The Nation Newspaper

Tag: cbn

  • Volte-face as instrument of policy

    Volte-face as instrument of policy

    FEARFUL that recession could hit the Nigerian economy, the Central Bank of Nigeria (CBN) plans to relax its hitherto stringent and rigid forex policy to a flexible one to enable the market adjust itself automatically. By his many statements in recent months, President Muhammadu Buhari had in fact given indications he would defend the naira with everything he had rather than submit to market forces. The reality has now compelled a different approach. The monetary authorities and indeed the presidency will hope that the new measures are not coming late, and that the apocalypse they glimpsed some months back can be averted.

    If governing a complex and excitable country like Nigeria is really hard, the Buhari presidency never gave the impression it recognised that fact, nor admitted it is so. When confronted by restiveness in the Niger Delta, with a supposedly new militant group called the Niger Delta Avengers (NDA) blowing up pipelines, the Buhari presidency promised a crackdown similar to the one it administered on Boko Haram. In fact, the government and the military took some tentative steps by storming the creeks and presuming to smoke out the militants. But rather than abate, the crisis intensified, with the militants bombing everything in sight.

    Finally, the federal government has relented and opened channels of discussions and engagement with some militant leaders to prevent the problem from escalating beyond control. There are wars that cannot be won; and there are wars that should not be fought. It is tempting to embrace the application of force in the Niger Delta; but given the terrain, not to say the connivance of the disgruntled local population and the history of neglect suffered by the region, force should be the last resort. Previous panaceas, such as huge and continuous payouts to militants, was wrong-headed. Now, it is difficult for successive governments to extricate themselves from the needless addiction.

    What the situation calls for is comprehensive restructuring of the country. Until the Buhari government, or any succeeding government for that matter, implements new political and economic structures — in short, resolving the national question — the violence and disturbances will continue, and the governments will continue to apply palliatives and unworkable panaceas that solve nothing.

  • CBN may reopen banks’, IOCs’ dollar windows to BDCs

    CBN may reopen banks’, IOCs’ dollar windows to BDCs

    The Central Bank of Nigeria (CBN) is likely to reopen the dollar sales by banks and International Oil Companies (IOCs) to bureau de change (BDC) operators, The Nation learnt yesterday.

    The policy shift is part of the modalities to be unveiled by the apex bank on the newly introduced flexible exchange rate policy, President, Association of Bureau De Change Operators of Nigeria (ABCON), Alhaji Aminu said.

    He said with the liberalisation of the foreign exchange market, foreign investors are expected to pump in nearly $12 billion to the economy, and such funds should be accessed by the BDCs.

    “We’re waiting for CBN’s modalities on the new foreign exchange window. We would want to see a circular authorising banks and IOCs to sell dollar to BDCs. We would also want the CBN to set limit on how much dollar a BDC can access from the banks or IOCs,” he said.

    Gwadabe said the BDC operators are no longer interested in getting dollar from the official forex window, because of the challenges being faced by the country in terms of foreign exchange scarcity.

    The CBN had in February, stopped, with immediate effect, sale of dollars (forex) through the Retail Dutch Auction System (RDAS) and interbank to BDC operators.

    A circular to authorised dealers signed by CBN Director, Trade & Exchange, Olakanmi Gbadamosi, however said the weekly sales of forex to BDCs will be sustained by the CBN based on the liquidity needs of the market.

    He explained that the regulator took the decision based on ongoing review of developments in the foreign exchange market and the need to check speculative demand in the market.

    Both the interbank and RDAS funds, he said, should be used for strictly funding of Letters of Credits, Bills for Collection and other invisible transactions. However, this is subject to appropriate documentation as provided by extant regulations.

    The RDAS and interbank funds, he said, should no longer be sold to BDCs and other authorised dealers. “In continuation of the review of developments in the foreign exchange market and to curb speculative demand in the market, both the RDAS and interbank funds should henceforth be used, strictly for funding of Letters of Credits, Bills for Collection and other invisible transactions. It is also subject to appropriate documentation as provided by extant regulations,” Gbadamosi said.

  • CBN to introduce flexible exchange rate policy

    CBN to introduce flexible exchange rate policy

    To stave off recession in the economy, the Central Bank of Nigeria (CBN) is to adopt a flexible exchange rate policy.

    This, the Monetary Policy Committee (MPC) yesterday said, is to restore the automatic adjustments properties of the exchange rate.

    Addressing journalists at the end of the bi-monthly MPC meeting in Abuja,  CBN Governor Godwin Emefiele said: “The foreign exchange market framework is now ready. The MPC voted unanimously to adopt greater flexibility in exchange rate policy to restore the automatic adjustment properties of the exchange rate. Consequently, all nine members voted to hold and introduce greater flexibility in managing the foreign exchange rate.”

    The MPC, in its assessment of the relevant risk profiles, Emefiele said: “came to the conclusion that although the balance of risks remains tilted against growth; previous decisions need time to crystalise. Consequently, in a period of stagflation (price rising continuously without corresponding increase in jobs), the policy options are very limited. To avoid complicating the conditions, the Committee decided on the least risky option to hold.”

    The least risky option, he said, is the adoption of a flexible foreign exchange rate. However, the CBN “would retain a small window for funding critical transactions. Details of operation of the market would be released by the CBN in a few days time, the CBN governor said.

    “Critical transactions,” according to the CBN Governor, include foreign and local investments in manufacturing and importation of equipment purely  for basic raw materials with very low altitude call content.”

    Commenting on the state of the economy, which Emefiele warned was heading towards recession, the CBN governor lamented that “headline inflation spiked in April 2016, far above the upper limit of the policy reference band”. “Inflation has continued to be driven mainly by supply side factors, such as fuel scarcity, increase in tariff and deterioration in electricity supply, increase in the price of petrol, higher input costs as a result of scarcity of foreign exchange, persistent security challenges and exchange rate pass-through to domestic prices of import.”

    The Committee, in July 2015, had hinted on the possibility of a recession, unless complementary measures were taken by the monetary and fiscal authorities. Unfortunately, Emefiele said, “the delayed passage of the 2016 budget constrained the much-desired fiscal stimulus, thus edging the economy towards contractionary output”.

    As a stop-gap measure, the Central Bank, he said, has continued to deploy all the instruments within its control in the hope of keeping the economy afloat. “The actions,however, proved insufficient to fully avert the impending economic contraction. With some of the conditions that led to the contraction in Q1, 2016 still largely unresolved, the weak outlook for growth which was signalled in July 2015 could extend to Q2.”

    Policy actions, Emefiele said, “have to be predicated on a less optimistic outlook for the economy in the short term, given that, even after the delayed budgetary passage in May 2016, the initial monetary injection approved by the Federal Government may not impact the economy soon, as the processes involved in MDAs finalising procurement contracts before the disbursement of funds may further delay the much-needed financial stimulus to restart growth”.

    While the MPC believed that the recent deregulation of the downstream sector of the petroleum sector was in the right direction and would lead to increased supply, members of the committee noted that “the pass-through effect of prices to other products has to be factored in policy considerations”.

    “Mindful of the limitations of monetary policy in influencing structural imbalances in the economy, the Committee stressed the need for policy coordination with the fiscal authorities in order to effectively address the identified pressure points.”

    The Committee noted that the CBN had implemented accommodative monetary policy from July 2015, with the hope of achieving growth, up until March 2016, when the MPC switched into a tightening mode. However, while the underlying conditions necessitating tight monetary policy remained largely in place, sundry administrative measures implemented by the CBN and recent macroeconomic conditions on the back of the 2016 Budget are expected to significantly dictate a key policy preference in the dilemma now faced by monetary policy – stagflation.

    Given the current limited policy space, Emefiele said it has become “imperative to balance stability with growth stance while working on options that, in the short term, are certain to isolate seasonal and transient factors fuelling the current price spiral.”

    Other decisions reached at the end of the meeting include to retain Monetary Policy Rate (MPR) at 12.per cent; the Cash Reserve Ration (CRR) at 25 percent; Liquidity Ratio at 30per cent; and Asymmetric Window at +200 and -500 basis points around the MPR.

     

  • CBN to tntroduce flexible exchange rate policy soon

    CBN to tntroduce flexible exchange rate policy soon

    As the battle for fate of the country’s foreign exchange regime rages, the Monetary Policy Committee (MPC) has directed the Central Bank of Nigeria (CBN) to adopt a flexible exchange rate policy.

    The reason for adopting a flexible exchange rate policy the MPC argued is to restore the automatic adjustments properties of the exchange rate.

    Addressing journalists at the end of the bi-monthly MPC meeting in Abuja Tuesday, the CBN Governor Mr Godwin Emefiele disclosed that the “foreign exchange market framework, now ready, the MPC voted unanimously to adopt greater flexibility in exchange rate policy to restore the automatic adjustment properties of the exchange rate. Consequently, all 9 members voted to hold and introduce greater flexibility in managing the foreign exchange rate.”

    The MPC in its assessment of the relevant risk profiles, Emefiele said “came to the conclusion that although, the balance of risks remains tilted against growth; previous decisions need time to crystalize. Consequently, in a period of stagflation, the policy options are very limited. To avoid complicating the conditions, the Committee decided on the least risky option to hold.”

    The least risky option he said was the adoption of a flexible foreign exchange rate. However, the CBN pointed out “would retain a small window for funding critical transactions. Details of operation of the market would be released by the CBN in a few days time the CBN Givernor revealed.

    “Critical transactions” according to the CBN Governor include foreign and local investments in manufacturing and importation of equipment purely for basic raw materials with very low altitude cal content.

    Commenting on the state of the economy which the CBN governor warned was heading towards recession, Emefiele stated lamented that “headline inflation spiked in April 2016, far above the upper limit of the policy reference band. Inflation has continued to be driven mainly by supply side factors such as fuel scarcity, increase in tariff and deterioration in electricity supply, increase in the price of petrol, higher input costs as a result of scarcity of foreign exchange, persistent security challenges and exchange rate pass-through to domestic prices of import.”

     

    The Committee in July 2015, had hinted on the possibility of the economy falling into recession unless appropriate complementary measures were taken by the monetary and fiscal authorities. Unfortunately Emefiele raised the alarm that “the delayed passage of the 2016 budget constrained the much desired fiscal stimulus, thus edging the economy towards contractionary output.”

    As a stop-gap measure, the Central Bank he said has continued to deploy all the instruments within its control in the hope of keeping the economy afloat. “The actions,however, proved insufficient to fully avert the impending economic contraction. With some of the conditions that led to the contraction in Q1, 2016 still largely unresolved, the weak outlook for growth which was signaled in July 2015 could extend to Q2”.
    To this effect, current policy actions he said “have to be predicated on a less optimistic outlook for the economy in the short term, given that, even after the delayed budgetary passage in May 2016, the initial monetary injection approved by the Federal Government may not impact the economy soon, as the processes involved in MDAs finalizing procurement contracts before the disbursement of funds may further delay the much needed financial stimulus to restart growth.”
    While the MPC believed that the recent deregulation of the downstream sector of the petroleum sector was in the right direction and would lead to increased supply, members of the committee noted that “the pass-through effect of prices to other products has to be factored in policy considerations.  Mindful of the limitations of monetary policy in influencing structural imbalances in the economy, the Committee stressed the need for policy coordination with the fiscal authorities in order to effectively address the identified pressure points.”

    The Committee noted that the CBN had implemented accommodative monetary policy from July 2015, with the hope of achieving growth, up until March 2016, when the MPC switched into a tightening mode. However, while the underlying conditions necessitating tight monetary policy remained largely in place, sundry administrative measures implemented by the CBN and recent macroeconomic conditions on the back of the 2016 Budget are expected to significantly dictate a key policy preference in the dilemma now faced by monetary policy – stagflation.
    Given the current limited policy space, Emefiele said it has become “imperative to balance stability with growth stance while working on options that in the short term, are certain to isolate seasonal and transient factors fuelling the current price spiral.”

     

    Other decisions reached at the end of the meeting include to retain the Monetary Policy Rate (MPR) at 12.per cent; Retain the Cash Reserve Ration (CRR) at 25 percent; retain the Liquidity Ratio at 30per cent; and retain the Asymmetric Window at +200 and -500 basis points around the MPR.

     

  • ‘Poor supervision by CBN responsible for increasing NPLs’

    ‘Poor supervision by CBN responsible for increasing NPLs’

    Why are we having high volumes of non-performing loans in the banks?

    The rising incidence of non-performing loans in banks is because of the economic crisis. But basically what is responsible is the poor supervision of the banks by the monitoring authority, the Central Bank itself. They have not been quite effective in punishing people that are found wanting in this regard. Normally the collateral security should be taken in lieu of any default but in a situation where the CBN does not do proper monitoring what you find is that the banks get away with a lot of criminality.

    A lot of people are just doing what they like. Until people are being properly punished we’re going to continue to experience this incidence of non-performing loans in banks.

    You talked about putting stringent measures in place. I’m aware that the CBN has a sailing of 5 per cent for non-performing loans…

    I agree. But there is no indication that anybody has been punished for flouting this order. That is what l’m saying. If for instance the collateral securities are being sold off or something like that we won’t be experiencing this issue of high non-performing loans in banks in the first place.

    The management of the banks has to act fast but when they’re unable to do this then it is the responsibility of the CBN to apply appropriate sanctions so that the banks can take action against their clients. If supervision and monitoring by the CBN is in order the banks will make sure they do what they’re supposed to do because if there is systemic failure as is often the case, it will boomerang to the CBN itself. So this is why it is appropriate that the CBN must ensure proper supervision of the banks at all times. Right now it is as if the CBN is condoning such things just because they are not taking appropriate action against banks. And when the CBN is not taking action against the banks they too would not take action against their clients and vice versa.

    In a situation where some of these loans are taking by directors of the banks where does that leave the banks?

    There is nothing wrong in giving loans to directors in the first place. The only thing is that when the banks have problem they shouldn’t take it to the same board.

    Whatever you’re, what is important is that people who engage in such things deserve to be punished by all means.

  • CBN releases N120b power stabilisation fund

    CBN releases N120b power stabilisation fund

    THE Central Bank of Nigeria (CBN) yesterday said N120 billion out of the N213 billion Nigerian Electricity Market Stabilisation Facility (NEMSF) has been disbursed in four tranches. CBN Governor, Godwin Emefiele who disclosed this during the disbursement of the fourth tranche of N55.45 billion to power companies in Lagos, said the project is meant improve the power situation in the country.

    According to him, a review of the fund utilization and reports of impact by beneficiaries revealed that the intervention resulted in the restoration of a total of 905 Mega Watts of power into the grid as a result of facility turn around maintenance, contribution of over 25 per cent of the annual capital expenditure budget for the sector. The CBN initiated a N213billion Nigerian Electricity Market Stabilization Facility (CBN-NEMSF) as a follow up to commitments it reached with other stakeholders to address debts owed by generating companies to gas suppliers.

    Emefiele said the new fund marked a major milestone in the effort of the apex bank in collaboration with the Federal Government to achieve a contract based electricity market, which featured the signing of Power Purchase Agreements (PPAs) Activation Agreement by Nigerian Electricity Bulk Trader (NEBT). The fund was disbursed to 24 industry participants which include three distribution companies, 14 generation companies – National Independent Power Plant inclusive; one- Service Provider; and six- Gascos to further address the challenges of the sector.

  • CBN’s stress test shows two banks in trouble

    CBN’s stress test shows two banks in trouble

    The Capital Adequacy Ratios (CARs) of  two banks have fallen below regulatory capital requirement of 10 per cent, the result of stress test conducted by the Central Bank of Nigeria (CBN) on the status of the banking system has revealed.

    The solvency stress test, contained in the Financial Stability Report, released yesterday by the CBN governor,  Godwin Emefiele, classified lenders into three groups: large banks, those with assets greater than or equal to N1 trillion; medium banks with assets greater than or equal to N500 billion but less than N1 trillion and small banks with assets of less than N500 billion.

    The CAR is a ratio of bank’s assets to its risks and is 10 per cent for national banks and 15 per cent for banks with international subsidiaries and 16 per cent for Systematically Important Banks (SIBs). The test result showed that one of the affected banks had CAR of 1.29 per cent before the test, while two banks had 0.78 per cent and 8.2 per cent after the test.

    The stress test captured the idiosyncratic nature of individual bank’s balance sheet and macro-prudential concerns, using the bottom-up and top-down approaches. The exercise covered the 23 commercial and merchant banks, using the credit, liquidity, interest, foreign exchange rates and foreign exchange trading risks elements.

    The report, which measured the lenders’ positions as at December last year, showed that overall, there was high risk through unsecured interbank exposure.

    The result of the test also revealed that after a one-day run, the liquidity ratio for the industry would decline to 33.4 per cent from the 48.57 per cent pre-shock position and to 10.24 per cent after a cumulative 30-day run. A five-day and cumulative 30-day run on the banking industry would result in a liquidity shortfall of N1.79 trillion and N1.93 trillion, respectively.

    The test further revealed that 17 and 20 banks would record liquidity ratios below the prudential threshold of 30 per cent, following the five-day and cumulative 30-day run, respectively.

    There was a marginal decline in the quality of assets in the banking industry last December, compared with the position at end of June 2015. The ratio of non-performing loans to gross loans increased by 0.21 percentage point to 4.86 per cent while the decline in asset quality was attributed to the unfavourable macro-economic environment in the review period.

    The banking industry and large banks’ resilience to credit risk was robust. A simulated severe shock of a 200 per cent rise in NPLs resulted in CARs of 12.77 and 16.52 per cent for banking industry and large banks, respectively, which were above the 10 per cent required regulatory minimum.

    However, medium and small bank groups showed vulnerabilities to severe shocks of 200 per cent rise in NPLs as their CARs fell to 7.16 and 6.85 per cent respectively.

    Emefiele said the general decline in commodity prices, China’s efforts at rebalancing its economy and the gradual tightening in US monetary policy all combined to hamper growth in many emerging market economies, including Nigeria.

    He said the key task that faced monetary authorities in Nigeria in the reporting period centered on the use of effective policy tools to ensure that the shocks arising from instability in the global economy were not fully transmitted to the domestic economy.

    The CBN, he said, continued to ensure that the stability of the financial system was maintained and confidence in the system was sustained. The policy tool kit included both conventional and unconventional measures and these enabled us to respond to the emerging challenges.

  • CBN insists it won’t devalue naira

    CBN insists it won’t devalue naira

    The Central Bank of Nigeria (CBN) said yesterday that those campaigning for further devaluation of the naira, or speculating it has already devalued the local currency should have rethink.

    There were speculations that the CBN would devalue the naira, as a last resort to ongoing economic crisis and will come immediately after raising fuel prices.

    But CBN’s Acting Director, Corporate Communications, Isaac Okoroafor, dismissed speculations that the naira was already devalued further, saying the speculations are unfounded.

    Speaking yesterday with The Nation, the apex bank’s spokesman said the regulator will not, and has not devalued the naira. “Naira has not been devalued. The naira devaluation rumour is untrue,” he said.

    But amidst devaluation uncertainties and shortages of forex, most foreign investors remain cautious about entering the Nigerian market whilst currency and reinvestment risks linger.

    Analysts at FBNQuest, the investment arm of First Bank of Nigeria Holdings Plc, said a devaluation as a last resort is on its way although the CBN has stiffened its defense of its exchange-rate policy. “We see devaluation under duress and a year-end interbank rate of N230,” it said.

     

  • CBN to license non-interest MfBs

    CBN to license non-interest MfBs

    The Central Bank of Nigeria (CBN) yesterday released draft guidelines for the licensing and operation of non-interest microfinance banks (MfBs).

    Its Director, Financial Policy and Regulation, Kelvin Amugo, who announced the new policy, said non interest (Islamic) Microfinance Bank (NIMfB) is licensed by  to carry on the business of providing financial services, engaging in trading, investment and commercial activities and also provideing financial products and services as specified in accordance with the principles of Islamic commercial jurisprudence.

    He explained that MfBs are expected to help in poverty reduction, increase access to financial services, contribute to financial stability and economic development.

    Beyond making credit facilities available to Micro, Small and Medium Enterprises (MSMEs) and the promotion of savings culture; MfBs also serve as veritable means of employment generation, enhancing financial inclusion, economic growth and development.

    He said: “Since 2005 when the CBN issued the first Regulatory and Supervisory Framework for MfBs in Nigeria (revised in 2013), they have continued to thrive and cater for the economically active poor. However, despite the increased number of MfBs in Nigeria, a large percentage of Nigerians still lack access to financial services.

    “This is attributable to high cost of transactions, abhorrence of interest and apathy to unethical investment by a significant part of the populace. It is in the light of these and other reasons, that the development of these guidelines becomes imperative.”

    He said the guidelines is aimed at, among other things, offering the public an alternative system of micro finance banking that operates based on the concept of profit and loss sharing rather than charging of interest.

    It is expected that the introduction of this concept would engender broader and healthier competition among MfBs which may in the long run, bring down the cost of doing business, he added.

  • CBN grants DavoDani MfB state licence

    CBN grants DavoDani MfB state licence

    The Central Bank of Nigeria (CBN) has granted DavoDani Microfinance Bank Limited state licence.

    Announcing the new licence to the media in Lagos, at the weekend, DavoDani Microfinance Bank’s Chairman, Prince Austin Enajemo-Isire, said the lender has worked hard to secure the apex bank’s approval.

    He said the bank has satisfied all the necessary conditions for the licence, and that by the new feat, the lender can now commence branch expansion across Lagos State and its 57 Local Government Councils and Local Council Development Areas.

    This, he said, would help achieve the vision and mission of the bank as well as the national policy objective on Micro, Small and Medium Entrepreneurs (MSME).

    Enajemo-Isire explained that the Nigerian Microfinance Bank Policy and Regulatory framework was launched in 2005 with specific objectives of making financial services available to a large segment of the potentially productive Nigerians  which would otherwise have little or no access to financial services among others.  “The active poor and the vulnerable in the society, through this policy have access to micro credits and promote deposit and savings culture.  This is the foundation upon which our vision and mission is crafted: “to become an exceptional leader in the provision of micro finance and other responsive financial services on a sustainable basis to assist our clients achieve financial freedom,” he said.

    The bank, according to him, focuses on traditional and specialised savings, current accounts and investment products as well as risk assets, designed to empower MSMEs. Its core values and qualities centre on products innovation and excellent customer service.

    The Managing, DavoDani Microfinance Bank Limited, Ndoma Ndoma Odey, said the objective of the lender is to empower grassroots population, giving them the opportunity to embrace financial services.

    He said the bank will continue to  create quality risk assets that are beneficial to its stakeholders. He said the bank will continue to protect the interest of customers, including expanding credit to the individuals and groups.

    The bank, he said, is already moving into remote parts of Lagos, encouraging low income earners to embrace financial services and give them low cost credit at about four per cent interest rate.

    He said the bank customers have the opportunity to open and operate business account or current accounts, savings accounts, group savings accounts, term deposit accounts as well as call and fixed deposit accounts. There are also target savings account for ceremonies and special projects; graduation/freedom support account and esusu account, among others.