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Ecobank Nigeria Plc has refuted the claims of three customers
from its Ogoja branch in Cross River, stating that it did not collect any
deposits as claimed by the complainants, and as such is not liable to interest
payment as demanded.

The three customers of the bank, John Lukpata, Boniface Ugbem
and Okpe Idagu, had earlier accused the Ogoja branch management of the bank of
defrauding them bank of the interest accruing to the millions of naira fixed
deposit the lodged with the bank.

The customers, in their joint petition to the managing director
and chief executive of the bank, appealed to him to investigate their claims,
saying they had not been told the truth about the gain they made on their
deposits.

The claim

Specifically, the customers accused the Ogoja branch manager of
the bank, Michael Takim, of playing a fast one on them and have since taken
their case to the bank’s headquarters of the in Lagos for necessary action.

The counsel to the acclaimed defrauded customers, in his
petition entitled “Demand for the payment of our Deposit with your Bank”,
claimed that, acting on the “sound” financial advice of Mr. Takim, on the 18
August, 4 September and 3 October, the three customers lodged sums of money to
the tune of 11 million naira in various fixed deposit account with the branch.

The petitioners allege that, contrary to expressed terms of the
transactions as contained in the fixed deposit certificate issued them which
stated that the interest rate at maturity of the deposit was 14%, “no money was
paid to us at the maturity of the deposit”.

They consequently called on the managing director to take
immediate action considering the fact that, according to them, the delay in
paying them their deposits has caused them “undue pain and unnecessary
embarrassment”, with many of them forced into debt to meet their basic
obligation to their families.

The demands

The petitioners have thereby demanded the bank’s head office intervene
or risk the inquest of the Economic and Financial Crime Commission (EFCC) into
their allegation.

“In the circumstance, we hereby demand for the payment of our
deposit within fourteen (14) days falling which we shall process to seek other remedies
to recover our money without further notice,” they said, adding that, if the
agreed interest on their deposits is not paid by the bank, they will, beside
legal action, report the matter to the EFCC.

They emphasised that, if it was the other way round, the bank
would have since seized their assets and taken them to court for default.

Attempts to get the reaction of Mr. Takim to the allegations
were futile as he was said to have been summoned to the head office over an
undisclosed mission.

‘Not liable’

However, the bank, in its response to NEXT enquiries, said the
customers’ claim to have paid money into the bank is unfounded. “They do not
have payment slip to show in this regard, neither is there an acknowledgment in
the bank’s records that they had investments with the bank,” the bank’s
statement claimed.

According to the bank, the aggrieved customers went into a
private deal with the bank manager that flopped, and they were seeking ways to
rope the bank into the chaos, as means to recover their lost funds.

“Okpe Idagu, John Lukpata and Boniface Ugbem customers of
Ecobank Ogoja Branch entered into a private business deal with our former Ogoja
Branch Manager, Mr. Micheal Takim – that is to fund oil and gas business that
failed,” the statement further said.

The bank disclosed that the case has been reported to the police
in Calabar, who have since commenced investigation.

“Micheal Takim has made a statement to the police detailing the business
arrangements leading to the collection of monies from the complainants above,”
the bank concluded. “The bank did not collect any deposits from the
complainants and as such is not liable to interest payment as demanded.”

The Nissan Xterra SUV falls as one of the many numerous car
products from Nissan Auto Company. The Nissan Xterra SUV over the years has
showcased impressive off-road performance via its high ground clearance and
ruggedness.

The 2010 Nissan Xterra doesn’t come with any difference from its
predecessors, but instead comes packed with a general upgrade and also
previously optional features found in previous models.

Design

The 2010 Nissan Xterra has got a lovely body structure. It comes
with a heavy and strong outlook with a high ground clearance for easy mobility
on rough surfaces. It features inch steel wheels, rear tinted glasses and roof
rails.

The vehicle is available in different level grades of X, S, Off
Road and SE model. The Xterra X model, which stands as the lowest of all grade,
features elements like step rails, roof rails and 16 inch steel wheels. The
Xterra S model has upgraded tyres of 16-inch alloy wheels, cross bars and roof
gear basket.

The Xterra SE and off-road model is premium type and it offers
features like 17-inch alloy wheels.

Interior

The 2010 Nissan Xterra easily accommodates 5 passengers (driver
inclusive). It provides maximum interior comfort while driving. Features that
are present in the vehicle are power windows and locks, cruise control, tilt
steering wheels. The driver seat is an eight-way power adjustable one.

The SUV comes with air conditioning system that saturates easily
and an Audio CD player with six speakers for surround music sound.

The leather upholstery seats, Bluetooth and navigation interface
is available in both the off-road and SE model. The iPod interface and dockable
rear entertainment console comes optional in the SE model.

Engine Power

The 2010 Nissan Xterra is powered with a strong V6 power engine.
The SUV is built with a 4.0 litre V6 that produces up to 261 horsepower and has
281 pound-feet of torque. It is mated with six speed manual transmission, while
the SE model features a standard five-speed automatic transmission and optional
with other models.

The SUV’s engine is capable of covering a distance of 60mph in 8
seconds.

Safety

The 2010 Nissan Xterra is built with paramount safety in mind.
It is equipped with antilock disc brakes and front seat airbags and side
curtain airbags and with high stability control. It also has a hill descent
control and hill start assist when driving on hilly regions.

Prices vary according to grade models. The X model cost $22,750 (N3, 412,
500). The S model cost $25,720 (N3, 858,000) and Off-road and SE model cost
$29,500 (N4, 425, 000) and $28,650 (N4, 297,500) respectively.

Toyota Motor Corp has agreed to pay a record $16.4 million fine
to U.S. safety regulators in response to the government’s claim that it
knowingly delayed a massive accelerator pedal recall in January, a government
official said.

The settlement between the U.S. Department of Transportation and
the world’s largest automaker is expected to be signed on Monday in Washington,
the official said.

The Obama administration determined that Toyota knowingly
delayed a recall for a potentially dangerous mechanical glitch that could cause
accelerator pedals on some of its best-selling models, including the Camry, to
become stuck.

By agreeing to pay the $16.4 million fine, Toyota is “accepting
responsibility for hiding this safety defect” from the National Highway Traffic
Safety Administration “in violation of the law,” the senior Transportation
Department official told Reuters.

The official asked not to be named because the settlement with
Toyota had not been finalized.

A Toyota spokesman in Japan said that the automaker had not made
a final determination on how it would respond to the proposed fine from U.S.
officials.

A settlement of the Department of Transportation fine marks the
end of one chapter in a safety crisis that has tarnished Toyota’s reputation
and forced it to compete aggressively on pricing to win back sales in the U.S.
market.

But Toyota still faces over 100 lawsuits alleging consumer fraud
and personal injuries over unintended acceleration in its vehicles.

In addition, U.S. safety regulators are continuing their investigation
of Toyota and have not ruled out further action, the official said.

In a further embarrassment, Toyota has been forced to shut down
production of the Lexus GX 460 SUV over a problem with its electronic control
system and now faces a decision on whether to recall the vehicle.

Shares of Toyota were down almost 2 percent in early afternoon
trade in Tokyo.

Monday marks the end of a two-week period in which Toyota had to
either agree to pay the fine or to file an appeal.

Further liability

Toyota’s decision to pay the fine will not release it from
potential liability in lawsuits over unintended acceleration in Toyota and
Lexus vehicles, the U.S. official said.

Some lawyers estimate Toyota faces potential civil liability of
more than $10 billion in U.S. courts as it struggles to contain an auto-safety
crisis that has tarnished its public image.

The recent addition of demands for full refunds to U.S. owners
of recalled Toyota vehicles as part of consumer protection cases filed in 12
states could raise the legal stakes even higher for the car company, lawyers
say.

On Friday, Toyota’s U.S. representatives said they had confirmed
the results of a Consumer Reports test revealing a handling problem in the
Lexus GX 460.

In addition, the U.S. House Energy and Commerce committee
scheduled a May 6 hearing and asked that Toyota’s U.S. sales chief Jim Lentz to
testify. Lentz appeared before the same panel in February.

Lawmakers are seeking more information about the automaker’s
review of its electronic throttle controls and its work with an outside
consultant to review its related safety systems.

The economic impact of the volcanic cloud halting flights across
Europe will increase sharply the longer disruption continues, forcing holiday
cancellations, delaying deliveries and reducing jet fuel demand.

African exporters of flowers and vegetables by air to European
supermarkets, technology companies relying on “just-in-time” deliveries of
components, event organisers and others could all feel the effect.

Economists say so far they have not changed their models or
predictions for European growth, hoping normal service could resume this week.
But in a worst-case scenario in which the ash cloud closes European airspace
for months, one economist estimates lost travel and tourism revenue alone could
knock 1-2 percentage points off regional growth as long as it lasts. European
growth had been predicted at 1-1.5 percent for 2010.

“That would mean a lot of European countries wouldn’t get any
growth this year,” said Vanessa Rossi, senior economic fellow at Chatham House.
“It would literally stifle the recovery. But the problem is it is incredibly
hard to predict what will happen. Even the geologists can’t tell us.”

The event is a classic example of a “Black Swan”, a totally
unexpected event with widespread impact, impossible to predict and hard to
model.

The key questions now are whether the volcano keeps erupting and
spewing ash into the atmosphere, where the wind takes the ash and how long the
ash already in the sky remains over Europe.

Vulcanologists and
meteorologists at a loss

Vulcanologists and meteorologists say they cannot immediately
answer those questions as volcanoes are particularly unpredictable. They warn
the last time the volcano under the Eyjafjallajokull glacier erupted, it lasted
more than a year. But it may not continue to spew ash for the entire eruption.

Most had originally expected the cloud and disruption would
linger over Europe for several days.

Travel and tourism accounts for around five percent of global
gross domestic product — some $3 trillion — with Europe accounting for a
third of that, much of it accruing over the summer months. Not all of this will
be lost, but Rossi estimated a prolonged shutdown could cost up to $5-10 billion
dollars a week in the industry.

But the impact will likely be wider. Most of the world’s goods
by volume may move by sea and land, but transport analysts estimate 40 percent
by value moves by air.

No “just-in-time”

The world’s biggest air freight operators say they are moving
what they can by road and looking at contingency plans of using southern
European airports that are outside the cloud. But they say deliveries will be
sharply affected.

“If your just-in-time operation is depending on parts that come
from Asia or the U.S. or Africa or the Mideast… , you just can’t get it,”
said United Parcel Service Inc spokesman, Norman Black.

“DHL and UPS use airhubs in Germany, Fedex Corp relies on an
airhub in France and all that airspace is closed. There’s just not an option
right at the moment while we all wait and see how long this is going to take.”

Pharmaceutical firms are heavy users of air freight, but most
said on Friday they had enough stocks to avoid a short-term crunch. Last-minute
high-tech imports between Asia and the United States are flown over the Pacific
and will be unaffected, but European firms may feel the pinch.

Most food and beverage deliveries move by sea, but some premium
products such as the finest Scotch whiskeys — retailing at hundreds of dollars
a bottle in China or Japan — can no longer be moved.

That could mean the most vulnerable national economies to the
shutdown could prove to be African producers of fruit and flowers that will
swiftly perish if not shipped to market.

“Kenya, as the largest supplier of cut flowers to Europe, where
tourism is also an important sector, is likely to be the most vulnerable;
followed by the East African soft commodity producers more generally,” said
Standard Chartered chief Africa economist Razia Khan, herself stranded in
Botswana by a cancelled flight.

The International Air Transport Association (IATA) estimates
airlines are losing $200 million a day from the shutdown, which has caused
chaos well beyond the immediate European airspace closed. Most airlines will be
uninsured for this loss, although insurer Munich Re said on Friday it would
consider offering cancellation insurance in future should the crisis produce
demand.

No money for government
support

European airline shares dipped on Friday and will likely fall
sharply if it appears disruption will be prolonged. Even if the wind shifts,
ash clouds over the Atlantic and Arctic would continue to disrupt flights to
North America and Asia.

Analysts estimate the shutdown is reducing demand for jet fuel
by some 2 million barrels a day, last week undermining jet fuel prices. This
could filter into the wider oil price if the shutdown continues.

The wider travel and tourism industry so far has suffered less.
The problem will be if the shutdown lasts long enough to deter future travel.

“Right now the hotels have people who are stranded. If after a
while, no new people arrive, that hurts the hospitality industry,” said Rajeev
Dhawan, director, Economic Forecasting Center at the Robinson College of
Business, Georgia State University.

Even if the initial cloud clears, vulcanologists warn the same
thing could happen again for as long as the eruption under the glacier lasts,
further threatening struggling firms.

“If this had happened a couple of years ago, governments would
have had the money to step in and provide support,” Rossi said. “But right now,
after the crisis, that money isn’t there. This could be enough to push some
weaker airlines and travel companies to the wall. It couldn’t have happened at
a worse time. On the other hand, it could all clear overnight and we could be
back to normal by next week.”

It could be worse. Scientists say this eruption looks unlikely
to impact agriculture outside Iceland itself, in contrast to the much larger
1783 Laki eruption, also on Iceland.

“They were famines in France due to crop failure and this might
well have been a factor in the French Revolution,” said Prof Steve Sparks,
director of the Bristol Environmental Risk Research Centre at Bristol
University.

The continuous bullish trend being recorded at the Nigerian
Stock Exchange has been attributed to the positive macroeconomic performance
witnessed in the first quarter (1Q) of the year, equity research analysts at
Renaissance Capital have said.

The investment analysts, in a statement on Monday, said “Robust
macroeconomic performance in the first quarter of the year support equities’
gains.” They supported their claims with the figures reported by the Central
Bank of Nigeria (CBN), during last week’s meeting of the monetary policy
committee.

The CBN announced that macroeconomic performance in 1Q of 2010
was sound, with gross domestic product growing 6.7 per cent (up from 4.5 per
cent growth in 1Q09), inflation relatively constant at 12.3 per cent (as
against 12 per cent in the 4Q09), and the naira stable at about N150.43 per $1
on the interbank market.

Market forecast

Predicting market performance for this week, Renaissance
analysts said “This week, we are confident that equities remain the strongest
play on expected strong corporate earnings releases – particularly from
consumer and banking names – and we think investors would be well advised to
move out of fixed-income securities and into equities, in light of the
substantial depression in the yield curve.

“We are bullish on non-financials that have lagged the market in
the recent rally. We also favour those financial stocks for which we see a
build-up in demand: such as BCC, UACN Properties, Diamond Bank,” they added.

Meanwhile, Proshare Nigeria Limited, an investment advisory
firm, said it is expected that investors will continue to chase after the
stocks of companies that declared returns.

The company noted despite the bearish trend recorded in two
trading days during the past week, the stock market closed on a positive note.
The market at the end of the week recorded appreciations in three of the five
trading days. It said the sell pressure recorded in the two trading days could
be attributed to “investors’ besieging the market for profit taking” following
the six trading days appreciation earlier recorded.

However, Proshare said it would augur well for the market and
the investing public in general if all the quoted companies can declare their
financial results on time, “instead of unnecessary delay that keeps investors
in suspense.”

Gainers and losers

At the close of trading on Monday, Guinness Nigeria and Mobil
Oil Nigeria topped the price gainers’ table with an increase of N7.74 and N7.57
on their opening prices of N154.99 and N151.44 per share. Oando Oil and Julius
Berger Nigeria followed in the chart with an increase of N6.02 and N2.67, to close
at N126.53 and N56.14 per share.

Total Nigeria and African Petroleum led the price losers’ chart
with a loss of N8.28 and N2.29, to close at N185.87 and N45.10 per share. RT
Briscoe and Nigerian Breweries followed with a decrease of N1.34 and N1.28 on
their initial prices of N6.50 and N70.81 per share respectively.

Bears across the globe

Stock markets were bearish across the globe on Monday. The
Australian Securities Exchange’ ASX lost 1.36 per cent while the Hong Kong’
Hang Seng was down by 2.10 per cent. Also, the Canadian TSX 60 Index and
Japanese Nikkei 225 recorded 0.52 per cent and 1.74 per cent depreciation,
respectively.

In Europe, the Germany DAX Index lost 0.12 per cent while the
Europe Euronext 100 Index and the France CAC 40 Index lost 0.50 per cent and
0.42 per cent. The Switzerland Market Index also decreased by 1.28 per cent.

Ecobank Nigeria Plc has refuted the claims of three customers
from its Ogoja branch in Cross River, stating that it did not collect any
deposits as claimed by the complainants, and as such is not liable to interest
payment as demanded.

The three customers of the bank, John Lukpata, Boniface Ugbem
and Okpe Idagu, had earlier accused the Ogoja branch management of the bank of
defrauding them bank of the interest accruing to the millions of naira fixed
deposit the lodged with the bank.

The customers, in their joint petition to the managing director
and chief executive of the bank, appealed to him to investigate their claims,
saying they had not been told the truth about the gain they made on their
deposits.

The claim

Specifically, the customers accused the Ogoja branch manager of
the bank, Michael Takim, of playing a fast one on them and have since taken
their case to the bank’s headquarters of the in Lagos for necessary action.

The counsel to the acclaimed defrauded customers, in his
petition entitled “Demand for the payment of our Deposit with your Bank”,
claimed that, acting on the “sound” financial advice of Mr. Takim, on the 18
August, 4 September and 3 October, the three customers lodged sums of money to
the tune of 11 million naira in various fixed deposit account with the branch.

The petitioners allege that, contrary to expressed terms of the
transactions as contained in the fixed deposit certificate issued them which
stated that the interest rate at maturity of the deposit was 14%, “no money was
paid to us at the maturity of the deposit”.

They consequently called on the managing director to take
immediate action considering the fact that, according to them, the delay in
paying them their deposits has caused them “undue pain and unnecessary
embarrassment”, with many of them forced into debt to meet their basic
obligation to their families.

The demands

The petitioners have thereby demanded the bank’s head office intervene
or risk the inquest of the Economic and Financial Crime Commission (EFCC) into
their allegation.

“In the circumstance, we hereby demand for the payment of our
deposit within fourteen (14) days falling which we shall process to seek other remedies
to recover our money without further notice,” they said, adding that, if the
agreed interest on their deposits is not paid by the bank, they will, beside
legal action, report the matter to the EFCC.

They emphasised that, if it was the other way round, the bank
would have since seized their assets and taken them to court for default.

Attempts to get the reaction of Mr. Takim to the allegations
were futile as he was said to have been summoned to the head office over an
undisclosed mission.

‘Not liable’

However, the bank, in its response to NEXT enquiries, said the
customers’ claim to have paid money into the bank is unfounded. “They do not
have payment slip to show in this regard, neither is there an acknowledgment in
the bank’s records that they had investments with the bank,” the bank’s
statement claimed.

According to the bank, the aggrieved customers went into a
private deal with the bank manager that flopped, and they were seeking ways to
rope the bank into the chaos, as means to recover their lost funds.

“Okpe Idagu, John Lukpata and Boniface Ugbem customers of
Ecobank Ogoja Branch entered into a private business deal with our former Ogoja
Branch Manager, Mr. Micheal Takim – that is to fund oil and gas business that
failed,” the statement further said.

The bank disclosed that the case has been reported to the police
in Calabar, who have since commenced investigation.

“Micheal Takim has made a statement to the police detailing the business
arrangements leading to the collection of monies from the complainants above,”
the bank concluded. “The bank did not collect any deposits from the
complainants and as such is not liable to interest payment as demanded.”

Zenith Bank said on Monday its pre-tax profit rose 12 percent to 13.2 billion naira ($88 million) in the first three months of this year.

Turnover grew 4.6 percent to 55 billion naira in the period, the bank said in a statement to the Nigerian Stock Exchange.

REUTER

Market overview

There is clearly an
increased interest in investing in the stock market. Last week, the
market attracted mixed sentiments. The market opened the week upbeat,
cheered by investors pouring in money on shares, as the market is
attractively placed in terms of liquidity of stocks, expected
profitability, positive earnings of companies and depth of the stock
market. At the close of trade on Monday, the market closed higher,
taking cues from the gains recorded in the previous weeks.
However, selling
pressure was witnessed on Tuesday and Wednesday and as profit booking
intensified, the indices failed to sustain momentum and started
drifting lower.

Nonetheless, as share prices start to overheat during
the bull run, profit-taking cycles provided an opportunity to pick up
shares on the dip. The profit-taking created by selling pressure on
blue chips created buying opportunities on the lower cap shares. The
market turned around on the fourth day (Thursday), gaining 0.31%. The
bull session continued till Friday during which the market
capitalization closed the week at N6.77 trillion.
Creditably,
investors have continued to take position in shares of companies that
have robust cash flow and less dependence on bank credit. Largely,
market rebounds have been attributed to trading activities in these
various sub-sectors- food and beverage, building materials, insurance
and stable banks.

The capital gain derived from investments in these
sub-sectors and many more has continued to sustain investors drive in
the market.
Going forward,
there are expectation that the stock market will maintain upward trend
in the weeks ahead if the rising investors’ confidence and earnings
from the quoted companies are sustained coupled with the recently
passed bill by the National Assembly for the establishment of Assets
Management Company (AMC) which expected to take off and buy out the
toxic assets of the rescued banks. Also, Strong fundamentals of blue
chips stocks are poised to attract more institutional and retail
investors in the weeks ahead. Therefore we tend to think that the rise
in stock markets is not purely a speculative phenomenon, but is also
backed by fundamentals. We strongly believe that the diversified income
base and improved socio-economic scenario will help in keeping the
stock market upbeat for an extended period of time.
During the week,
the NSE AS Index rose by 288.60 points or 2.69% to close at 27,988.71
basis points. The market witnessed a dip, resulting in depreciation in
turnover volume and value of shares traded during the week. Both the
volume and value depreciated by 4.29% and 27.46% respectively. By
Thursday, the market had gone back to its upward movement with the
market capitalization adding N69.80 billion to close the week higher
N6.77 trillion. See 1 and 2

Most Active Sector

The Banking sub
-sector remain the most active (measured in terms of traded volume) as
it recorded 1.04 billion shares valued at N11.72 billion exchanged in
22,230 deals while the Insurance sub -sector was second with traded
volume of 1.20 billion shares valued at N1.10 billion.

Gainers and Losers

During the week, 65
stocks appreciated in price, while 37 stocks depreciated in price.
Below are the tables showing top 10 gainers and losers for the week .
See table 3 and 4
Corporate actions and results
Oando Plc released
its full year trading result to the floor of the Nigerian Stock
Exchange in the past week. The company, which has 905,084,628 units of
shares outstanding, declared a Turnover of N336.859 billion and a
Profit after Tax of N10.096 billion. The Directors are recommending a
dividend of N3.00 and a bonus of 1 for 2 units of shares held.
In the same vein,
Julius Berger audited financial report for the year ended 31 December,
2009 was also released on the floor of NSE today. The Directors
proposed final dividend of N2.40 per share. Closure date is 25 June,
2010 and payment date is 8 July, 2010.

Market outlook

The current trend
will be sustained in view of liquidity of stocks, expected
profitability, positive earnings of companies and depth of the stock
market. The attractiveness of the market which stems mostly from the
liquidity in the stocks will prevail on investors to focus on certain
sub-sectors amongst which are building materials, food and beverage,
conglomerates, banking, and insurance in view of its profitable core
business.

Much
myth currently attends the practice of banking in the country. A lot of
it is understandably negative. Much of it acknowledges, and derives
from the critical roles banks are supposed to play (but apparently do
not here) in allocating financial resources within an economy. This
folklore explains the focus for a long time on the relationship between
banks’ alleged greed, and high domestic interest rates. Banks,
according to this narrative are in breach of their responsibilities to
the domestic economy each time lending rates reach “too high”. Then,
the real and extractive sectors will no longer be able to access the
credit without which they cannot meet their customers’ current needs or
grow their businesses. Domestic output growth thus suffers, and we are
all the worse for it. Consequently, the last two governments at the
national level have spent inordinate time absorbed by the challenge of
driving interest rates down.

The
error in this regard lies in the failure to accept interest rates as a
price, subject as with all prices to the push and pull of demand and
supply. And because the possibility of a market without distortions
exists only in the fevered imagination of the purists, not even the
price of money is spared the premiums and discounts that arise from the
improper workings of the money market. Rather than try by fiat to keep
interest rates down, a more useful response would have seen government
address the structural ~ impediments to the supply of funds to the
money market, or the hurdles in the way of growth in the domestic
demand for credit.

Misunderstanding the market

A
different misunderstanding of the market for long-term funds lies at
the heart of the more popular recent myth about the banking industry:
its supposed reluctance to lend for long-term investment. The main
sub-narrative here is the one that describes the nation’s banks as
unduly excited by near-term results, and consequently willing to lend
to distributors of fast moving consumer goods and importers of
consumables. The particular response of the domestic banking industry
to the second round effects of the global financial crisis has
exacerbated this opinion. Yet, one of the central lessons from the
crisis is that banks are best served by focussing on low cost deposits,
and credit creation, while leaving the much riskier investment banking
operations to dedicated boutiques.

If
this reading of the crisis is correct, there is something perverse
about requiring banks reliant on short-term deposits to drive long-term
investments in the economy. A much more useful procedure would be the
creation of a market for long-term investible funds: thriving bond and
new issues markets. Prospects for the latter will await a proper
response by the responsible regulators to the price bubble that
inflated on the exchange during the last boom. However, as regards the
market for corporate bonds, the markets’ response to government’s
recent policy interventions (granting tax-exempt status to bond
holdings, and creating a secondary market for such bonds by allowing
banks to include them for computing their liquidity position) shows
clearly the need for changes in the macroeconomic policy environment,
including structural reforms that remove the volatility that the market
prices into financial assets.

Economic illiterates

This
volatility, the result largely of economic illiterates determining
official policy, has left investors in the domestic economy with a
short-term horizon. It also explains the pricing of loan deals. High
and unpredictable inflation rates, along with the likelihood of
significant policy reversals means that most banks in the country can
only offer adjustable rate loans. With bank loans, therefore, companies
face an interest rates risk, which they can only hedge against at some
added expense. Besides, corporate borrowers face other concerns when
accessing bank loans. Most banks have a large exposure limit, capping
the proportion of their shareholders’ funds that they can legitimately
lend to a single borrower. Large borrowers must thus look for
syndication to meet their lending needs. Add to these, the cost to
borrowing companies of the “loan covenants” that are attached to bank
credit, and the financing needs of corporate Nigeria is best met
through the issue of bonds, and not through bank lending.

Long-term
fixed rate instruments simplify the budgeting process, and permit a
focus on the long-term. Would-be borrowers would however require some
form of rating from a recognised agency, and a sound investor relations
framework. This is the next reform level.

The
Central Bank of Nigeria’s (CBN) governor, Sanusi Lamido Sanusi, has
said that unaddressed economic problems are contributing to long-term
inflationary pressures.

He
made this statement on Friday at the end of the 69th Special Monetary
Policy Committee(MPC) Meeting in Abuja. He also said that inflation is
being exacerbated by the huge recurrent expenditure component in the
2010 budget, even as year-on-year headline inflation was announced to
have risen from 12 percent in the last quarter of 2009, to stabilize at
12.3 percent at the beginning of this year.

He
called for speedier government spending to address problems such as
bank lending and an adequate power supply, the absence of which means
greater costs to producers and higher prices for consumers.

“We
have a stimulus budget that is not signed. That budget has a very large
component that is recurrent expenditure, as opposed to capital
(appropriation). If we do not make progress in unlocking the structural
bottlenecks in the economy, by taking steps to address the five key
issues required to get the economy growing, we will end up with a high
risk of structural inflation,” Mr. Sanusi warned.

He
listed the five key issues necessary to attaining economic growth as
monetary and financial sector stability; development in key
infrastructure; investment in human capital development; as well as
price incentives to help boosts investment.

Price incentives

According
to him, price incentives come when one is talking about issues like
deregulation of the supply of petroleum products and the services in
the power sector, expressing regrets that at the moment “all these
issues have not moved as fast as they should.”

“If
these were to be so, the nation would get investments into those key
sectors. These are the things that would unlock the supply bottlenecks
in the economy and allow the system to flourish. Throwing monies into
recurrent expenditure will ultimately end up impacting negatively on
the level of inflation in the system, by either pushing up the prices
of domestic goods and services, or exerting pressures on the exchange
rate regime, and having the nation importing inflation into the economy.

“So,
to the extent that there is progress in the development of the power
sector and the infrastructure, these risks would get mitigated. But, if
we keep spending money without addressing those fundamental structural
issues, the nation will end up with a high risk of structural
inflation,” the CBN boss argued.

Core
inflation was said to have stabilised at 10.1 percent last January and
February, up from 9.7 percent recorded in the last quarter of last
year, with stability in the domestic price level attributed to the
continuing monetary contraction, continued delay in the passage of the
2010 federal budget, and the improvement in the supply of petroleum
products.

But,
according to the MPC, notwithstanding these developments, the threat of
inflationary pressure in the near-to-medium term remains real, and a
major challenge to government’s effort to create an enabling
environment for sustainable economic growth and employment.

On
efforts to stem systemic risks aimed at facilitating the process to set
the nation’s economy on the path of sustained recovery, Mr. Sanusi said
apart from ongoing discussions to review the universal banking model,
the CBN is asking for additional legal empowerment to intervene in the
operations of institutions not under its regulatory authority, but
whose activities are considered a threat to the financial system’s
stability.

“We
have discovered that banks are a major source of systemic risks, as a
result of their deploying huge depositors’ funds to risky activities
that are not in line with core banking business. The draft law is being
discussed with the banks and other stakeholders, and would be
fine-tuned for the Board of the CBN to give a final approval during its
meeting in May, after which the banks would be given between 18 and 24
months timeframe to migrate to the new model,” he said.

Global disconnect

Central
Banks around the world, he pointed out, have since realised the
disconnect between the tools available to the banks and the roles
assigned to them, adding that as lender of last resort, the apex bank
has the ultimate responsibility for the financial system stability.

Arguing
that the role of the CBN goes beyond being regulators, he cited the
experience in some countries like Malaysia, where their Central Bank
has been empowered to intervene in institutions they are not
regulating, if their activities have become a threat to the financial
system’s stability.

“We
are going to have discussions with other regulators to define exactly
what role the CBN has to play in dealing with institutions that can
pose a potential risk to the nation’s financial system’s stability,
even if they are not directly under the supervision of the CBN. We are
part of the global discussion on the regulatory architecture that is to
be put in place to mitigate the impact of systemic risks. This is part
of what is before the National Assembly’s agenda for the reform of the
nation’s banking sector,” he said.