CBN and Nigeria’s new financial system strategy

A wind of change recently blew at the Central Bank of Nigeria (CBN) to mark the end of the five year tenure of its former Governor, Alhaji Sanusi Lamido Sanusi. It was a change that brought the incumbent, Mr. Godwin I Emefiele, who has not only assumed duties as the 11th Governor of the Central Bank of Nigeria (CBN), but has started with clearly defined policy focus.

His mission statement, which is directed at entrenching macroeconomic stability and engendering economic development in Nigeria, is indeed insightful in many ways, particularly as it is a document of hope to “fellow Nigerians.”

Emefiele’s vision covers the entire economic landscape such as the monetary policy, the exchange rate policy, the financial system stability and the payment system, among others.

In one of his earlier outings, and a remarkable one at that, the new CBN helmsman declared that he intends to build and nurse “a Central Bank that is professional, apolitical and people focused. Emefiele said he wants to run a Central Bank that spends its energies on building a resilient financial system that can serve the growth and development needs of our beloved country.”

He declared that the Central Bank, under his leadership, will devote energies to the emergence of a people centered apex bank which would be a model capable of delivering price and financial system stability and promoting sustainable economic development.

It must be stated that this vision recognizes the multiple mandates of the apex bank, which include the pursuance of both price and financial stability as well as the provision of complimentary developmental functions by creating an environment for a better and more fulfilled lives for Nigerians.

For the bank to meet these roles, it envisages to create a stable price regime in the hope that it would serve as a catalyst for rational consumption and investment.

Against this background is the drive to sustain the macro-economic stability. It means also that the Central Bank would continue the pursuit of a gradual reduction in the interest rates.

For instance, analysts are agreed that if we compare the micro economic aggregates of some of the emerging markets like South Africa, Brazil, Turkey and Malaysia, Nigeria has one of the highest Treasury Bill rates.

It is also agreed that such high Treasury Bill rates create a preserve impetus for commercial banks to simply buy virtually risk- free government bonds, rather than lend to the real sector, a situation whose negatives far out ways arguments in its favor.

Therefore, the bank would need to pursue policies targeted at making Nigeria Treasury bills rate more comparable with those of other emerging markets by pursuing a reduction in both deposit and lending rates. It is hoped that these efforts have twin advantages.  For instance, a reduction in deposit rates would result in positive investment altitude in savers while on the other hand, a reduction in the lending rates would make credit cheaper for potential investors.

According to the CBN Governor, in his maiden address to stakeholders, “in the interim, we would continue to maintain a monetary policy stance, reflecting the liquidity conditions in the economy as well as the potential fiscal expansion in the run up to the 2015 general elections”

With regard to the exchange rate policy, it clearly appreciates the nature of Nigeria’s economic environment, which is highly dependent on import, including the significant exchange rate pass through. It also recognizes the fact that a systematic depreciation of the naira would translate to inflationary pressure with its consequential effects on macro -economic stability.

To this end, the bank hopes to focus on maintaining the stability of the exchange rate as well as preserving the domestic currency: One of its strategies in this regard is to sustain the managed -float regime in the management of the exchange rate in the hope that this strategy would allow banks to intervene when necessary to offset the pressures on the exchange rate.

And to buoy this strategy, the Central Bank similarly hopes to build up and maintain a healthy external reserves position and ensure external balance.

On a much broader scale, the bank envisions a financial system that is stable, healthy and robust. But to achieve these objectives, it must focus on the effective management of potential threats and avoid systematic crisis.

For the new administration, therefore, history is a lesson and it seemed to have learnt pretty well in so short a time. No doubt, Mr. Emefiele has since expressed his determination to manage potential threats to financial stability as well as establish a strong governance regime that is conducive for financial intermediation, innovative finance and inclusiveness. This, he noted would be anchored on two main pillars, namely managing the very factors that create shocks and maintaining a zero-tolerance disposition on practices that undermine the health of financial institutions.

His strategies toward ensuring a stable financial system include working with relevant stakeholders to shore up the reserves as well as to engage the fiscal and political authorities to improve our policy buffers which would further create space for the bank to implement monetary policy using its limited instruments.

Other strategies of the bank are enhancing its supervisory purview over the banking system as well as strengthening macro-prudential regulations by improving existing supervisory diligence, ethical standards as well as increase the levels of professionalism in carrying out on and off site supervision activities.

Also aimed at establishing a stable financial system, the Central Bank intends to pursue a zero tolerance to fraudulent borrowers, yet on the other hand, the bank hopes to collaborate with commercial banks to improve on the credit culture in the Nigeria banking system.

In order to achieve a better risk based supervision framework, the Central Bank has pledged to train sector specific bank examiners and would try to end or dissuade the subsisting culture where everybody is a generalist.  It hopes that specialization will help reduce the growing culture of reliance on outside consultants, ensure that confidential supervisory information are protected and guarantee a staff depth that can generate robust  in –house data to help senior Central Bank’s officials prepare adequately for public engagement.

Two issues that would certainly excite average Nigerians are the Central Bank‘s vision on easing unemployment menace in Nigeria and its proposal to boost the development of a healthy agriculture sector.

For the purpose of emphasis, the Governor has made it clear that, “ With an annual addition of 1.8 million Nigerians to the labour pool, the bank cannot afford to idly by and concentrate only on price and monetary stability.”

He promised to ensure additional measures towards identifying the productive sectors of the economy and channeling credits to them while at the same time, imposing proper monitoring and performance measures in order to bring about increased employment and poverty reduction.

In terms of strategy, the Central Bank hopes to review its development finance programme by urging the participatory agencies responsible for the disbursement of funds to improve on their monitoring capacity and develop performance targets relevant to the generation of employment and reduction of poverty.

With regard to the agricultural sector, the marshal plan is to revisit the goals and implementation of the bank’s intervention programmes in the agricultural sector, the objective being to ensure high value returns from funds provided.

The inherent vision of the Central Bank in this regard is to drive its intervention towards improving productivity in areas with high domestic demand such as rice, fish, wheat and sugar. In addition, the bank envisages tocreate an ecosystem that would identify and link up various local producers and processors with major importers of these selected products.

To achieve these objectives, 60 percent of the Commercial Agricultural Credit Scheme would be targeted at these identified commodities while the loan limits under the Agricultural Credit Guarantee Scheme has been increased to N50 million with a view to expanding the resources available to small agricultural projects

In conclusion, it is certainly a new dawn at the apex bank and for Nigerians. This dawn would give birth to a gradual reduction in key interest rates and would include the unemployment rate in the monetary policy decisions. It will ensure the maintenance of an exchange rate stability and shore up foreign exchange reserves, apart from build a sector specific expertise in banking supervision to reflect loan concentration of the banking industry.

Other visions of the new dawn are the abolition of the fees associated with limits of deposits, introduction of a broad spectrum of financial instruments to boost specific areas in agriculture, manufacturing, health and oil and gas as well as the establishment of a financial infrastructure that would serve the needs of the lower end of the market, especially those without collaterals.

Truly, a wind of change has dawned at the Central Bank of Nigeria.


Source : SunOnline

Tags: No tags

Comments are closed.