The multi-billion naira bailout offered by the Federal Government to financially strapped State governments is more a windfall for several Nigerian commercial banks than a boost to States, a financial consultant has told SaharaReporters.
The Nigerian-born, UK-based consultant said he discovered, “a fundamental problem with the way the bailout is structured” after he reviewed the strategic implication of the bailout arrangement.
“I looked into the so-called bailouts and was shocked to realize that they were not actually meant for the States, but for the benefit of banks doing business with the affected States,” he said. “In effect, the Federal Government just guaranteed to banks that they will receive all the monies they loaned to State governments, even though most of the States had not defaulted on the loans,” he added.
“In the long run, none of the states are benefiting from the bailout,” he said. According to him, the Federal Government had structured the bailouts in such a way that, “it is the commercial banks that have been given new revenue streams spread over 226 months at the expense of the States.” The consultant added that most of the States he reviewed did not default on their bank payments, “hence there was no need for a bailout.” He added: “The ones that are struggling with payment of workers and contractors had been doing so for years now, so what they really need is financial re-structuring.” He added that the restructuring should come through expenditure control and more focused drives to dramatically increase internally generated revenues (IGR).
The expert described the bailouts as a false panacea. “With the bailout, which they did not ask for or need, their financial states will improve in the very short-run—45 to 90 days—and then they will be worse off afterwards,” he predicted.
He concluded that the big winners from the bailout arrangement “are commercial banks which stand to pocket N1.032 trillion over 226 months. The amount also represents the magnitude of the financial loss to States over the same period of time.”In a brief the consultant concluded that the bailout would be an albatross for State governments and “a financial bazaar for banks.”
The UK-based consultant remarked that Zenith Bank would receive N347 billion from the bailout funds while First Bank would get N196 billion. He added that the United Bank for Africa (UBA) and Sterling Bank would pocket N104 billion N72 billion of the bailout funds respectively, adding that a variety of other commercial banks would receive smaller amounts.
According to the consultant, if the State governments defaulted on their debts, Zenith Bank would have lost N193 billion, First Bank N110 billion, and UBA N105 billion. “If these monies were taken out of the banks’ balance sheets, the banks would become insolvent and, perhaps, collapse. So, rather than Jim Ovia [the majority shareholder at Zenith Bank] facing a possible loss of N193 billion, the Federal Government has handed him N347 billion. And Nigerians will have to repay this amount till at least 2034,” said the consultant.
He said it was disturbing that this “fraudulent transfer of public funds to commercial banks was happening under President Buhari.” He added: “I wonder whether the CBN [Central Bank of Nigeria] had lost their head, or they are now representing the interest of Jim Ovia and other bankers instead of that of Nigerians?”
Recalling that the CBN had bailed out commercial banks in 2009, the financial expert wondered why the Buhari administration was “railroaded into another bailout of banks in the guise of bailing out so-called insolvent States.”
He insisted that the CBN’s role in the bailout “smacks of fraud and questionable interest,” adding, “What assurance do we have that the cycle will not repeat itself in the future?”