Election Spending Fuels Cash Shortage In Banks -

The massive withdrawal of cash from Deposit Money Banks by
politicians and their associates in preparation for the general
elections has led to shortage of cash across bank branches in
the country.
It was gathered on Thursday that several billions of naira had
left the banking system between December last year and this
month as different political parties spent huge amounts on their
campaigns.
“Many banks are having it rough in terms of liquidity. Huge
deposits running into several billions of naira have been
withdrawn for election campaigns by politicians. This has
affected some of the banks. So, liquidity issue is of utmost
concern right now,” a top official of a tier one bank told our
correspondent.
According to other sources close to the situation, some lenders
have had to postpone some obligations due to liquidity
problems.
“Banks have been calling and pleading with some investors not
to terminate maturing fixed-income debts as a result of liquidity
problems; some bankers are also not lending not necessarily
because of uncertainties in the economy, but due to lack of
liquidity,” a banker added.
A number of politicians, he said, had also sold their properties
below the real values in a bid to raising funds for campaigns.
Our correspondent, who visited some bank branches in Lagos
and Ogun states on Wednesday and Thursday, observed that
hundreds of customers came to withdraw money from their
accounts more in anticipation of problems during and after the
presidential election on Saturday.
However, many of the customers were disappointed because
they could not get the amounts they requested across the
counter and Automated Teller Machines.
Bank officials said some customers were making panicky cash
withdrawals to make provision for their families in case of
security problems after the elections.
A bank official told our correspondent that it was a sign of
liquidity problem for banks to keep giving excuses of network
breakdown and employ delay tactics to force some of their
customers to leave in frustration without being unable to make
withdrawals.
The Managing Director, Afrinvest Asset Management Company
Limited, the research and investment arm of Afrinvest West
Africa Limited, Mr. Ola Belgore, said political spending in the run
up to elections usually affected the banking system and the
economy in general, citing the examples of what happened in
previous polls.
Belgore is of the opinion that some banks are currently
experiencing liquidity problems because a significant part of the
huge funds leaving the banking system for election campaigns
is currently held in the informal sector.
This, he said, was so because a major part of the population
was still unbanked.
“Even though there is a lot of outflow out of the banking
system, the bulk of it is being stored in the informal sector at
the moment because a large number of Nigerians are still
unbanked,” he noted.
The Managing Director, Dunn Loren Merrifield Asset
Management Limited, Mr. Tola Odukoya, who stated that the
relationship between political spending and the banking system
was usually an inverse one, noted that the onset of the general
elections had had serious adverse effects on the financial
system.
According to him, beyond the political spending, the increased
risks occasioned by the general elections have also made
several foreign portfolio investors to hold back from investing in
the country.
This, he said, had led to major drawbacks in economic
activities, adding that “the effect of the onset of the general
elections on the financial system has not been palatable.”
Outlining other factors that had compounded the banks’ liquidity
problems, the investment expert said, “The effects of monetary
and fiscal policies in the last several months have also
impacted negatively on banks’ liquidity. The effects of the lower
crude oil prices on the economy means the federal and state
governments now have less money to share.
“We also see the increase in the Cash Reserve Ratio of public
sector deposits to 75 per cent as a factor. On the back of this,
we also see the implementation of the Treasury Single Account;
this means banks do not have access to funds belonging to the
Ministries, Departments and Agencies of government. From
these, a lot of liquidity has been sucked out of the banking
system.
“The adverse effect of the not-too-favourable economic
conditions in the last six months and the inflationary effects of
the devaluation of the naira have reduced the income of the
average household; this has also led to reduction in household
savings. So, it will be difficult for banks to be very liquid in the
face of all these factors. Some banks may be more liquid that
the others.”