In it, Nigerian banking authorities, investors in the Nigerian Stock Exchange, NSE, and depositors in banks, were advised to pay attention to the banking turmoil taking place in the USA and Europe right now.
The upheavals bear a striking similarity to the 2008 financial crisis which engulfed Nigerian banks and ruined what former President Obasanjo falsely called a “successful” banking reform undertaken during his administration.
Obasanjo, the politician, was speaking, when he was invited “to come and eat” by Governor Soludo celebrating his first anniversary in charge of Anambra State. More on that later
Obasanjo, reminds me of two statements made about politicians and governments which remain my guiding principles till today.
“You cannot adopt politics as a profession and remain honest”. (LM Howe).
“Every government is run by liars; nothing they say should be believed”. (IF Stone). When the global financial crisis made landfall in Nigeria and savaged our banks in 2008, less than 15 out of the 25 consolidated banks were left standing.
Over N6 trillion worth of their toxic loans were acquired by the CBN/ Federal Government; and more than N5 trillion remains unpaid today.
Our chicken farmer, ex-President was telling a colossal lie by calling the consequences of the reforms he approved a “success”. American and European banks redeemed their toxic loans; Nigerian banks have not. AMCON knows it. Let us return to the present.
On the same day that the article appeared last week, the NSE suffered one of its worst losses this year.
The capital market shed N622 billion on that day. Is it possible that investors on the capital market are also getting jittery over developments in advanced countries? Nigerians, who, hitherto, would have bet anything, life included, on Swiss Banks, now have serious doubts.
Nigerians holding shares of Credit Suisse or having deposits there are already licking their wounds.
They might have to wait a little longer to know if and how much they have lost.
The Governor of the Bank of England, Mr Andrew Bailey, told Members of Parliament, that the bank was on “heightened alert” for signs of trouble in the country. But, it is the US whose banking problems threaten Africa and Nigeria the most.
The USA Connection
“Customers withdraw $100bn from US banks.”
The Federal Reserve Bank of the USA revealed that “bank customers collectively pulled $98.4bn from accounts for the week ended March 15, 2023. The American Reserve Bank is working over-time to reassure the people that the banking system is sound after two big banks – Silicon Valley Bank, SVB and Signature Bank, SB — were involved in the fastest collapse from health to death in banking history. Most readers would be asking: how does this affect Nigeria?
To start with, every major banking distress calling for US Government intervention invariably means the US Federal Reserve Bank must raise interest rates to cover the costs of the bail-out. When that happens, interests on all loans denominated in dollars rise accordingly.
Therefore, with recent increases in US Fed interest rates, all Nigeria’s external loans, old or new, will cost more. That is what the MD-IMF euphemistically referred to as “stresses and vulnerabilities.” To Africa and Nigeria, it amounts to killing us slowly – given our debt levels.
Incidentally, the US Vice President, Mrs Kamala Harris, is on tour of selected African countries, excluding Nigeria, to offer palliatives in a bid to counter growing Chinese influence on the continent.
It remains to be seen if African countries would fall for the economic offensive.
But, we need to remember that the US and European banks got us into trouble in 2008-9; got us to pay more for debts previously incurred and sent us straight into the open arms of Chinese creditors.
It is not yet clear what they have to offer as the US Fed is still committed to inflation targeting – which means higher interest rates sooner and not later. When, not if, that happens, Nigeria’s external debt burden will increase significantly.
The financial predicament could not have come at a worse time for Nigeria.
The outgoing Buhari government is obviously unaware of the dangers bank failures occurring simultaneously in America and two or three countries in Europe pose for Nigeria.
Otherwise, it would not have allowed the cash scarcity which started here in February to persist for so long.
At any rate, Buhari’s Finance Minister would not have known the measures to take. When bank crisis is likely to happen, central banks pour cash into the system to re-assure customers.
Nigerian banks were forced to ration cash; thereby raising the possibility of a run on banks by depositors. That danger still exists in Nigeria today.
Furthermore, the Federal Government of Nigeria, having exceeded its limits to borrow under Ways and Means, W & M cannot now authorise the CBN to release more cash into the economy without the authority of the National Assembly, NASS.
With only two months to go, Buhari and the Senators are in no mood to undertake the rigorous work required to examine our options and recommend the pre-emptive actions needed to protect our interests.
Meanwhile, the incoming President and the tenth NASS, although only two months away from being sworn-in, might as well not exist.
They cannot take decisions until they are officially in charge. By that time, Nigeria might be in worse situation than now.
The CBN, which is central, in every sense of the word, is also fighting inflation which reached over 21 per cent by the end of last year.
Like the US and European central banks, it has increased interest rates in order to bring down inflation. But, some economists question that approach.
Classical definition of inflation means too much money chasing too few goods. However, many economists are of the view that supply-side, or what is sometimes called cost-push inflation is our problem in Nigeria and not too much money. When costs of production go up on account of higher prices of inputs, prices go up; aggregate demand declines and an inflation spiral follows. We are in one now.
Nigeria, as an import-dependent nation for raw materials, equipment, spare parts and packaging materials must expect costs of goods to rise as the exchange rate escalates.
This has been the case since 2015. Revenue derived from our export of crude oil has barely kept up with our import of finished petroleum products.
At home, relative scarcity of food stuff has been mostly responsible for headline inflation. Farmers have been hindered from going to work by hoodlums of all sorts; and the Great Flood has reduced farm productivity more. Meanwhile, the population has been growing by 3.2 per cent or 6 million every year. We have more mouths to feed and less food per capita to give them.
In short, we have problems; the financial ones have been made worse by America. Unfortunately, nobody is in charge of our destiny now; and nobody might be until after May 29, 2023.
