Suit challenging ‘ways and means’ securitisation frivolous

Ours is a nation full of surprises and I was surprised by a court case where some tried to prevent the Federal Government from securitising the N22.7 trillion ‘Ways and Means’ loans received from the Central Bank of Nigeria. Granted, it is the right of the Nigerians who sued to do so. But, considering the backdrop to the ‘Ways and Means’ matters and the controversies it has generated, suing the current government for the steps it has taken, in my view, amounts to wasting the time of the honourable justices in those hallowed courtrooms. It also amounts to making efforts to retard a securitisation process that has economic and other financial benefits, and I shall explain.

Of course, a Federal High Court in Abuja dismissed the suit and I applauded the judge who was in charge. I imagine the judge was fully aware of the issues surrounding ‘Ways and Means’ and he fully took such into consideration when he delivered his judgment. For me, this is a classic case of the court throwing out a frivolous petition. If one may ask, what did the plaintiffs seek to gain by stopping the government from doing the right thing regarding a loan that was already taken and expended? What the government is doing by securitising is to ensure that the loans are repaid to the CBN. These were loans that, due to the challenge of shortfall in revenue, the government took in order to meet some of its basic functions. It was made clear the reasons the loans were taken as far back as the Goodluck Jonathan administration in 2014. The current government also faced the same challenges and had taken similar loans.

There’s a need to repay at a stipulated period in the CBN law and anything done to the contrary will amount to illegality. In the face of the revenue shortfall, what should the current government do? It’s important we understand that securitisation is not limited to the need to offset ‘Ways and Means.’ It can be used by the government and the private sector for other purposes. Generally, what is called asset securitisation is one of the new methods of financing beyond the horizon of traditional equity and debt financing. While asset securitisation is popularly used across the world, it’s still largely new in Nigeria but it was first adopted with regard to ‘Ways and Means’ by the immediate-past Muhammadu Buhari administration. But asset securitisation can also be used in providing access to bank funds to match their regulatory capital requirements and their financial obligations.

Moreover, there’s a possibility of investment in asset securitisation under the National Pension Commission going by its regulation on investment of pension fund assets. There’s the possibility of asset securitisation helping in addressing the challenges in the housing sector. There’s as well the possible utilisation of asset securitisation in facilitating access to immediate funding from the capital market to address infrastructural problems. The newness of asset securitisation in Nigeria is however underscored by studies which have found that existing rules guiding the process are complex, cumbersome and are not conducive to the emergence of asset securitisation.

Also, the possible legal and contractual means of mitigating legal risks involved in asset securitisation are shown by studies to be unsatisfactory. Therefore, it’s being advocated that there’s a need for specific legal and regulatory frameworks on asset securitisation as well as reform of the law on priority and enforcement of security interests. In addition, enacting a law on asset securitisation has had to contend with Nigeria’s constitution as different aspects of law applicable to asset securitisation cut across federal and state legislative jurisdictions. These are a few examples of the limiting factors to the development of asset securitisation in Nigeria. Could Buhari’s administration that began ‘Ways and Means’ securitization, and the current Bola Tinubu administration that has continued with the process be contributing to the improvement in assessing securitisation in Nigeria through their involvement? I think so, and this is one benefit those who sued the Federal Government could have truncated.

Despite the relative newness of asset securitisation process in Nigeria, securitisation transactions have been playing a significant role in our financial market, providing essential financing options for various sectors. Securitisation involves transforming illiquid assets into tradable securities, ensuring liquidity and reducing risk exposure. It has helped financial institutions to diversify their portfolios and expanded lending capacities. It has also allowed for easier access to capital markets and reduced reliance on traditional funding sources. In the Nigerian financial market, various participants play crucial roles in securitisation transactions. These include banks, mortgage institutions, or leasing companies, which are responsible for creating the asset pools while investors, typically different institutions, purchase the securitised assets. This financial technique enables originators to raise funds by selling pools of assets to special-purpose vehicles. These SPVs also known as issuers hold the asset pools and issue securities to investors. SPVs are separate legal entities designed to protect investors from potential risks associated with the originators.

The rating agencies also have a role in securitisation transactions, providing credit assessments of the securities issued by the SPVs. They evaluate the quality and creditworthiness of the securitised assets, enabling investors to make informed decisions. Securitisation transactions provide a way to unlock liquidity, diversify portfolios, and access capital markets, thereby benefiting the overall economy. The involvement of the government at this stage of the development of the sector is beneficial to the economy as well, but this is what the plaintiffs want to retard by the action.

Through the securitisation of the CBN loans, according to Nigeria’s Debt Management Office, the process will improve debt transparency as the securitised ‘Ways and Means Advances’ will now be included in the public debt statistics. It will reduce the Debt Service Cost as the new Interest Rate is nine per cent per annum compared to the Monetary Policy Rate plus three per cent which translates to 21.0 per cent per annum currently being charged on the ‘Ways and Means Advances.’ The large savings arising from the much lower interest rate will help reduce the deficit in the budget and expectedly, the level of new borrowings.

Moreover, provisions for interest on the securitized ways and means advances (starting from 2023) and principal repayments starting from year four will be made in the annual Federal Government budgets. Meanwhile, in order to allay the fears of every Nigerian, the Federal Government says the securitisation of the ‘Ways and Means Advances’ does not involve new money being given to the Federal Government as the CBN has already provided the funds to the Federal Government. And, based on statutory provisions, the approval of the Senate and the House of Representatives is required for the securitisation. Therefore, implementation will be upon receipt of the approval of the House of Representatives. I think with such clarification made to the plaintiffs in the case instituted against the Federal Government and other intending co-travellers can go and rest.

Ishaku is a financial expert