Central Bank of Nigeria (CBN) Governor Godwin Emefiele has promised to marry price and financial system stability with economic growth and development. So far, key intervention projects including the N300 billion Real Sector Support Facility and the Development Finance Department (DFD) project are designed to boost the economy and the investment climate, writes COLLINS NWEZE.
The strength of every economy is in its ability to broaden the scope of development financing to create wealth to ensure better life for the people.
When 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.
The apex bank chief was determined to reposition the developmental financing initiatives of the apex bank so as to boost specific enterprise areas in agriculture, manufacturing, health, oil and gas.
Emefiele also promised to establish Secured Transaction and National Collateral Registry as well as a National Credit Scoring System that will improve access to information on borrowers and assist lenders to make good credit decisions. He equally promised to build resilient financial infrastructure that serves the needs of the lower end of the market, especially those without collateral.
However, some analysts have challenged the CBN for raising the Cash Reserve Ratio (CRR) on public sector deposits from 12 per cent to 75 per cent before it was harmonised at 31 per cent for both private and public sector deposits.
Again, when the falling Brent crude oil prices hit the Nigeria economy, analysts spoke on its implications for the economy. Manufacturers were no longer funding the importation of raw materials because of dollar scarcity and the CBN was urged to further devalue the naira instead of using so much forex in defending the local currency. Despite these resistances, the CBN has continued with policies it believed would boost economic development.
Real sector facility
Emefiele explained that the N300 billion Real Sector Support Facility (RSSF) was established as part of efforts to unlock the potential of the real sector to engender output growth, value added productivity and job creation. The facility, he said, will support large enterprises for start-ups and expansion of the financing needs of 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 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, 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, over N56.68 billion disbursed to five generating companies (Gencos) and five distribution companies (Dicos). For Emefiele, the challenges in the power sector are interconnected with the unexpectedly 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 focused on 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 N 0 million.
Agricultural Credit Support Scheme (ACSS) is aimed at developing the agricultural sector of the economy by providing credit facilities to farmers at single digit interest rate to enable large scale farmers exploit the untapped potentials of the sector.
Naira volatility
Emefiele assumed office at a time there was visible pressure on the naira as well as decline in the country’s foreign reserves. The volatility of the naira has continued, despite several policies aimed at pursuing a gradual reduction in key interest rates, and include the unemployment rate in monetary policy decisions and maintain exchange rate stability and aggressively. The policy of the CBN was als directed at shoring up foreign exchange reserves; strengthening risk-based supervision mechanism of banks to ensure overall health and banking system stability; building sector-specific expertise in banking supervision to reflect loan concentration of the banking industry among others.
For instance, the CBN closed the Retail Dutch Auction System (RDAS) foreign exchange window at the CBN in order to check further pressure on the country’s foreign exchange to avert the emergence of a multiple exchange rate regime and preserve the country’s foreign exchange reserves.
Emefiele 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 all the challenges, chief of which has been the fall in the global price of crude oil, Emefiele and his team at the CBN, 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, dollarisation of the economy, prunning down the unwieldy number of the BDCs and the unenviable position of Nigeria as the largest importer of dollars in the world.
Towards achieving the CBN’s mandate of ensuring the safety and soundness of the financial system, it conducted a Risk-Based examination of all banks with High and Above Average Composite Risk Rating in June last year and those with Moderate and Low Composite Risk Rating in September last year.
Among other examinations, the apex bank also carried out foreign exchange examination of all banks in September last year as well as the routine examination of all discount houses and financial holding companies in October last year. In January this year, it carried out the risk asset examination of 24 banks as at December 31, last year.
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 apex 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.
Reforms in Primary Mortgage Banks
The apex bank also carried out further reforms of Primary Mortgage Banks (PMBs) where 32 PMBs had fully capitalised as at June 30, last year while 10 were in the category given up to December 31, last year. Licences of 21 PMBs, which failed to recapitalise or had remained technically insolvent were revoked on November 12, last year. The CBN partnered with the Federal Government and Development Partners to midwife the Development Bank of Nigeria that is envisaged to address the paucity of low interest and long-term funding for Micro Small and Medium Enterprises (MSMEs) in Nigeria.
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, last year. “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, 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 September 15. Real time remittance of government receipts directly into the Consolidated Revenue Fund Account (CRF) to enthrone transparency and accountability in management of government receivables began. The policy was also designed to promote 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, last year to over 20 million presently.
Inflation refuses to abate
Nigeria’s consumer inflation was at 9.4 per cent year-on-year in September, up 0.1 per cent from August, and staying above the central bank’s target upper limit, the National Bureau of Statistics (NBS) said.
Food inflation rose marginally to 10.1 percent year-on-year in August versus 10.0 percent in July. “The marginal increase was as a result of slower increases in alcoholic beverages, tobacco and kola, health, transport and recreation and culture divisions.
“On a month-on-month basis, the pace of increases of food prices … has slowed, contributing to the relatively slower (overall)pace of increases,” the NBS said.
Nigeria’s inflation rate rose above the CBN’s upper limit of nine per cent in June and is at the highest level since February 2013. Nigeria has been hit hard by the slump in global crude prices, which has sent its currency, the naira, spiralling. The CBN has imposed increasingly stringent foreign exchange measures to prop up the naira but investors are losing confidence.
National Gross Domestic Product more than halved in the second quarter year-on-year and JP Morgan dropped Nigeria from its influential emerging market bonds index due to foreign exchange controls.
Financial analyst, Michael 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.
President, Association of Bureau de Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, the confidence in President Muhammadu Buhari and the peaceful conduct of the general elections have helped to stimulate the economy. He explained that some of the steps taken by the CBN has led to dollar glut in the market, in spite of the tight liquidity squeeze in the money market.
