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  • Implications of cbn’s bank recapitalisation policy(2)

    Implications of cbn’s bank recapitalisation policy(2)

    About 1month ago (12th April 2024), I wrote part 1 of the above topic, adding my voice to the decision of the Central Bank of Nigeria (CBN) to recapitalize Nigerian Banks in order to strengthen the Banks, consolidate the sector and rein fence it from present and potential risks and threats

     In today’s episode, I will continue my contributions on the implications of the Banks’ recapitalization policy and potential impacts on Nigeria’s economy, in the short, mid to long terms.

    Support for the achievement of the $1trillion economy

    As a “giant of Africa” and one of the biggest economies on the continent, Nigeria’s balance sheet is not up to $1Trillion. This should not be accepted and therefore I totally agree that we should be audacious in setting our target national economic value, going forward. Therefore, I like the audaciousness and gusto of President Bola Tinubu in this regard, because visions must be audacious for you to make progress. But audacious visions should be driven by the right strategy and the correct sequence of actions to achieve success. So the recapitalization should be part of the strategy, but the Bank recapitalization will be one amongst other pillars of the pillars for success, and without other critical pillars. If we want to deliver a $1 Trillion economy by 2025 we MUST re-activate our production sector, i.e. we need to get power fully onstream – generation, transmission, and distribution, and we need to re-ignite the argic value chain (which is a quick win). Tackling insecurity is also one of the critical pillars that MUST be addressed as a matter of national priority. A banking sector recapitalisation is neither here nor there if we continue to have serious insecurity issues. Therefore, there should be an over-arching strategy and the right sequence of events. Because from a project management perspective, when the mile stoning of the action points is sequenced properly, i.e. when you deal with insecurity, then you will be sure-footed, going forward. If you don’t deal with insecurity, then the drawback is that you may install a power plant asset somewhere in this country and you are at 70% completion, then insecurity will collapse/ destroy it which will lead to what we call “major slippages” in project management, i.e may be one step forward, 5 steps backward. Based on the foregoing, the strategy must be robust and the action planning should be proper with the right sequence of events. Importantly in recruitment and appointments of people that will man key positions, there are “round pegs in round holes”. I advise that Mr. President should consistently appoint people with domestic situational awareness with regards to the political, and socio-political issues of Nigeria. They should also have demonstrable sectoral understanding to domesticate strategies and policies for success – so that we are on point, on time, and impactful.  

    Read Also: Northern Elders reject CBN’s cybersecurity levy, says, it’s illegal, insensitive

     Enablement of an effective credit system

    President Tinubu has stated during his campaigns for Presidency that he will establish a credit-driven economic system for Nigeria. He delivered this promise with the passing into law and the establishment of the Credit Policy and system in Nigeria. So that affordability for essential assets and commodities like education, housing, transportation, etc. can be enabled for citizens. The objective is to in the long term stop the culture of “upfront cash” payment of all essentials of life which is one of the key enablers of corruption in Nigeria.

     I am of the opinion that the Banking reform and recapitalization policy by the CBN will support the achievement of President Tinubu’s vision and mission-critical objective of establishing a credit-driven economy.

     You cannot have an effective credit-driven economy when Nigerian Banks are running double-digit interest credit schemes. Therefore, I expect that in the next set of reforms that will follow the re-capitalization policy, the government (legislative and executive) will take into consideration prudential guidelines and regulations to ensure that interest rates are capped within what I call a reasonable win-win threshold. A situation whereby Nigerian Banks operate like shylocks will never augur well for the economy, because the banks will continue declaring profits in a declining economy whereby the number of multi-dimensionally poor Nigerians will be increasing – that is a misnomer. The growth of our banking industry should be directly proportional to the collective prosperity of Nigerians. Otherwise, the noble intention of the administration of President Bola Tinubu’s intention to run a credit-driven economy will not work with the way the Banks are currently operating – highly transactional and non-strategic

    Enable nigerian banks to undertake big-ticket capital projects

    The bank recapitalization will also boost the liquidity and capacity of Nigerian Banks to be more involved and productive in undertaking what I call the “big ticket” capital projects, especially in supporting the private sector and the Public-Private Sector (PPP) projects for example the AKK Gas pipeline projects, etc., over and beyond their current capacity which is obviously dwindling.

     This is not losing sight of the very important critical informal sector which actually drives 80% of Nigeria’s economy. Therefore, the boost in capacity should also reflect and be evident in the Banks’ support for Nano, Micro, Small, and Medium Scale Enterprises (MSMEs). Even though I have stated this is Part 1 of this Column, the importance of supporting the MSMEs and the informal sector of the economy by Nigerian banks cannot be over-emphasized.

     The Nigerian banks are highly operational and transactional, they are numbers-driven in an arithmetic progression for the short term and no long term, i.e. they are not strategic for the mid to long term and because of that there is no value creation, and value innovation in the Banking sector from a socio-economic perspective. That is also why when the “big ticket-US Dollar” capital projects come up, we see the Banks struggling to come up with the interventions even as a syndicate. That is why I am happy that the current CBN leadership decided to consolidate the industry and prepare it for better performance to fully participate and better drive the Nigerian economy. I am very well aware that due to the nature and scope of some of the big-ticket capital projects, they are better supported by International Finance Institutions/ Multilateral organizations, but I would like to see the upscaling of the capacity of our local banks, especially given the fact that even though we have been sliding backward in the last years, we still remain one of the biggest and potentially viable economies in Africa. Therefore, our local Banks that are bragging to have footprints and established presence in the subcontinents or regions across the world should be able to add considerable value to the recovery and growth of Nigeria’s economy – not marginally, but in a geometric progression, such that one of two banks could deliver is not whole at least partly such big-ticket US Dollar projects in areas like Power sectoral reform, Agriculture, Solid Minerals (exploration and processing), etc. We do not want Nigerian Banks to take the back seat when such critical projects are coming onboard and middle-tier portfolio investors will come in and take a large chunk of the pie of the opportunities in our Country will little plow back to our people and their communities., only for them to the announcing high numbers of profitability with little support for the economy at the expense of the citizens of this Country. That trend needs to change.

    Better operational efficiencies and better value for stakeholders

    One of the expectations is that the Banks will be healthier and stronger. The Banks are expected to also deliver better operational efficiencies, values, and dividends for stakeholders.  I would like to hear from the Banks, possibly through the CBN, how they will support the recovery of Nigeria’s economy, not just in words but also in actions.  With break-neck interest rates, the Banks are smiling to the Banks while almost 65% of Nigerians are cringing under socio-economic vagaries and the Banks should not be allowed to play the Ostrich in this situation. Banks are expanding, diversifying, and growing into other Countries Year-on-Year, regardless of how the economy is faring.  This situation is not in tandem with realities.

    How will banks support the Federal Government, going forward, especially with regard to the informal sector sustainability is very important. How are the Banks really giving Bank to Nigeria – which made them, the economy of Nigeria that built them to the extent that they have Branches in the UK, USA, etc? Citizens cannot walk into Banks and get reasonable credit lines for their MSMEs. I hope that the CBN will catalyze support for the informal sector beyond the current marginal and arm’s length support the banks are providing.

     In conclusion, I hope that the Bank’s recapitalisation policy will achieve the desired socio-political objectives for Nigerians.

  • NIA gets NAICOM’s, CBN’s nod to digitalise marine certificate

    The National Insurance Commission (NAICOM) and Central Bank of Nigeria (CBN) have granted approval to the Nigerian Insurers Association, (NIA) to digitalise marine insurance certificate, Chairman of the association, Mr Tope Smart has said.

    The NIA Chairman, who is also the Group Managing Director of NEM Insurance Plc, spoke during an interactive session with journalists in Lagos.

    Smart said the development will generate more income for the industry and contribute to the nation’s Gross Domestic Product (GDP).

    He said: “The initiative will also help the industry to recover all lost income prior the approval. The industry is also adopting the use of technology to drive insurance business. Technology plays vital role in the growth of any business and economy.

    “The association will this year, collaborate with other industry bodies to grow the market and improve the industry. The bodies will speak in one voice and ensure people-oriented policies are introduced to promote the industry and the economy.

    “We are optimistic that this year will be better and the industry will grow. The industry has been responsive in meeting genuine claims responsibilities and will continue to honour the payment of all genuine claims.”

    The Director-General, Mrs. Yetunde Ilori, noted that the industry is working assiduously on the industry’s unified platform for the sales of third party motor insurance code titled, Nigerian Insurance Industry Portal (NIIP).

    She added that the portal will be launched before the association’s current chairman leaves office.

    She said a total number of 2.5 million vehicles are actively captured on the Nigerian Insurance Industry Database (NIID), while the actual number of upload on the platform is over three million.

  • Civil society groups seek support for CBN’s monetary policy

    Civil society groups seek support for CBN’s monetary policy

    Coalition of Civil Society Groups (CCSG) has urged Nigerians to support the monetary policy of the Central Bank of Nigeria (CBN).

    The group said a change to usher in a lasting period of prosperity must be gradual and not spontaneous.

    Speaking at a news conference in Abuja, President of the group Mr. Etuk Bassey Williams noted that Nigeria is going through a most difficult period owing to several events, such as global oil glut that characterised the socio-economic and political landscape in the last one year.

    He said: “Just as it is on record that no government preceding President Buhari has dared to probe security vote or fight corruption with the intense ruthlessness as we are witnessing so also is his willpower to tackle our economic obstacles.

     This is evident in his approach of supporting the CBN Governor, Mr. Godwin Emefiele-led foreign exchange (FOREX) policy in stopping sale of foreign exchange to Bureau de Change (BDC), a policy which has checkmated round tripping.’’

    He said: “It is this contradiction of fortunes that made it difficult for Nigerians, who expect a spontaneous change in fortunes having gone through untoward hardships in time past.

    “While we are not unaware that when you wage a war against a wrong system, the system fights back, it is pertinent that Nigerians remain vigilant and steadfast in resisting any gang-up behind such system that has been operating before now.’’

  • Civil society groups seek support for CBN’s monetary policy

    Coalition of Civil Society Groups (CCSG) has urged Nigerians to support the monetary policy of the Central Bank of Nigeria (CBN).

    The group said a change to usher in a lasting period of prosperity must be gradual and not spontaneous.

    Speaking at a news conference in Abuja, President of the group Mr. Etuk Bassey Williams noted that Nigeria is going through a most difficult period owing to several events, such as global oil glut that characterised the socio-economic and political landscape in the last one year.

    He said: “Just as it is on record that no government preceding President Buhari has dared to probe security vote or fight corruption with the intense ruthlessness as we are witnessing so also is his willpower to tackle our economic obstacles.

     This is evident in his approach of supporting the CBN Governor, Mr. Godwin Emefiele-led foreign exchange (FOREX) policy in stopping sale of foreign exchange to Bureau de Change (BDC), a policy which has checkmated round tripping.’’

    He said: “It is this contradiction of fortunes that made it difficult for Nigerians, who expect a spontaneous change in fortunes having gone through untoward hardships in time past.

    “While we are not unaware that when you wage a war against a wrong system, the system fights back, it is pertinent that Nigerians remain vigilant and steadfast in resisting any gang-up behind such system that has been operating before now.’’

  • FRC vs Stanbic IBTC: CBN’s timely intervention

    The financial services industry has recently been engrossed with the news of the regulatory action taken against Stanbic IBTC Holdings Plc by the Financial Reporting Council of Nigeria (FRCN). The intervention of the Central Bank of Nigeria (CBN), however, came in the nick of time as it helped to restore sanity to a disturbing situation.

    One of the most important lessons from this episode include the need for regulators to weigh their actions carefully before making pronouncements, for such pronouncements have the potential of not only affecting investors confidence in the market, but could also erode shareholders’ investments, as it was evident with Stanbic IBTC’s stock on the floor of the Nigerian Stock Exchange. Immediately the CBN intervened, the stocks stopped their losing streak and have been steadily regaining value.

    If the FRCN had been a little more circumspect, it would have been able to trace the genesis of the issue which it delved in and realised that it was a dispute among shareholders and not necessarily an infraction as it alleged. Based on media reports, the entire episode would appear to have been triggered by the National Office for Technology Acquisition and Promotion (NOTAP) over the payment of franchise fees by Stanbic IBTC. However, investigations indicate that the entire episode was orchestrated by some Indians who are minority shareholders of Stanbic IBTC. The Indians are alleged to be the ones pulling the strings behind some shareholders who have as little as 500 shares in Stanbic IBTC.

    According to reliable sources, Stanbic IBTC’s growth had necessitated a further injection of capital as it was fast approaching the minimum capital adequacy ratio prescribed by the CBN. The financial institution planned to increase its capital through a scrip dividend issue and a rights issue. One of the Indians, it was alleged, was not ready to pay for more shares through either issue, but did not want his holdings to be diluted either.

    His real aim was to use the courts and/or regulators to hold up the rights issue until some point in the future when he would be in a position to subscribe. The Indians searched for everything to delay the scrip or right issue and the only straw they could find was the franchise fees. The Trusted Shareholders Association of Nigeria then came into the picture with its petition to NOTAP. Subsequently, NOTAP officials stopped approving any payments to Standard Bank. The stoppage was based on a petition from the Trusted Shareholders Association of Nigeria. The shareholder group also petitioned the FRCN.

    Citing NOTAP’s refusal to approve the fees, the FRCN then jumped into the fray and claimed that NOTAP’s failure to grant approvals for those remittances meant that Stanbic IBTC’s audited accounts for 2013 and 2014 were inaccurate because it had made accruals for these payments.

    FRCN then claimed to be investigating Stanbic IBTC in order to find out if its 2013 and 2014 audited accounts needed to be restated. Both Stanbic IBTC’s management and KPMG (its external auditors) told FRCN that this was absurd because non-remittance of a payment to a creditor does not extinguish a liability, and so the only prudent thing to do was to recognise the amounts owed to Standard Bank in its financials.

    However, the Securities and Exchange Commission, SEC, had earlier approved, in principle, Stanbic IBTC’s scrip dividend issue and rights issue, but turned around to place both on “hold” based on a letter from FRCN to that effect. Also, the Trusted Shareholders Association of Nigeria had gone to court to try and stop Stanbic IBTC’s Extra-ordinary General Meeting that was called to approve the rights issue. They failed to get an injunction. However, what they failed to get from the courts, they obtained from SEC when the Commission turned around to place both the scrip dividend issue and the rights issue on “hold”, citing FRC’s investigation. Stanbic IBTC’s engagement with SEC on the issue failed to yield any positive outcome.

    Subsequently, FRC proceeded to hand down a hefty N1 billion fine and announced the suspension of accounts-approving powers of some Directors of Stanbic IBTC, the Audit Committee Chairman and KPMG Partner, even when its investigations were not concluded and Stanbic IBTC was not given the opportunity to defend itself. It was reported that FRC fixed a meeting with Stanbic IBTC for 11am to continue the engagement process. Before the meeting could hold, the council summoned a world press conference at 8.0 am to announce sanctions it had imposed on Stanbic IBTC, much to the surprise of stakeholders in the finance sector.

    In what has been widely celebrated as common sense intervention by the CBN, the apex bank debunked all the allegations made by the FRC after going through Stanbic IBTC’s itemised response to the allegations supported by facts and figures. CBN also sent a team of examiners to Stanbic IBTC to double-check on all supporting documents before the CBN Governor wrote decisively to FRCN dismissing the council’s findings, methods (including not following due process) and sanctions it imposed on the financial institution and its directors.

    In the most dismissive statement yet, the CBN Governor stated that, “In the light of the foregoing facts, which clearly show that FRCN did not follow due process, the bank regrets to inform you that it is unable to accede to FRCN’s request to take disciplinary action against SIBTCH to obey the sanctions meted by the FRCN”.

    After all is said and done, the next logical steps will be for SEC to clear the way for Stanbic IBTC’s scrip issue since its actions were tied to FRCN’s ill-fated regulatory action. It is curious that SEC tied its oversight of the capital market and when a quoted company can raise capital to the adventures of the executive secretary of the FRCN. What SEC needed to do was to ensure that full disclosures were made regarding any and all disputes that Stanbic IBTC was involved in when publishing a prospectus or rights circular. With the CBN’s intervention, SEC is expected to lift the temporary suspension it imposed on the scrip and rights issue.

     

    • Obi is an Abuja-based research analyst

  • MPC members flay CBN’s forex policy

    The Central Bank of Nigeria (CBN) has come under attack for attempting to prop up the naira by restricting access to dollars. Two members of the Monetary Policy Committee criticized the policy; others said CBN should allow a more flexible exchange rate.

    Bloomberg quoted Chibuike Uche as questioning the legality of the CBN’s June decision to stop importers of about 40 items, including rice, furniture and toothpicks, accessing official foreign exchange markets.

    Doyin Salami said the measure would slow economic growth and that foreign investors were confused by the central bank’s attempts to defend the naira since March.

    Investors are “baffled by the CBN’s expressed unwillingness to countenance any further currency adjustments and market liberalisations,”

    Salami, a lecturer at Lagos Business School, said at an MPC meeting attended by all 12 members on July 23 and 24, according to a statement published on CBN’s website that: “The credibility that CBN has carefully cultivated, if not lost, is most certainly undermined,” he said.

    The naira plummeted by 21 percent to a record low of $206.32 between the end of June and February 12 as the price of oil crashed.

    CBN Governor Godwin Emefiele  introduced bans on purchases of dollars to stem the rout. The currency has since been mostly flat in the interbank market, averaging 198.94 since the end of February.

    But there are many stakeholders who insist that the CBN’s forex restrictions are in order.

    Former Executive Director, Keystone Bank, Richard Obire, said the policy is expected to encourage importers to look inwards and begin local production as the prices of the affected items would shoot up in the market because of high cost of buying forex from the black market.

    He said in the long run, the benefits of the CBN’s decision, will outweigh whatever temporary pains it may have. “Those who decided to produce those goods locally and export them,will earn foreign exchange instead of depleting the reserves. In the short-to-medium terms, it will be painful but subsequently, it will improve the overall economy,” he said.

    He said even the International Monetary Fund (IMF) believes that the CBN should protect the reserves because of the huge benefits of such decisions on the naira.

    “If the CBN keeps funding these items, the demand for the dollar will rise and this will affect its push for infrastructural development needed to boost the real sector,” he said.

    He said the policy could be used to achieve developmental objective, adding that using the available capacity to produce locally, would reduce forex demand and when the local production is enhanced, more people will find jobs within the economy.

    Former President, Chartered Institute of Bankers of Nigeria (CIBN), Mazi Okechukwu Unegbu said the policy was meant to fix the battered foreign reserves. He, however, insisted that the some items in the list, have no business being there because they are raw materials.

     

     

     

     

    “I have nothing against the policy, but the CBN must be cautious not to drive manufacturers to the parallel market. I expect the regulator to be one step ahead of the stakeholders,” he said.

    “The CBN should always consider the unintended consequences of its actions and must set a band which the naira must not exceed”.

    Unegbu said it is not right to formulate policies simply to attract foreign investors, because if the investment climate is conducive, they will come without being persuaded.

     

  • Finance houses hasten to beat CBN’s N100m deadline

    The Central Bank of Nigeria (CBN’s) 18-month timeline for Finance Houses to meet the new N100 million capitalisation for the subsector will expire this month-end.

    This has sparked a new wave of frantic preparation by operators to beat the deadlien.

    With tight liquidity in the market, many operators are yet to secure the needed fund to continue their operation and this may lead to exit of several fringe players, The Nation learnt yesterday.

    An insider source from the Finance Houses Association of Nigeria (FHAN) an umbrella body for the sector, said many of the operators have not secured the needed fund to stay in business.

    “The N100 million minimum capital base looks small, but surprisingly, not many operators have been able to get it. I see many of them closing shop after the deadline elapses,” the source said.

    CBN Director, Other Financial Institutions Supervision Department, Ahmad Abdullahi said operators that fail to meet the deadline will be forced to stop operation, or move into new business with lesser capital base.

    He said the deadline for compliance with the provisions of the Revised Guidelines shall be 30th September 18 months from April last year.

    Abdullahi said the subsector also operates on a ratio of non-performing loans to total loans now pegged at maximum of 10 per cent. He said FCs shall consult at least two licensed credit bureaux to obtain credit information on borrowers.

    The CBN director said the finance companies sub-sector was envisioned to operate at the middle tier of the financial system, largely to cater for the financial needs of the Micro, Small and Medium Enterprises (MSMEs). They are also expected to leverage on the resources from the banking system among other sources of funding.

    He explained that the CBN had in a bid to sanitise the sub-sector, revoked the licences of 208 finance companies and cancelled the approvals-in-principle of 462 others due to the distress in the sub-sector.

    By 2012, there were 116 FCs in the records of the CBN; 51 licences were revoked by the CBN in September, 2012 thus leaving a balance of 65 FCs with valid licences.

    “The idea is to have finance companies that are strong and virile to perform the functions they were set up to per form. The objective of shareholders in the operation of finance companies is to make profit, but for the CBN, it is to have stable and strong finance companies,” he said.

    Abdullahi said the CBN will continue to sanction finance companies that do not have the licences but re in operation as such would ensure that the subsector is run efficiently to the benefit of the economy.

    He advised finance companies to maintain a database of their customers and generate quarterly risk management reports to be submitted to the CBN. “Finance companies shall be permitted to participate in accessing and disbursing funds to SMEs via relevant vehicles/ intervention funds set up by the CBN, the Federal/State Governments and other relevant bodies. The CBN shall continue to provide support towards capacity building in the Finance Company sub-sector,” he said.

     

  • Lagos Chamber of Commerce faults CBN’s decision on forex

    The dust raised by the Foreign Exchange (forex) policy introduced by the Central Bank of Nigeria (CBN), which excluded 41 items from the foreign exchange market, has refused to settle. The decision of the Monetary Policy Committee (MPC) of the CBN to maintain status quo on its policy stance has not gone down well with members of Lagos Chamber of Commerce and Industry (LCCI).

    The MPC, after its meeting of July 23 and 24, 2015, decided to retain the current demand management model in the foreign exchange market.

    After a review of the MPC’s decisions, LCCI said, “this singular decision reflects an ominous indifference of the CBN to the plight of various stakeholders including manufacturers over its foreign exchange management strategy.”

    Speaking, the Chamber’s President, Remi Bello, said it shared CBN’s concern that there are no easy choices given the dwindling crude oil price, dwindling accretion to reserves, weak fiscal position of government and the pressure on foreign reserves.

    “We also share the submission of the apex bank that the Federal Government needs to unfold its economic agenda to boost investors’ confidence and reduce uncertainty in the economy.

    “We support CBN’s position that monetary policy instruments need to be complemented with fiscal policies to achieve the desired economic outcomes, as monetary policy has severe limitations in the present circumstances,” the statement said.

    The LCCI however, argued that the present model, which is essentially an administrative allocation mechanism, has profound collateral consequences for the economy – the opaqueness of the foreign exchange management, vulnerability to corrupt practices and distortions in the economy.

    LCCI noted that submissions by stakeholders in the economy to the CBN to review its list of items not valid for foreign exchange were completely ignored by the MPC, and that the matter was not even mentioned in the communiqué. “We are gravely disturbed by this disposition,” Bello said.

    Bello also expressed the chamber’s worry on the apparent trivialisation by the CBN of developments in the parallel market segment of the foreign exchange market. ”It is curious that the unprecedented disparity in the rates did not seem to bother the CBN,” he added.

    He also affirmed that the widening disparity in rates has profound implications for the economy. ”It is an incentive for round tripping. “It would create distortions in the economy, compromise the principle of level playing field in the economy, and make the management of the foreign exchange market vulnerable to all manner of sharp practices and corruption,” he added.

    LCCI pointed out that the large informal sector of the economy is fed largely from this segment of the market and that these are issues the CBN cannot afford to ignore.

    He observed that fuel import exerts the highest pressure on the foreign exchange market and the country’s reserves.

    While stating that the chamber expects this matter to be highlighted in the MPC communiqué, Bello called on President Muhammadu Buhari to do something urgently about these critical issues.

    “The protracted problem of excess liquidity should be addressed in a manner that would not persistently cause disruptions and dislocations in the economy.  The therapy of interminable monetary tightening has really not worked.  The focus has been on tackling the symptoms, not the cause.”

    Bello advised that fixing the problem through a root cause analysis will be more helpful to the economy. “We note, for instance, that while the benchmark for Net Credit to the economy was 29.3 per cent for 2015, credit to Federal Government grew by 40 per cent as at June 2015. These are issues to worry about,” he said.

    Bello noted that the money supply impact of monetisation of oil revenue receipts, banking system credit to government, and the various intervention funds of the CBN need to be critically examined at this time.

    According to him, the crisis of excess liquidity has done incalculable damage to the economy for many years.  “There is a strong nexus between the crisis of liquidity, rising inflation; exchange rate depreciation, weakening purchasing power and worsening poverty of citizens over the years.  It is in fact the principal reason for the paradox of poverty in the midst of plenty,” he pointed out.

    The LCCI President disagreed with CBN that the factors driving inflation at this time are transient as suggested by the MPC. Rather, he observed that the continued depreciation of the currency and the structural issues are major factors putting pressures on prices, which needs to be tackled urgently.

  • CBN’s interventions for economic development

    CBN’s interventions for economic development

    On assumption of duties, the Central Bank of Nigeria (CBN) Governor, Godwin Emefiele, promised to link price and financial system stability with economic growth and development. One year after, key interventions projects, including the N300 billion Real Sector Support Facility and N213 billion Nigerian Electricity Market Stabilisation Facility, have been put in place to strengthen the business environment and economy, writes COLLINS NWEZE.

    The strength of every economy lies in its ability to broaden the scope of development financing activities to boost living standard of the citizens.

    Therefore, when the Central Bank of Nigeria (CBN) Governor, Godwin Emefiele came on board on June 3, last year, he recognised the crucial role to be played by the Development Finance Department (DFD) in stimulating the growth of the real sector.

    He was determined to reposition the developmental financing initiatives of the apex bank, to boost specific enterprise areas in agriculture, manufacturing, health, oil and gas, among others.

    Emefiele promised to establish the Secured Transaction and National Collateral Registry as well as a National Credit Scoring System that would improve access to information on borrowers and assist lenders to make good credit decisions. He also promised to build financial infrastructure that serve the needs of the lower end of the market, especially those without collateral.

     

    Real sector facility

    Emefiele explained that the N300 billion Real Sector Support Facility (RSSF) was established to unlock the potential of the real sector to engender output, value added productivity and job creation. He said the facility would support large enterprises for start-ups and expansion of the financing needs of firms upto N500 million and a maximum of N10 billion.

    “The real sector activities targeted by the facility are manufacturing, agricultural value chain and selected service sub-sectors. The facility is expected to improve access to finance by Nigerian Small and Medium Enterprises (SMEs) to fast-track the development of the manufacturing, agricultural value chain and the services sub-sectors of the Nigerian economy; increase output, generate employment, diversify the revenue base, increase foreign exchange earnings and provide inputs for the industrial sector on a sustainable basis,” he said.

    Also, the N213 billion Nigerian Electricity Market Stabilisation Facility was aimed at settling certain outstanding debts in the Nigerian Electricity Supply Industry (NESI). The facility covers legacy gas debts and the shortfall in revenue during the Interim Rule period (IRP). It is expected that this will guarantee the take-off of the Transitional Electricity Market (TEM).

    Already, N56.68 billion disbursed to five generating companies and five distribution companies. For Emefiele, the challenges in the power sector are interconnected with the  large revenue shortfalls in the industry, which needed to be fixed.

    Also, the CBN in collaboration with the Federal Ministry of Agriculture and Rural Development (FMA&RD) established the Commercial Agriculture Credit Scheme (CACS) in 2009, to fast-track the development of the agricultural sector, generate employment and reduce the cost of credit for agricultural production by providing credit facilities for commercial agriculture at a single digit interest rate. Already, N38.65 billion has been disbursed to 113 projects, while N24.91 billion representing 64.45 per cent of disbursements were to focal commodities.

    Also, the Agricultural Credit Guarantee Scheme Fund (ACGSF) was established to provide credit guarantees on facilities extended to farmers by banks up to 75 per cent of the amount in default net of any security realised. In the period under review, there has been an increase of loan limits for unsecured lending from N20,000 to N50,000. There has also been an increase of loan limits for secured lending to corporate bodies under the ACGS from N10 million to N50 million.

    Agricultural Credit Support Scheme (ACSS) was aimed at developing the agricultural sector by providing credit facilities to farmers at single digit interest rate to enable large scale farmers exploit the untapped potentials of the sector.

     

    Exchange rate stability

    Emefiele assumed duties when there was a pressure on the Naira as well as a decline in the country’s foreign reserves. Forty-eight hours after, he unveiled his vision for the  financial sector, aimed at pursuing a gradual reduction in key interest rates, unemployment; maintain exchange rate stability and aggressively shore up foreign exchange reserves.

    Others include strengthening risk-based supervision mechanism of banks to ensure overall health and banking system stability; build sector-specific expertise in banking supervision to reflect loan concentration of the banking industry, among others.

    The CBN closed the Retail Dutch Auction System (RDAS) foreign exchange window at the bank to check further pressure on the country’s foreign exchange, avert the emergence of a multiple exchange rate regime and preserve the country’s foreign exchange reserves.

    He also proposed to abolish fees associated with limits on deposits and reconsider ongoing practice in which all fees associated with limits on withdrawals accrue to banks alone.

    In spite of challenges, chief of which is the fall in the global price of crude oil, Emefiele and his team at the CBN, within the past one year, have regulated the operations of Bureaux de Change (BDCs) to check rent-seeking among operators, depletion of the nation’s foreign reserves, unauthorised financial transactions, dollarising the economy, the large number of the BDCs and the unenviable position of Nigeria as the largest importer of dollars in the world.

    Of the 130 BDCs sampled based on volume of purchase from banks, durings the reforms, the bank found 121 BDCs, representing 93 per cent, to be in breach of the objectives and provisions of the guidelines.

    To achieve the bank’s mandate of ensuring the safety and soundness of the financial system, it conducted a Risk-Based examination of banks with High and Above Average Composite Risk Rating in June, last year and those with Moderate and Low Composite Risk Rating in last September.

    Among other examinations, the bank also carried out the foreign exchange examination of all banks in September 2014 as well as the routine examination of all discount houses and financial holding companies in October 2014. In January 2015, it carried out the risk asset examination of 24 banks as at December 31, 2014.

    In the period under review, the bank commenced the implementation of the Basel II Accord aimed at promoting financial system stability by ensuring that banks are adequately capitalised and have enhanced risk management systems.

    The bank within the period facilitated the refund of over N4 billion to bank customers based on the complaints resolved and directives communicated to them following the Consumer Compliance Examinations and a spot-check conducted on the banks. It also concluded full deployment of the Consumer Complaint Management System (CCMS) with the migration of all banks to the live –platform of the system.

     

    BDCs supervision

    The reform of the Bureau De Change (BDC) segment concluded on 31st July, 2014, resulted in 2,501 BDCs with caution deposits and capital base of N35 million each. The bank issued a final licence to the National Mortgage and Re-financing Company (NMRC) to commence operation in 2015 under the Housing Fund Programme (NHFP).

    The apex bank also carried out further reforms of Primary Mortgage Banks (PMBs) where 32 PMBs capitalised as at June 30,  last year, while 10 were in the category given up last December 31. Licences of 21 PMBs, which failed to recapitalise or had remained technically insolvent were revoked on November 12, last yaer. The CBN partnered the Federal Government and Development Partners to midwife the Development Bank of Nigeria envisaged to address the paucity of low interest and long-term funding for Micro Small and Medium Enterprises (MSMEs).

    The CBN also established a governance structure for National Financial Inclusion Strategy and completed the geo-spatial mapping survey of all financial access points across the country. It has also engaged seven State Governments on the implementation of the National Financial Inclusion Strategy and ensured the gradual reduction in percentage of financially excluded adults from 46.3 per cent in 2010 to 39.5 per cent by December, 2014. “Other schemes include the Power and Airline Intervention Fund (PAIF), Capacity Building programmes through the existing Entrepreneurship Development Centres (EDCs) and the CBN/NYSC Entrepreneurship Training held in four centres,” it said.

     

    Banking and Payments System

    In conjunction with the office of the Accountant General of the Federation (OAGF), e-collection element of the Treasury Single Account (TSA) took off on March 1, 2015.       Real time remittance of government receipts directly into the Consolidated Revenue Fund Account (CRF) to enthrone transparency and accountability in management of government receivables. Also, promotes effective monetary policy and reduce cost of liquidity management borne by the Bank.

    The MDAs under the TSA platform has increased from 340 to 543. In continuation of the bank Verification Number (BVN) for banks customers, enrollment increased from 15,000 as at June 3, 2014 to 11.1 million as at May 25, 2015.

     

    Stakeholders speak

    President, Association of Bureau de Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, said the confidence in new leadership and the peaceful elections have helped to lift the naira.

    He expects the Naira to appreciate further, adding that though the market fundamentals, including the foreign exchange reserves and price of crude oil have not changed. He said the CBN under Emefiele has curbed fear and uncertainty in the financial market.

    Gwadabe explained that the some of the steps taken by the CBN has led to dollar glut in the market, despite the tight liquidity in the money market.

    Analysts also insist that portfolio inflows  jumped since last month’s presidential elections, easing pressure on the naira. There is more confidence that the economy will grow as the outlook of foreign investors is very upbeat, especially after peaceful general elections.

    Financial analyst, Michel Okafor, said under Emefiele’s watch, there have been improvement in corporate governance as well as risk management processes in many of the lenders. He explained that the beauty of the banking reforms, which Emefiele inherited, remains that no bank has failed, no depositor lost money with the entire process executed with minimal cost.

    “Banks have moved from buying government bonds and funding blue-chip companies to focusing on the middle part of the economy, where growth happens and jobs are created. The agricultural and industrial sectors of the economy, long neglected by banks are now receiving higher rates of credit,” he said.

    The CBN under Emefiele has also been able to sustain low inflation rate in a single digit. There has also been a stable financial system, macroeconomic stability by maintaining zero-tolerance for infractions in regulatory requirements on data or information reporting.

    Besides, the bank and all stakeholders have become conscious of the institutional relationships and market interactions among the various sub-sectors in the financial sector.

    The CBN under Emefiele has also supported women entrepreneurs, who are underrepresented in secure wage employment, through implementation of gender sensitive policies as well as making them relevant in the CBN.

  • 2,660 BDCs get $79.8m CBN’s allocations weekly

    The 2,660 Bureax De Change (BDC) operators are allotted $79.8 million weekly, the Central Bank of Nigeria (CBN) has said.

    Each BDC takes $30,000 weekly, down from $50,000. This followed the approval of over 80 additional BDCs following the expiration of the July 31 deadlines for their regularisation.

    The regulator had pointed out that on the expiration of the deadline on July 31, that it would cease to fund any BDC that failed to comply with the new requirements, adding that “only BDCs that meet the new requirements would qualify to be engaged as agent by the licenced international money transfer operators for inward and outward transfer business in Nigeria’’.

    However, the continuous approval of more BDCs by the CBN, after the deadline elapsed last December, is causing ripples in the subsector.

    Older operators are alleging compromise by the apex bank after it yesterday, and fourth time in a row, raised the number of BDCs that met the regulatory requirement to 2,660.

    President, Association of Bureau De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe,  said the action of the CBN is suspicious.

    He said the group had approached the regulator and complained about the continuous update of operators’ list, which keeps depleting the volume of foreign exchange allocated to operators.

    The CBN, he said, claimed that the newly approved list of members were those that met the deadline, but had their names cut off, until it carried out internal reconciliation.

    The CBN had in February, published a list of 2,586 licensed BDC firms which it said had complied with its new capital requirements of N35 million as at July 31.

    There were 3,208 registered BDCs in the country before the expiration of the deadline. The CBN had in June announced a new minimum capital requirement of N35 million for the operation of BDCs in the country, up from the N10 million it was previously.

    In order to ensure that the forex dealers comply with the new capital requirements, the CBN had extended the deadline to July 31. The forex dealers were previously given a deadline of July 15.

    The apex bank had also said interest would be paid on the mandatory cautionary deposit of N35 million, based on banking industry savings account rate.