ISSUES IN THE CBN AUDIT REPORTS   

The apex bank should focus on its core function of price stability     

Last Thursday, the Central Bank of Nigeria (CBN) posted on its website the Consolidated and Separate Financial Statements for the year ended 31^st December 2022. It was the first time the apex bank would publish its audited report in a long time. Going by the statements, the CBN is indebted to JP Morgan and Goldman Sachs to the tune of $7.5 billion, under a classified securities lending. This is in addition to a $6.3 billion exposure to foreign currency forwards. Overall, the reports suggest that there are fundamental issues of transparency and accountability at the apex bank. There is also a glaring failure of oversight, especially by the legislative arm.    

A review of the financial statements substantiates some of the long-held concerns regarding the quality of the CBN assets. Over the last few years, it has moved towards holding its reserves in more risky assets with lower credit ratings. There are also questions regarding the adequacy of its provision for loan assets, especially relating to the Anchor Borrowers Programme. Its equity make up is also no longer robust. Retained earnings have gone from representing 87% of equity in 2015 to 45% in 2022. Fair value reserve, foreign exchange translation reserve and revaluation reserve now make up a little over 50% of the equity. Unsurprisingly, the leverage ratio has also increased, with equity as a percentage of assets decreasing from 3.7% to 2.8% over the same period. Meanwhile, with the accounts now published, one of the biggest concerns is about the contingent liabilities. There are serious questions regarding the proportion that is impaired, in one form or the other.  

However, most of the revelations in the audit reports are well known to those tracking our finances: Ever increasing illegal loans to the federal government, wrongheaded policies, sexed up foreign reserves, etc. What the audit merely shows is the depth of the rot while providing actual figures for what most people already suspect. It’s also clear that concealing the opacity of recent years was deliberate. Publishing annual audits would have sounded the alarm bells. But the CBN didn’t do that. Neither did the National Assembly that ordinarily should have compelled it.    

   By their standing rule, the Public Accounts Committee (PAC) in both houses is to be headed by someone from the opposition parties. This is to ensure adequate checks. Unfortunately, as we have seen over the years, National Assembly members are almost always in bed with the agencies over which they should oversight, essentially for shakedown. That perhaps explains why the CBN has not been compelled to release its annual financial statements which would have revealed the gaps that are now in the public domain.   

Ordinarily, issues in the CBN financials are what proper legislative oversight would have picked up. The National Assembly should have asked for performance of the previous budget before approving a new one. Any money not part of the approved borrowing plan should have raised a red flag, and a probing of the source would have revealed issues of limits, etc. But then, the unbridled willingness by the CBN to open the tap probably prevented us from going to the International Monetary Fund (IMF) like Ghana and some other African countries. So, we had easy but expensive cash from CBN and with that, kicked the can down the road.   

While we leave the managers of our economy to examine the implications of the reports on the general wellbeing of Nigerians, the CBN needs to stop printing money for the federal government. This has gone on for several years thus masking the depth of our problems and fuelling inflation. The apex bank should also focus more on price stability, which is its core function.