Managing monetary downturn one year after

Godwin Emefiele, CBN governor... the apex bank has a role in the re-engineering of Nigeria’s economy

Godwin Emefiele, CBN governor… the apex bank has a role in the re-engineering of Nigeria’s economy

The Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, on assumption of office, one year ago, inadvertently missed the banking crisis, but not fortunate enough with the nation’s economic crisis, still ravaging the system till now.

Of course, there was visible pressure on the Naira, as well as decline in the country’s foreign reserves, but defying the odds with optimism and industry-based knowledge, he unveiled his vision for the Nigerian financial sector- to pursue key interest rates reduction and include unemployment rate in monetary policy decisions; maintain exchange rate stability and aggressively shore up foreign exchange reserves; strengthen risk-based supervision mechanism of Nigerian banks to ensure overall health and banking system stability; and abolished fees associated with payment and withdrawal limits, as well the practice in which all fees associated with limits accrue to banks alone, among others.
Though some of these visions like key interest rates and reserves’ accretion are yet to materialize, the persistence in the course to keep track of the system’s stability cannot be denied, as various measures put on the table are implemented, adjusted and readjusted for the common good.

It must be re-emphasised the that fall in the global price of crude oil- Nigeria’s major foreign exchange earner started shortly after his assumption of office and with gradual deterioration of the commodity’s pricing, economic permutations were twisted, not only in the country, but also in all the oil dependent economies. However, we may have been the worst due to fiscal rascality of the political class.

Former Minister of Finance and Coordinating Minister of Economy, Dr. Ngozi Okonjo-Iweala, once said in an interview with CNN, that it is not easy to manage an economy with lone source earning and in a period of dwindling fortunes from the lone source, adding that the quest to consume at the expense of savings brought the country to the austerity option.

However, amid the challenging terrain in the last one year, the monetary policies under Emefiele’s leadership have kept pace with the changing fiscal side.

The CBN within the past one year has regulated the operations of Bureaux de Change (BDCs) to check rent-seeking among operators, depletion of the nation’s foreign reserves, unauthorized financial transactions, dollarizing the economy, the unwieldy number of the BDCs and the unenviable position of Nigeria as the largest importer of dollars in the world.

Out of 130 BDCs sampled based on volume of purchase from banks, as at the time of the reforms, the Bank found 121 BDCs, representing 93%, to be in breach of the objectives and provisions of the Guidelines.

Risk based supervision has been sustained. For example, the bank conducted a risk-based examination of all banks with High and Above Average Composite Risk Rating in June 2014, as well those with Moderate and Low Composite Risk Rating in September 2014. It also carried out Foreign Exchange Examination of all banks in September 2014, discount houses and financial holding companies in October 2014 and in January 2015, conducted Risk Asset Examination of 24 banks as at December 31, 2014. Already, the bank has commenced the implementation of the BASEL II Accord.

In the last one year, the bank facilitated the refund of N4.01 billion to banks’ customers based on the complaints resolved and directives communicated to them following the Consumer Compliance Examinations and a spot-check conducted on the banks.

For Other Financial Institutions, reforms in the segment brought BDCs to 2,501, with caution deposits and capital base of N35 million each. The National Mortgage and Re-financing Company (NMRC) has commenced operation in 2015, under the National Housing Fund Programme (NHFP).

There are no less that 32 Primary Mortgage Banks (PMBs), fully capitalized as at June 30, 2014, while 10 were in the category given up to December 31, 2014 and 21 PMBs were revoked on November 12, 2014. Currently, the Development Bank of Nigeria, which is envisaged to address the paucity of low interest and long-term funding for MSMEs in Nigeria, is underway.

Despite the challenging times, CBN earmarked N300 billion for the Real Sector Support Fund (RSSF) as part of the efforts to unlock the potential of the real sector. So far, N152 billion has been approved for five projects under the RSSF.

There is also a N213 Billion Nigerian Electricity Market Stabilisation Facility (NEMSF), aimed at settling certain outstanding debts in the Nigerian Electricity Supply Industry (NESI).  So far, N56.68 billion has been disbursed to five generating companies and five distribution companies.

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 realized. In the period under review, Agricultural Credit Guarantee Scheme Fund (ACGSF) has recorded increased loan limits for unsecured lending from N20,000 to   N 50,000, as well as that of secured lending to corporate bodies under the ACGS from N10 million to N50 million. Besides, the facility is at single digit interest rate.

Since June 2014, 60% of Commercial Agricultural Credit Scheme (CACS) is dedicated to six focal commodities- rice, wheat, cotton, sugar, dairy products and fish, which have been utilizing huge resources from the dwindling foreign reserves. Currently, DMBs are assessing the fund at two per cent from CBN and lend at an all-inclusive interest rate of nine per cent, a spread of seven per cent. Already, N38.65 billion disbursed to 113 projects; N24.91 billion, representing 64.45% of disbursements were to focal commodities; N76.40 billion repaid by beneficiaries; 17,792 jobs created by projects financed under the scheme; and the scheme has been extended from 2016 to 2025.

Again, of the N220 billion Micro, Small and Medium Enterprises Development Fund (MSMEDF), N43.57 billion has been disbursed to state governments, Participating Financial Institutions (PFIs), Microfinance Banks and Finance Cooperatives; 61.6% of beneficiaries are women; N30.31 million has been accessed by 292 People Living with Disabilities (PLWD).

The National Collateral Registry (NCR) Bill, exposed to stakeholders in three zones and has been forwarded to the Office of the Attorney General of the Federation (AGF), for review and consideration.

The governance structure for National Financial Inclusion Strategy is now in place, with the geo-spatial mapping survey of all financial access points across the country. Seven state governments have been enlisted on the implementation of the strategy to ensure the gradual reduction in percentage of financially excluded adults.

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, accountability, effective monetary policy and reduction in cost of liquidity management.

The Bank Verification Number (BVN) project has been boosted, with enrollment moving from 15,000 as at June 3, 2014 to 11,146,166 as at May 25, 2015. Removal of charges on cash deposits to encourage flow of deposits to DMBs has long been effected, while the cash-less project would go live nationwide from July 1, 2015.

Following the sharp decline in global oil prices and the resultant fall in the country’s foreign exchange earnings, the Bank observed a widening margin between the rates in the interbank and the rDAS window, thus engendering undesirable practices including round-tripping, speculative demand, rent-seeking, spurious demand, and inefficient use of scarce foreign exchange resources by economic agents.

The apex bank under Emefiele, closed the rDAS/wDAS 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 reserves.

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