in the markets. Thankfully, the CBN has come out to refute the claim very aggressively in a statement that I have just seen.
This Chairman in his remarks to me ( Joseph Edgar ) recently mentioned the grave damage that the financial system would face in the event of a dollar run not to talk of the great damage it would cause the system cos of its capacity to erode confidence.
What the public needs to understand is the difference between proprietary positions some banks have been alleged to have taken to hedge against environmental turbulence and domiciliary accounts deposits.
The domiciliary account deposits are customers funds kept in custody of the Banks for different purposes. The funds are not kept in the drawers but used to finance transactions and other such things that banks do.
So waking up one morning and converting same to Naira is virtually impossible and cannot be done except we happen to find ourselves in a Banana Republic where anything goes and from the last I checked we are still very far from there.
But the other matter which is the oft mentioned $5b clustered by Banks is a different ball game entirely.
The Banks as a business and profitable concern cannot be doing NGO work by watching value being eroded by an errant macro operating environment further compounded by erratic government policies which just seems to just scatter everything.
So to protect themselves and their shareholders, they hedge. Now it is that hedging that we have heard has grown to $5billion and which CBN now wants to tell us is the source and final solution to this problem.
For me, the CBN has to work very closely with the Banks to get a middle of the road solution to this matter. They can not be forced or be seen to be forced to offload their positions by fiat cos it would further worsen the situation and also lead to flight.
“We are in a precarious situation, I tell you.”
What kind of leverage would the CBN offer the banks to make them take a sell off position without hurting their balance sheet. Remember the market is there to punish any unreasonable drop in profitability – The ASI have already sent a warning with the two day decline this week.
So a right kind of balance must be found. Either by issuing new longer term debt instruments or even an Asset swap that takes the cash off them in the short term and the C of O of the third mainland bridge and Aso Rock is given them so they can toll and collect their monies back.
Whatever is the case, it’s not grounds for an Isaac Fayose type commentary that would drive panic into the system, this is why I would like to restate my joy in the CBNs prompt reaction.
Where we have found ourselves today with the Forex crisis is worse than the civil war because if not properly handled could lead to the annihilation of the country.
Before if you say I am overreacting, let me tell you something. Can you see an inverse relationship between the fall of the Naira with the increase in kidnapping and other violent crimes?
Inflation is double digit, leading to low purchasing power and attendant job losses and drop in standard of living. Crime offers a solution and for the women it’s prostitution and drugs.
Prices of condoms have gone up 1,000% leading to drop in sales and increase in venereal diseases and HIV. Pharmaceutical firms can no longer meet their Forex needs so they close shop leaving us in the hands of fake drugs and the like.
If this Forex crises is not resolved within the next 6 months, Nigeria will turn into a huge cesspit of violence and this we cannot afford.
This is why, I am coming out very strongly to ask people like Isaac Fayose ( Ayo Fayose’s brother ) who do not understand the issues around it to kindly stay cleer while the CBN and other such allied counterparts work like clinical surgeons in a delicate operation on the matter.
At this juncture, I call on every Nigerian to drop all divisive tendencies and put head together and seek a solution to this thing.
What is really saving us is the 65% informal sector which are not banked and are not in the financial system. That is the buffer that is keeping it all together but for how long is not something I can say here.
So Mr Olayemi Cardoso, you now have our support, Fayose is quiet now, oya get to work sir.
Cheers!
– Joseph Edgar ( Duke of Shomolu )
