The Federal Government of Nigeria’s plan to borrow unclaimed dividend and funds in the dormant accounts of Deposit Money Bank put at N895 billion, shows how broke the country is, said Olalekan Aworinde, Senior Lecturer, department of economics, Pan-Atlantic University, Lagos.
The Q3, 2020 total public debt stock released by the Debt Management Office (DMO), revealed that the total public debt stock stood at N32.223 trillion or USD84.574 billion.
The Federal Government, under Part XII of the Companies and Allied Matters Act (Finance Act 2020) stated that it would borrow unclaimed dividends and funds in dormant account balances of banks to fund crisis related expenditures.
“The move of the unclaimed dividend has generated concerns amongst stock market investors due to the ambiguity in the process of claiming the outstanding dividend,” said Ayodeji Ebo, senior economist/head, research & strategy, Greenwich Merchant Bank.
For the banks, he said this will impact on their deposit level and will increase the cost of funds. The cost of funds for most of the dormant account will be near zero relative to the active accounts. This may also affect the bank’s ability to advance long term loans as the banks depend on their core deposits to determine the portion of long term lending
As at July 2020, the total unclaimed dividend stood at N158 billion, according to data from Securities and Exchange Commission (SEC).
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Dormant account balances, which constitutes about 2.5 per cent of banks’ total deposit, was put at N29.5 trillion as of September 30, 2020, by the National Bureau of Statistics (NBS).
“I think the transfer of unclaimed assets (unclaimed dividends and dormant account balances) to an unclaimed funds Trust Fund is in line with what obtains in many parts of the world,” said Uche Uwaleke, professor of capital market and president, Capital Market Academics of Nigeria.
The Nigeria Inter-Bank Settlement System (NIBSS) noted that there were 44.5 million dormant bank accounts in the banking industry as at May 2020.
Aworinde said the rationale for the move is premised on the fact that it is cheap funds and it comes with low interest rate with no conditionalities attached.
“It is good for the banks provided the funds and the unclaimed dividends are lying fallow and government will pay interest on these funds. This will increase the revenue generated by these banks,” Aworinde said.
Uwaleke said the practice of escheating the funds to the government after a dormancy period is also consistent with what is done in countries like the USA where State governments exercise such powers.
The composition of the Governing Council of the Fund which accommodates the key stakeholders such as the CBN, SEC, NDIC, DMO, Company Registrars and Shareholders will address many of the concerns of listed companies, their shareholders and the banks.
That way, he said any negative fallout will be mitigated.
He said the impact on the economy depends on what the government does with the money that is borrowed after six years of dormancy. Because, these unclaimed assets run into billions of naira, it is expected to impact positively on the economy if used for the common good and that is for development projects, he said.
