Unravelling PND abuse in Nigeria’s banking system

In his inaugural speech, President Bola Tinubu mentioned that monetary policy needed thorough ‘housecleaning’. Since then, Godwin Emefiele has been suspended as the governor of the Central Bank of Nigeria (CBN) and the FX market is undergoing rapid changes for the better.

These initiatives have gathered applause from both local and international investors. But this is not enough. One critical area that sticks out like a sore thumb and remains unaddressed is the failure to uphold the rule of law at the Central Bank. Even more than a damaging cash redesign policy and multiple exchange rates, the CBN’s frequent abuse of its position as a regulator, without recourse to its Act and the rule of law, must be stopped.

One instrument through which the CBN has acted against institutions and individuals is the post no debit (PND) instruction. The instrument gives the CBN powers to stop customers from operating their bank accounts, with the permission of the courts. However, without such permission, the CBN closed customer accounts without court orders. The CBN only later sought an ex-parte order after account closures. When customers contest this through the courts and are absolved of wrongdoings, the commercial banks fail to lift restrictions until the CBN grants permission, which can be delayed for an extended time. With a regulator as CBN with sweeping powers, it is understandable that banks would easily be co-opted into this unlawful abuse of power. The use of PND has been popular and thoroughly abused by the CBN over the past nine years.

In 2020, without a court order, some companies in the non-financial sector had a PND placed on their accounts for sourcing FX from non-official sources or the black market and exporters were also victims of the failure to repatriate foreign currency proceeds. Yet, this particular behaviour by companies in a free marketplace was incentivised by the absurd policies of the CBN, which are now being reformed.

In the case of the exporters, it was unreasonable to repatriate their dollar earnings to be sold at the exchange rate of N461/$ in the I&E FX window which was 62 per cent lower than what could be obtained in the parallel market at N750/$. This means the CBN is telling these exporters to lose 62 per cent of their revenues in naira terms, which is unacceptable. Why should they be punished for exhibiting the behaviour that the policies of the CBN incentivises? Realising its mistake, the CBN introduced a scheme that now compensated exporters N25/$ for every dollar they repatriate.

Even in the financial sector, FinTechs, BDCs and even commercial banks have been constantly harassed by the CBN. BDCs are quite easily scapegoated by the CBN for an FX crisis of their creation. When parallel market rates drift significantly away from the official market, the players in the space, including the BDCs, come under heavy fire from the CBN for acting in their interest. At some point, over 30 BDCs had PNDs placed in their bank account under the guise of illicit financing until it was later reviewed. One would think that such accusations would be fully prosecuted by the CBN, but that rarely happened.

Some FinTechs in the wealth space also had PNDs placed on their accounts for performing transactions that the Federal High Court in Abuja, Nigeria later decided were not in contravention of any laws of the country. The court’s judgment in this particular situation was revealing. The CBN is notorious for issuing circulars according to its whims and desires but the court, in the case of the FinTechs, claimed that “Being unknown to law, circulars cannot create an offence because it was not shown to have been issued under an order, Act, Law or Statute” One can only imagine the costs and damage that commercial banks, who are often victims of these circulars, have had to endure.

The most outrageous of these PNDs was placed on the accounts of over 20 individuals and institutions who were part of the 2020 #EndSars protest against police brutality. Under the guise of terrorism financing, those that received donations for food, drinks and medicals during the protests had their accounts blocked. While a court order was granted to do this, due to the alarming claim of terrorism financing, the restrictions on the accounts remained past the 90-day expiry period until this was lifted by the Federal High Court sitting in Abuja.

The consequences of these sudden and unlawful sanctions on the accounts of individuals and businesses are devastating. Many struggles to go about their everyday business and meet obligations. Some companies could not pay salaries to staff and settle invoices to suppliers as and when due. This abuse of power harms the entire economy by destroying commerce and employment.

It is not enough to suspend Governor Emefiele, it is essential that upholding the rule of law must be one of the reforms prioritised at the Central Bank of Nigeria. The entire system around the use of PNDs against customers in the banking system should be thoroughly audited and cleaned up. This would also prevent the CBN from creating and implementing policies that are now being reformed.

A CBN following the rule of law would not have financed FG’s deficit to the tune of N22.7 trillion without repayment on time and according to the terms dictated by its Act of 2007. Nor would the institution have looked like another arm of the presidency, waiting on its instructions like the CBN Governor attested to numerous times, in clear disregard for the independence the law requires.

The fiscal crisis currently faced by the FG, which has led to credit rating downgrades that affect not just the government but also businesses, was enabled by the CBN. It is a consequence that the law was created to protect the public against.

The cash redesign policy which phased out old notes of N1,000, N500 and N200 was against the CBN’s Act of 2007, which mandated that fully fit old notes must still be redeemable by the CBN even if they ceased to be legal tender.

Without making the rule of law the cornerstone of ongoing reforms, we might be here again in the next 10 years clamouring for better reforms at the CBN.

*Akintunde is a Lagos-based financial analyst