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The House of Represen-tatives Committee on Banking and Currency yesterday moved to assert its position on the reforms sweeping across the banking sector.
The committee, which met with the Governor of Central Bank of Nigeria (CBN), Mallam Sanusi Lamido Sanusi, challenged the authority of the apex bank to inject N420 billion into five banks without recourse to the National Assembly, saying it was an affront on its powers and control over public funds.
But Sanusi countered the position of the legislators, insisting that his actions were in line with the CBN Act and within the regulatory framework of the Banks and Other Financial Institutions Act (BOFIA).
He said the money injected into Oceanic International Bank, Intercontinental Bank, Afribank, FinBank and Union Bank is considered a loan (tier 2 capital) and not equity.
It was a heated debate in which each party claimed it was right under the law and it was almost headed for a deadlock when a member of the committee moved that the discussion be held in camera.
Journalists were asked to leave House Hearing Room 08 venue of the meeting to allow the lawmakers and the CBN team iron out their differences.
The ensuing closed-door session lasted about two hours.
On the one hand, the committee held on to the provision in Sections 80, 81 and 162 of the 1999 Constitution, which import is that all revenues and expenditure of the Federal Government must first undergo appropriation by the National Assembly.
For instance, Section 80 (1) of the constitution states that, “All revenues or other monies raised or received by the Federation (not being revenues or other monies payable under this constitution or any Act of the National Assembly into any other public fund of the Federation established for a specific purpose) shall be paid into and form one Consolidated Revenue Fund of the Federation.”
Sub-section 2 states that, “No moneys shall be withdrawn from the Consolidation Revenue Fund of the Federation except to meet expenditure that is charged upon the fund by this constitution or where the issue of those moneys has been authorised by an Appropriation Act, Supplementary Appropriation Act or an Act passed in pursuance of section 81 of the constitution.”
On the other hand, Sanusi relies on the CBN Act 2007, Section 42 (2), which provides as follows:
“Notwithstanding the provisions of Sections 29 (1) (c) and Section 34 (d) of this Act, the Bank may grant loans and other accommodation facilities at such rate of interest and on such terms as the Bank may determine to any bank which may be having liquidity problems.”
Chairman, House Committee on Banking and Currency, Hon. Ogbuefi Ozomgbachi (PDP Enugu), who began the debate on a combative mood, was reading from notes he scripted on Rockson Engineering writing pad, which was later photocopied by journalists.
He said the committee was alarmed at the “very disturbing developments” in the banking sector over the last two weeks especially the sack of the managements of five banks and the injection of N420 billion into the banks.
He accused Sanusi of breaching an earlier accord reached between the committee and CBN over the need to keep the lawmakers abreast of the outcome of the CBN audit of the banks in the spirit of full disclosures.
He said that even though the apex bank had taken some far-reaching decisions without consultations with the lawmakers as earlier agreed, the committee had refrained from taking issues with the CBN Governor on the pages of newspapers.
Ozomgbachi stated that the committee was not opposed to the current reforms to sanitise the banking sector, but insisted that the “clean up” must be done in a manner that would not only guarantee the safety of depositors’ funds but also ensure credibility of the process.
“This committee supports any measure which you have taken or will take to sanitise the banking system in so far as these measures are taken in conformity with the relevant laws of Nigeria. But if media reports that you have printed and injected into the five banks whose managements you have sacked are true, this committee will with a sense of responsibility challenge your authority to do so. We do this because we have sworn to protect and defend the 1999 Constitution of the Federal Republic of Nigeria,” he said.
Ozomgbachi who quoted copiously from Sections 80,81 and 162 of the 1999 Constitution challenged the CBN Governor to refer the committee to any section of the Constitution which grants the CBN any special exemption from the provisions of the Constitution on the stipulation that all revenues and expenditure of the Federal Government must first undergo appropriation by the National Assembly.
According to him, the CBN Act cannot supersede the Constitution of the Federal Republic of Nigeria and any action taken in pursuant of the CBN Act that runs contrary to the provisions of the Constitution “is null and void, ineffective and of no effect whatsoever”.
In return, the CBN Governor put up a stout defence and insisted that the five banks whose managements were sacked were in bad shape and needed to be rescued before their situation worsened.
Sanusi, who linked the recent experiences of the Nigerian banking sector to the global financial and economic crises, acknowledged that the bank consolidation and recapitalisation of the banks in one breath boosted the capacity of the banks to grow their assets and in another breath over-exposed themselves to certain sectors of the economy, creating an asset quality problem.
According to Sanusi, the asset quality and liquidity problems inherent in the banking sector particularly the five banks manifested into concerns about solvency as these banks became permanent borrowers on the CBN Expanded Discount Window (EDW) between October 2008 and July 2009 when that option was closed.
“In addition, the five banks in particular were permanently net takers of funds in the interbank money market when the CBN opted to guarantee inter-bank takings. These features signalled possible insolvency problems, which prompted the CBN actions to reduce counterparty risk concerns and stimulate liquidity.
“The funds injected into the five banks is considered a loan (tier 2 capital) and sufficient to enable them to continue normal business operations. The government has no intentions to nationalise the five banks or any other Nigerian bank for that matter,” Sanusi said.
According to him, the injection of capital into the banks was a form of lending, which constitutes an indebtedness by the deposit money banks (the borrowers) to the CBN, adding that the loan is expected to be repaid from the proceeds of capitalisation or from other sources when the borrowing institutions eventually stabilises.
The CBN Governor substantiated his position with relevant sections of the CBN Act and reeled out other options which the apex bank could take to save the banking sector within the ambit of the law.
While the closed-door session lasted, Sanusi reportedly apologised to the lawmakers on the alleged breach of their earlier agreement to be kept abreast of events in the course of the reforms.
He, however, insisted that his actions were backed by the relevant laws guiding the operations of the apex bank and its regulatory activities.
Sanusi had also met with the House Speaker Dimeji Bankole and other principal officers of the House before meeting the Committee on Banking and Currency.
Insider sources said he tendered a similar apology because of the accusation that he did not take the legislature into confidence before taking the actions on the banks.
According to THISDAY source, Sanusi explained to the lawmakers that he notified the President of the Senate, Senator David Mark, before embarking on the sweeping reforms in the banks.
This notification, Sanusi assumed, was enough for the legislature since Senator Mark was the head of the National Assembly.
He was, however, reminded that the country operates a bicameral legislature and information passed to the Senate does not necessarily mean it will get to the House of Representatives.
It was not clear whether the lawmakers also succumbed to the position of the CBN on the powers to inject the funds without seeking the consent of parliament but insider sources told THISDAY that both parties emerged from the closed-door session “reconciled and positive” on the contentious issues at stake.
Some lawmakers, however, said the solution to this constitutional quagmire may be the amendment of the CBN Act to ensure that it does not continue to operate like a republic within the Federal Republic of Nigeria.


		Thursday 3/9/ 2009
		House Tackles CBN over Banks’ Bailout
		The House of Represen-tatives Committee on Banking and Currency yesterday moved to assert its position on the reforms sweeping across the banking sector. The committee, which met with the Governor of Central Bank of Nigeria (CBN), Mallam Sanusi Lamido Sanusi, challenged the authority of the apex bank to inject N420 billion into five banks without recourse to the National Assembly, saying it was an affront on its powers and control over public funds. But Sanusi countered the position of the legislators, insisting that his actions were in line with the CBN Act and within the regulatory framework of the Banks and Other Financial Institutions Act (BOFIA). He said the money injected into Oceanic International Bank, Intercontinental Bank, Afribank, FinBank and Union Bank is considered a loan (tier 2 capital) and not equity. It was a heated debate in which each party claimed it was right under the law and it was almost headed for a deadlock when a member of the committee moved that the discussion be held in camera. Journalists were asked to leave House Hearing Room 08 venue of the meeting to allow the lawmakers and the CBN team iron out their differences. The ensuing closed-door session lasted about two hours. On the one hand, the committee held on to the provision in Sections 80, 81 and 162 of the 1999 Constitution, which import is that all revenues and expenditure of the Federal Government must first undergo appropriation by the National Assembly. For instance, Section 80 (1) of the constitution states that, “All revenues or other monies raised or received by the Federation (not being revenues or other monies payable under this constitution or any Act of the National Assembly into any other public fund of the Federation established for a specific purpose) shall be paid into and form one Consolidated Revenue Fund of the Federation.” Sub-section 2 states that, “No moneys shall be withdrawn from the Consolidation Revenue Fund of the Federation except to meet expenditure that is charged upon the fund by this constitution or where the issue of those moneys has been authorised by an Appropriation Act, Supplementary Appropriation Act or an Act passed in pursuance of section 81 of the constitution.” On the other hand, Sanusi relies on the CBN Act 2007, Section 42 (2), which provides as follows: “Notwithstanding the provisions of Sections 29 (1) (c) and Section 34 (d) of this Act, the Bank may grant loans and other accommodation facilities at such rate of interest and on such terms as the Bank may determine to any bank which may be having liquidity problems.” Chairman, House Committee on Banking and Currency, Hon. Ogbuefi Ozomgbachi (PDP Enugu), who began the debate on a combative mood, was reading from notes he scripted on Rockson Engineering writing pad, which was later photocopied by journalists. He said the committee was alarmed at the “very disturbing developments” in the banking sector over the last two weeks especially the sack of the managements of five banks and the injection of N420 billion into the banks. He accused Sanusi of breaching an earlier accord reached between the committee and CBN over the need to keep the lawmakers abreast of the outcome of the CBN audit of the banks in the spirit of full disclosures. He said that even though the apex bank had taken some far-reaching decisions without consultations with the lawmakers as earlier agreed, the committee had refrained from taking issues with the CBN Governor on the pages of newspapers. Ozomgbachi stated that the committee was not opposed to the current reforms to sanitise the banking sector, but insisted that the “clean up” must be done in a manner that would not only guarantee the safety of depositors’ funds but also ensure credibility of the process. “This committee supports any measure which you have taken or will take to sanitise the banking system in so far as these measures are taken in conformity with the relevant laws of Nigeria. But if media reports that you have printed and injected into the five banks whose managements you have sacked are true, this committee will with a sense of responsibility challenge your authority to do so. We do this because we have sworn to protect and defend the 1999 Constitution of the Federal Republic of Nigeria,” he said. Ozomgbachi who quoted copiously from Sections 80,81 and 162 of the 1999 Constitution challenged the CBN Governor to refer the committee to any section of the Constitution which grants the CBN any special exemption from the provisions of the Constitution on the stipulation that all revenues and expenditure of the Federal Government must first undergo appropriation by the National Assembly. According to him, the CBN Act cannot supersede the Constitution of the Federal Republic of Nigeria and any action taken in pursuant of the CBN Act that runs contrary to the provisions of the Constitution “is null and void, ineffective and of no effect whatsoever”. In return, the CBN Governor put up a stout defence and insisted that the five banks whose managements were sacked were in bad shape and needed to be rescued before their situation worsened. Sanusi, who linked the recent experiences of the Nigerian banking sector to the global financial and economic crises, acknowledged that the bank consolidation and recapitalisation of the banks in one breath boosted the capacity of the banks to grow their assets and in another breath over-exposed themselves to certain sectors of the economy, creating an asset quality problem. According to Sanusi, the asset quality and liquidity problems inherent in the banking sector particularly the five banks manifested into concerns about solvency as these banks became permanent borrowers on the CBN Expanded Discount Window (EDW) between October 2008 and July 2009 when that option was closed. “In addition, the five banks in particular were permanently net takers of funds in the interbank money market when the CBN opted to guarantee inter-bank takings. These features signalled possible insolvency problems, which prompted the CBN actions to reduce counterparty risk concerns and stimulate liquidity. “The funds injected into the five banks is considered a loan (tier 2 capital) and sufficient to enable them to continue normal business operations. The government has no intentions to nationalise the five banks or any other Nigerian bank for that matter,” Sanusi said. According to him, the injection of capital into the banks was a form of lending, which constitutes an indebtedness by the deposit money banks (the borrowers) to the CBN, adding that the loan is expected to be repaid from the proceeds of capitalisation or from other sources when the borrowing institutions eventually stabilises. The CBN Governor substantiated his position with relevant sections of the CBN Act and reeled out other options which the apex bank could take to save the banking sector within the ambit of the law. While the closed-door session lasted, Sanusi reportedly apologised to the lawmakers on the alleged breach of their earlier agreement to be kept abreast of events in the course of the reforms. He, however, insisted that his actions were backed by the relevant laws guiding the operations of the apex bank and its regulatory activities. Sanusi had also met with the House Speaker Dimeji Bankole and other principal officers of the House before meeting the Committee on Banking and Currency. Insider sources said he tendered a similar apology because of the accusation that he did not take the legislature into confidence before taking the actions on the banks. According to THISDAY source, Sanusi explained to the lawmakers that he notified the President of the Senate, Senator David Mark, before embarking on the sweeping reforms in the banks. This notification, Sanusi assumed, was enough for the legislature since Senator Mark was the head of the National Assembly. He was, however, reminded that the country operates a bicameral legislature and information passed to the Senate does not necessarily mean it will get to the House of Representatives. It was not clear whether the lawmakers also succumbed to the position of the CBN on the powers to inject the funds without seeking the consent of parliament but insider sources told THISDAY that both parties emerged from the closed-door session “reconciled and positive” on the contentious issues at stake. Some lawmakers, however, said the solution to this constitutional quagmire may be the amendment of the CBN Act to ensure that it does not continue to operate like a republic within the Federal Republic of Nigeria.