In 2020, tight monetary policy retains top spot

President/Chairman of Council. Chartered Institute of Bankers of Nigeria (CIBN), Uche Messiah Olowu (left); Deputy Governor, Financial System Stability, Central Bank of Nigeria (CBN), Mrs. Aishah Ahmad; CBN Governor, Godwin Emefiele; and Chief Executive Officer, Union Bank, Emeka Emuwa, at the 54th CIBN yearly dinner held in Lagos.

The hawkish stance of the Central Bank of Nigeria (CBN) over the years will crossover to 2020 and still retain its grip on the financial market. The apex bank, in its assessment of the global and domestic economies, will remain cautious of the headwinds that are lurking around.

These include the lingering Brexit and its uncertain impact, the unending trade war between China and the United States, both of which have a significant business interest in Nigeria. There is resurging inflation, partly associated with ongoing land border closure and Nigeria’s struggling growth recovery, with no end in sight.

The development means that the hopes of a rate cut may not be in sight, as unfolding global and domestic conditions would be weighed appropriately, especially the challenging infrastructure in the country and government’s sustained fiscal crisis.

Indeed, the pace of growth has remained relatively slow due to some structural constraints and the pace of growth, given the growing population, leaves the economy vulnerable to downside shocks, such as changes in the oil price, and sentiments in the global financial markets.

CBN Governor, Godwin Emefiele, listed the bank’s priorities for 2020 and specifically included support for greater economic growth, price stability and low inflation, hinting on the continued tight monetary policy stance. But he also said there would be the establishment of a Bankers’ Charitable Endowment Fund.

While delivering the keynote address titled: “Strong Sustainable growth for the Nigerian Economy”, at the 54th yearly Bankers’ Dinner, organized by the Chartered Institute of Bankers of Nigeria (CBN) in Lagos, last weekend, he said the endowment fund will finance a major charitable initiative every year, starting in 2020.

According to him, the Bankers’ Charitable Endowment will directly fund strategic social programmes in states and local communities across Nigeria and expressed the hope that the Fund would spur a trend across other industries and sectors to collaborate and work together to better the lives of all Nigerians.

Speaking on the developments in the country’s economic and financial sector, over the past year, and how they affect the macro-economic outlook for 2020, he said in spite of the positive growth the economy experienced, growth had remained slow due to “some structural constraints” in the economy.

Disclosing plans by the CBN to support the economic recovery and enable stronger growth for the country’s Gross Domestic Product (GDP), Emefiele said that the Bank would continue its current tight stance, particularly in view of rising inflation expectations.

“Though we will act to appropriately adjust the policy rate in line with unfolding conditions and outlooks, the CBN will continue to ensure that the policy interest rate is delicately set to balance the objectives of price stability with output stabilization,” he explained.

Doing a recap of the highlights for 2019, he recalled that the country’s GDP had remained positive, adding that the positive growth in GDP had been driven by improvements in Agriculture, Oil and Gas, Manufacturing and ICT as well as the intervention programmes of the CBN, along with sustained supply of foreign exchange and stability of the naira.

He also attributed the decline in inflation to the Bank’s maintenance of a tighter monetary policy rate at 13.5 per cent, and its efforts at improving local production of key staple items.

Speaking further, he said the Nigerian financial system was now stronger due to the fact that capital buffers and liquidity in the banking system have continued to improve.

According to him, industry-wide Capital Adequacy Ratio (CAR) had increased from 10.2 per cent in December 2017 to 15.5 per cent in September 2019, adding that the percentage of non-performing loans in the banking sector had reduced from a high of 14.7 per cent in January 2017 to below seven per cent as at October 2019.

He equally disclosed that credit conditions in the banking system had improved supported by the CBN’s new policy measures announced in June 2019, which require banks to maintain a minimum 65 per cent loan to deposit ratio.

Furthermore, banks in the country are now able to recover delinquent loans from customers’ accounts in other banks, adding that the measures now placed Nigerian banks in a much better position towards supporting a stronger economic recovery. This, he added, had increased gross credit by N1.16 trillion between May and October 2019.

On the country’s External Reserves, the Governor said CBN’s efforts at supporting domestic production in the agriculture and manufacturing sectors, among other policies, had continued to encourage foreign exchange inflows into the Nigerian market.

He said that over $60 billion worth of transaction had taken place since the inception of the Investors’ and Exporters’ window in April 2017, adding that Nigeria’s foreign exchange reserves were above $40 billion as at October 2019, compared to $23 billion in the same period in 2016.

The Governor also highlighted the Bank’s effort in development financing, which he said the CBN had sustained in order to help support growth in critical sectors of the economy such as agriculture and the manufacturing sectors, through programmes such as the Anchor Borrowers’ Programme, the Commercial Agriculture Credit Scheme and the Bankers Committee Agri-Business/Small and Medium Enterprises Investment Scheme (AGSMEIS).

Alluding to the economic face-off between some countries, as well as the likely challenges the economy could face due to moderate oil prices, he stressed the need for Nigeria to build up the necessary buffers that would protect the economy from pressures in the global market. He then restated the need to boost local production and diversify the country’s export base.

“We should encourage Nigerians to consume goods that can be produced in Nigeria, knowing full well that a time will come when we may not have the foreign exchange to aid such activities if we continue to rely on earnings from the export of crude oil,” he emphasized.

Recalling the country’s economic glorious past when the economy was heavily reliant on agriculture, with increased cultivation and exports of primary products such as cocoa, palm oil, cotton and groundnut, Emefiele posited that it possible to envision a productive Nigerian economy that is not reliant on exports of crude oil.

The Governor also urged all stakeholders to believe in Nigeria’s greatness, stressing that the country was blessed with abundant human and natural resources, which if truly harnessed would propel Nigeria into one of the world’s top 20 economies.

“We must redouble our efforts to continue to support actions by the monetary and fiscal authorities to diversify the base of the Nigerian economy through encouragement of made in Nigeria products.

“We must also consume what we produce and produce what we consume. We must discourage the propensity to import what can be produced in Nigeria. This is because if we do not reduce import, the same imports will kill us knowing full well that such activities do not aid our efforts to create jobs and support the growth of our local industries.

“If we choose to follow the trend of supporting imports of goods that can be produced in Nigeria, we will lose jobs, our industries will die and insecurity and other social vices in our land will continue to increase. We must choose this alternative path of improving domestic production, which will support growth of our local economy,” he charged.

As part of the Bank’s priorities for 2020, he said the CBN was determined to maintain its stable exchange policy stance in the near to medium term given the relatively high level of reserves. He said the Bank would also sustain these efforts in 2020 as part of our plan to reduce our financial exclusion rate to under 20 per cent over the next year.

The Governor said the apex bank will also improve access to credit for farmers and SMES by deepening its intervention efforts through the Anchor Borrowers’ Programme, Commercial Agriculture Credit Scheme and the Real Sector Support Funds, amongst others.

Similarly, he noted that CBN, in pursuing improved access to finance and credit, would protect them from unfair banking and lending practices by maintaining oversight on the banks and other financial institutions.

In addition to making sure that financial institutions support the growth of the real sector, Emefiele said the CBN, working with the Nigerian Export-Import Bank (NEXIM), improve access to the N500 billion facility designed to support the growth of Nigeria’s non-oil exports.

While disclosing that the bank, working with the fiscal authorities, will support the recovery of the economy, the CBN Governor reiterated that Nigeria was open to business and urged investors to take advantage of the investment opportunities in Nigeria.

He assured that investments in Nigeria would be duly protected by the authorities.

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