FRC warns banks over failure to comply with Act
The Fiscal Responsibility Commission (FRC) on Saturday has raised concerns about banks lending in a way that goes against Section 45 of the Fiscal Responsibility Act.
The Executive Chairman of the FRC, Mr Victor Muruako, spoke about the potential risks and severe consequences this could have for both banks and the Nigerian economy.
The FRC has initiated discussions with banks and financial institutions to ensure that their lending practices align with the provisions of the Fiscal Responsibility Act.
Muruako emphasised that although borrowing by the government and public institutions is a tool for development, lending by banks and financial institutions in violation of the provision is unlawful.
Despite the simplicity and clarity of the Act’s language, he pointed out that banks often approve and disburse loans to subnational governments without fully adhering to the provisions of the FRA.
Muruako said, “Not once in the commission’s verification exercises, has it confirmed that a Proof of Compliance With Provision of the FRA was specifically requested for and obtained by a bank or financial institution before lending to any government.
“Also, only one, out of a recent sample of 13 loans to governments across the country, had an associated ‘Cost-Benefit Analysis’, detailing the economic and social benefits of the purpose to which the intended borrowing is to be applied.
The FRA Chairman said there are lawsuits in courts across the country, challenging the propriety of some bank loans to governments and public institutions, based on provisions of the FRA 2007.
Muruako said, “The unsavory effect of this non-compliance may spread well beyond the individual banks to the inside macroeconomic space.
“Since the commission has responsibility toward macroeconomic stability, we thought it necessary to hold this stakeholders dialogue to get the perspectives of banks and also stem the tide before it’s too late.
“I urge the banks and other financial institutions to support the bold macroeconomic reform initiative of President Bola Tinubu’s administration.
”By being intentional in helping to reduce the risk of macroeconomic instability through ensuring that their lending practices consistently comply with provisions of the FRA.”
Muruako appreciated the leadership of Access bank for their support in organising the event and stakeholders in the financial industry for their cooperation with FRA.
In his remarks, Mr Felix Obiamalu, a lawyer, advised the FRC to work toward engaging the Nigeria Governors’ Forum (NGF) and carry them along to ease the implementation of the provision.
Obiamalu, also Associate Director, Legal and Sanctions, Nigeria Financial Intelligence Unit, stated that the FRA should also be empowered to enforce compliance to the FRA.
This, he noted, could be done by enabling laws to sanction and penalise defaulters of the Act.
In his presentation, Prof. Uche Uwaleke of the Nasarawa State University, Keffi, also harped on the need to curb borrowings from government at all levels.
He said this had become more for consumption, rather than for capital projects.
Uwaleke noted that government borrowings over the years had been on the rise, as the country currently has over N87 trillion public debt.
According to him, this is causing strain on the government balance sheet and stifling the nation’s development.
Stakeholders at the dialogue included: representatives of NGF, Nigeria Deposit Insurance Corporation (NDIC), Chief Compliance Officers, Chief Risk Officers, Chief Legal Officers and Chief Executive Officers of banks, among others.
