The Fiscal Responsibility Commission (FRC) on Saturday highlighted the risks associated with banks lending in a manner that contravenes section 45 of its Fiscal Responsibility Act.

Its executive chairman, Victor Muruako, who spoke at a one-day stakeholders dialogue in Lagos, said such manners could also have severe consequences for banks and the Nigerian economy. 

The dialogue was on implementing section 45 of the Fiscal Responsibility Act.

Mr 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.

He said that despite the simplicity and clarity of the act’s language, banks often approve and disburse loans to subnational governments without fully adhering to the provisions of the FRA.

Mr Muruako said: “Not once in the commission’s verification exercises has it confirmed that 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.

Mr Muruako said: “The unsavoury effect of this non-compliance may spread well beyond the individual banks to the inside macroeconomic space.”

In his remark, 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.

Mr Obiamalu, also associate director, legal and sanctions of the Nigeria Financial Intelligence Unit, stated that the FRA should also be empowered to enforce compliance with the FRA.

In his presentation, Uche Uwaleke of the Nasarawa State University, Keffi, harped on the need to curb borrowings from the government at all levels.

Stakeholders at the dialogue were 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. 

(NAN)