CBN’s intention to acquire N20trn dormant funds will worsen Federal govt’s debt portfolio – expert

THE Central Bank of Nigeria’s (CBN) intention to mop up dormant funds in banks will not only worsen the Federal government’s debt portfolio, it will also put the country’s financial institutions under pressure, says a global development economist, Kazeem Bello.

The apex bank had, in draft guidelines, it issued on Thursday, April 13, to financial institutions, specified that it would open and maintain an ‘Unclaimed Balances Trust Fund Pool Account’, where unclaimed balances in eligible accounts would be kept.

According to the CBN, the funds, estimated to be over N20 trillion, would be invested in Nigeria’s treasury bills and other securities that would be approved by the Unclaimed Balances Management Committee, adding that the policy affects eligible accounts dormant for a period of 10 years and beyond.

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In a chat with The ICIR to explain the nitty-gritty of the policy, known as ‘Escheat Regulations’ in the United States, Bello, the chief executive officer/principal partner with Afrique Capital and Equity Funds Limited, expressed worries that CBN’s intention does not augur well for stable monetary and fiscal policies balancing.

“It means that once the CBN pulls these funds out of the cash account balances of the banks, it will create tremendous pressure for the banks to continue lending to the private sector in the real sense of it,” he said.

It will also translate to more debts to the federal government in other ways through open market operation (OMO) operations, an instrument used by the central bank to purchase and sell securities for the government.

Bello believed that CBN’s intentions to accrue these funds and hand them over to the federal government would heighten pressure on the economy in terms of lower credits to the private sector.

He said, “Industrial production and productivity will reduce, prices will go up, inflation will increase, foreign exchange market will be dampened, layoffs will increase – which will worsen or increase the unemployment rate – and there will be many more side effects.”

Although Bello admitted the policy has tremendous benefits for monetary policy management and control, especially for large economies like Nigeria, he expressed the view that the CBN intention was far from the traditional benefits.

“It is also a strong policy instrument to fight corruption, money laundering, illicit and hiding deposits with potential to earn illegal interest on perpetuity, a crime that most Nigerian banks commit on a regular basis.

“The CBN intention clearly was instigated by the desperate need to find idle cash to lend to a revenue shy FGN. In November last year, I posited that the CBN would be under tremendous pressure to continue to bail out the FGN due to declining revenues to fund the budgets. This is one of such desperate moves, plain and simple,” he said.

He argued further that it was surprising why the CBN did not target the private sector that has been virtually crowded out of the credit market due to the excessive domestic borrowing by the federal government.

The private sector credit expansion has severely declined due to the huge borrowing from the public sector to fund non-productive activities.

This is having its tolls on inflation, and it does not generate economic activities necessary to propel growth, generate increased gross domestic product, and help improve employment.



    Questioning whether CBN carried out a “rigorous” forensic investigation of those funds, he said, “By accruing the funds without such a forensic investigation simply, to me, is tantamount to money laundering, and I am bold to accuse the CBN of perpetrating and aiding corruption.

    “We need to know and determine who owns those idle deposits in the first place, why are they abandoned, who opens the account or who is benefiting from the dormancy of those deposits, and so many questions before determining if those funds are not, indeed, previously stolen funds simply abandoned.”

    Around the globe, escheat regulations are used for top risk management mitigating strategies as they have been used in the United States to track drug funds, money laundering, tax evasion and other funds.

    Bello pointed out that when such funds are converted into instruments for cash related activities or trading, they should be made accessible to both the public and private sectors, including the state governments.

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