#TheCBNFiles: [Guest Post] A Short Story about a West African Bank
This week on 1914 Reader, we are publishing a series of posts on the recently released financial statements of Nigeria’s Central Bank. This will be a mixture of analysis, opinion and guest posts. There is a lot of information in the accounts and we don’t believe that a single post can do justice to them.
The chief executive of a bank that appears to have been running a massive Ponzi scheme got arrested recently. Shortly afterwards, the audited financial statements of the bank were made public for the first time in eight years, giving depositors a clear picture of the bank’s finances.
This bank claims to have the equivalent of about $126 billion in total assets as of December 2022, a 1.7x jump from the mere $72 billion in total assets it had at the end of 2016. The bank has almost doubled in size over the period. But from where did this bank get the money to double its balance sheet? And equally as important, what did it invest that money in?
Here the story starts to get interesting.
Almost $51 billion (about 40% of the bank’s total assets) has been given away as “loans and receivables” to the government of a West African country whose ability to pay back is extremely doubtful given that its other well-known long-term debt obligations are already eating up almost 100% of its annual revenues.
In total, about $68 billion (54%, this includes the $51 billion above) of the aforementioned $126 billion in total assets held by the bank has been given out in form of “loans and receivables” to a variety of borrowers whose ability to repay is rated as doubtful, based on the banks own financial statements.
So, we now know that more than 50% of the total assets held by this bank are of highly doubtful quality. And yet the bank borrowed money to create these assets. Where did the bank get this money from?
Things get even more interesting from here.
As of December 2022, this bank has acquired about $122 billion in liabilities from various sources, including $25 billion it has managed to forcefully seize from other banks in the West African country where it does its primary business. Another $16 billion is money that belongs to the government of this same country, the primary customer of the bank. A further $7.5 billion was borrowed from JP Morgan and Goldman Sachs, the storied American banks. This sums up to nearly $50 billion in financial indebtedness that the bank borrowed to fund the assets mentioned earlier.
The story so far is that this bank has about $68 billion in doubtful assets, against $50 billion in very real financial liabilities which it must pay back.
There’s more
A further reading of the bank’s latest financials reveals something called “off-balance sheet” or “contingent liabilities”. These are financial obligations that the bank has entered into, with very real payment obligations maturing in the near future. That is to say, the bank has legally agreed to pay about $32 billion by value of foreign currency obligations in the future, for which it has already received value today or will receive value in the future.
Summary
Our bank is owing $50 billion in very real financial liabilities and has another $32 billion in near term financial commitments it has legally entered into adding up to more than $80 billion in real money that must be paid back. And yet, about $68 billion of its total assets (54%) are of very dubious (remember that it is the bank itself that has given them this assessment) value and will likely never be repaid.
The reader will win no prizes for guessing who the bank in question is.
