Following the unveiling of a
five-year policy thrust by the Central Bank of Nigeria, experts are
unanimous in their optimism that the blueprint will provide the
much-needed impetus for economic transformation, report Kunle Aderinokun
and James Emejo
Settling down for business following a
rare re-appointment for a second term in office, the CBN Governor, Mr.
Godwin Emefiele, last week, unveiled his plan aimed at strengthening the
economy by
implementing policies that seek to boost the confidence of
investors, encourage local production and enhance non-oil exports, price
stability as well as massive job creation.
Emefiele had launched an ambitious
policy direction for the CBN, targeting double-digit growth,
single-digit inflation, $12 billion non-oil exports by 2023 and raising
financial inclusion to 95 per cent level by 2024.
He also pledged to retain managed-float
exchange rate and announce a bank recapitalisation that will see banks
raise their capital base above the N25 billion minimum level that one of
his predecessors, Prof. Charles Soludo, introduced in 2004.
Instructively, the apex bank boss
promised to embark on a programme that would lead to the
recapitalisation of the banking industry within the next five years,
citing the need to position Nigerian banks among the top 500 in the
world.
As a result, he stressed that banks will
be required to maintain higher levels of capital and liquid assets in
order to reduce the impact of an economic crisis in the financial
system.
But this did not come as a surprise to
many observers, considering the extent of impairment of banks’ balance
sheet caused by the value of non-performing loans as well as recent
interventions by the CBN to stabilise some of them.
Expanding on the planned
recapitalisation, the CBN boss said the 2004 banking industry
recapitalisation, which increased banks’ capital base from N2 billion to
the current N25 billion had weakened.
He said:”You will all agree with me that
it was Governor Soludo in 2004 that did the last recapitalisation we
had, moving the capitalisation from N2 billion to N25 billion.
“And I must commend those efforts
because it resulted in positioning Nigerian banks not only in Africa but
also being among the banks in the world in terms of capitalisation and
it also increases or helps to strengthen the banking industry capacity
to take on large ticket transactions- and those are some of the things
we badly need today.
“And if you relate N25 billion in 2004
exchange rate which was about N100- N25 billion, it is certainly only
about $200 million . Today, if we relate N25 billion at N360, you can
see that it is substantially even lower than $75 million.”
According to the CBN governor, what we
are trying to say is that recapitalisation has weakened quite
substantially and there is a need for us to say it is time to
recapitalise Nigerian banks again.
“It is a policy thrust which will be
discussed at the Committee of Governors’ meeting and of course, the
framework for the recapitalisation of Nigerian banks will be unfolded
for the whole world to know.”
He assured that the CBN would work with
the fiscal authorities to pursue a double digit growth rate within the
next five years as well as attempt to bring down the rate of inflation
to single digit and accelerate the rate of employment in the country.
Emefiele further listed the CBN
priorities over the next five years to include preservation of domestic
macroeconomic and financial stability; foster the development of a
robust payments system infrastructure that will increase access to
finance for all Nigerians thereby raising the financial inclusion rate
in the country; continue to work with the Deposit Money Banks (DMBs) to
improve access to credit for not only small holder farmers and MSMEs but
also consumer credit and mortgage facilities for bank customers.
Apparently poised to solve the problem
of access to finance by young entrepreneurs, the CBN said going forward,
its intervention support programme will also be extended to the youth
population who possess entrepreneurship skills in the creative industry.
He said within the intervening period,
the CBN will further encourage banks to direct more focus in supporting
the education sector, apparently to try to arrest the sector’s dwindling
fortunes.
He said he will strive to grow the
external reserves; and support efforts at diversifying the economy
through the CBN intervention programmes in the agriculture and
manufacturing sectors.
He said:”We are confident that when
implemented, these measures will help to insulate our economy from
potential shocks in the global economy.
“In my second term in office, part of my pledge, is to work to the best of my abilities in fulfilling these objectives.”
He also disclosed that the apex bank
will leverage monetary policy tools in supporting a low inflation
environment, while seeking to maintain stability in exchange rate- with a
key emphasis on supporting improved GDP growth and greater private
sector investment.
He maintained that going forward,
decisions by the monetary policy committee on inflation and interest
rates will be dependent on insights generated from data on key economic
variables as well as seek to broaden financial inclusion by ensuring
that at least 95 per cent of all eligible adults have access to
financial services by 2024.
Emefiele further stated that the apex
banking regulatory institution would strive to sustain a positive
interest rate regime “to the delight of our important stakeholders”
adding that monetary policy measures will be geared towards containing
inflationary pressures and supporting improved productivity in the
agricultural and manufacturing sectors.
He said working with stakeholders, the
CBN intends collaborating with others to reduced the cost of food items,
which have considerable weight on inflation.
Emefiele said:”Our ultimate objective is
to anchor the public’s inflation expectation at single-digit in the
medium to long run. We believe a low and stable inflationary environment
is essential to the growth of our economy because it will help support
long term planning by individuals and businesses.
“It will also help to lower interest
rates charged by banks to businesses thereby facilitating improved
access to credit, and a corresponding growth in output and employment.”
Emefiele noted the CBN, in the next five
years will continue to operate a managed float exchange rate regime in
order to reduce the impact which continuous volatility in the exchange
rate could have on the economy, adding that the country remained
committed to a free trade regime that is mutually beneficial and
particularly aimed at supporting domestic industries and creating jobs
on a massive scale for Nigerians while the dynamics of global trade
continues to evolve in advanced economies.
He said the CBN will support measures
that will increase and diversify Nigeria’s exports base and ultimately
help in shoring up reserves.
He said: “We intend to aggressively
implement our N500 billion facility aimed at supporting the growth of
our non-oil exports, which will help to improve non-oil export
earnings.”
He said though the goals are onerous and
tasking, the CBN will remain committed to fulfilling its mandated
objectives of price and exchange rate stability.
According to him, we will continue to
work to safeguard the stability of our financial system, while
supporting the development of a payment system infrastructure that will
improve access to credit for all eligible Nigerians.
“Nevertheless, additional emphasis will
be placed on supporting greater growth of our economy and in reducing
unemployment, through targeted interventions in the agricultural and
manufacturing sectors.”
Also, Emefiele said the CBN will launch a
Trade Monitoring System(TRMS) in October, which is an automated system
that will reduce the length of time required to process export documents
from one week to a day, adding that the measure will help support
efforts at improving non-oil exports of goods and services.
He said the CBN will also work with its
counterparts on the fiscal side in supporting improved FDI flows to
various sectors namely agriculture, manufacturing, insurance and
infrastructure. He noted that the measures while supporting improved
inflows into the country, will also help to stabilise exchange rate and
build external reserves.
According to him, strong emphasis will
also be placed on improving speed and efficiency of payments channels,
while working to ensure that digital channels are safe and secure as
this will help to build confidence in the nation’s payment system.
Emefiele explained that in order to
improve utilisation rate, the CBN will continue to ensure that payment
channels are interoperable, to enable individuals with digital devices
to transact across different banks or payment modes-assuring of
significant improvement in the payment system within his new tenure.
He said the CBN will further work with
NIBSS, banks and Fintechs in developing a regulatory sandbox to “enable
us to test financial innovations by Fintechs and banks in a controlled
environment, in order to assess its impact on the growth and safety of
our financial system.”
The CBN governor said he will boost
productivity growth through the provision of improved seedlings, as well
as access to finance for rural farmers in the agricultural sector,
across 10 different commodities namely rice, maize, cassava, cocoa,
tomato, cotton, oil-palm, poultry, fish and livestock/dairy.
“Our choice of these 10 crops is driven
by the amount spent on the importation of these items into the country,
and the over 10 million jobs that could be created over the next five
years if efforts are made to expand cultivation and processing of these
items in Nigeria.
“So far, we have held series of
engagements with importers and producers of these products. Most of them
have committed that they would install or expand their production
capacities in Nigeria. We believe these measures will help to boost not
only our domestic outputs but also improve our annual non-oil exports
receipts from $2 billion in 2018 to $12 billion by 2023,” he explained.
He said CBN intervention programmes will
strengthen the linkage between farmers and
agro-processors/manufacturers by ensuring that the output of farmers is
purchased by agro-processors/manufacturers.
However, even though Emefiele’s policy
thrust had been welcomed as the right step in the right direction
towards returning the economy on the path of sustainable growth, the
implementation should be carefully considered.
Reacting to aspects of the blueprint,
especially the proposed recapitalisation of banks, economist and former
Director General, Abuja Chamber of Commerce and Industry (ACCI), Mr.
Chijioke Ekechukwu, said, “I agree with the plan of recapitalisation of
banks. Much as some banks may already have the intended capital
benchmark. There is a lot of liquidity constraints with many banks
currently.
“When a new capitalisation policy is
implemented, it will stimulate the economy again and funds will be
available for credit facilities at cheaper rates. Banks, however, should
be given enough period of time to implement it so that they won’t be
choked to untimely death.
Ekechukwu dismissed claims that beefing
up banks’ capital base could lead to unwholesome practices, which will
in turn lead to accumulation of impaired facilities.
He added: “Banks all over the developed
world are capitalised up to over $50 billion. That is why there is no
Nigerian bank that is among the biggest 300 in the world. This will make
them create consumer credit, retail credit and corporate credit”
Also, commenting on the development,
Founder/Chief Executive, Global Analytics Consulting Limited, Mr. Tope
Fasua, said, “I read between the lines and I believe the CBN wants banks
to sit up just in case it calls for more capital. Personally I don’t
think we should be embarking on another consolidation process because we
can see that capital inadequacy is not the problem we have in our
banks.
“We should look elsewhere. The more the
capital we ask our banks to put up the higher the risks they seem to be
taking. After Soludo’s 2005 consolidation, we had to put up over 600
billion naira to bail out a few banks that were deemed too big to fail.
“Then we created an AMCON in 2010/11 to
bail the banks out of about N6 trillion of sticky loans which are still
sticky at AMCON. Some economic advisers are calling for AMCON2 already
since they have seen how easy it is to bail out the banks with
taxpayer’s money. It’s unfortunate.”
According to him, by 2016, we had gone
back to the old era of specialised banking and we now have a few
merchant banks. Fintechs are also in the space already giving the banks
some challenge and they cannot be ignored. So I will advise that we
don’t go down the route of another consolidation.
“We should think deeper and find a way
to get our banks to not lose their heads and to get Nigerians especially
those who do big business to have a better credit culture. The problem
of high NPLs we have is usually due to moral hazards like insider loans
et al.”
Furthermore, a source confided in
THISDAY that though the plan to recapitalise the banks appeared to be
timely, it must be implemented with caution.
He said:”When in 2004 this policy came
up, which is basically an aspect of Basel II requirement to increase
capital to N25 billion, the banks became stronger and had the capacity
to lend big and they were playing big.
“Of course, there are some risks
management implications as a result of over trading among others. And
following from that, some of those banks had problems and we have AMCON
and the rest is history.”
“But going three to four years back,
some big banks were reporting losses and average capital adequacy ratio
of banks deteriorated for two reasons- bad loans as a result of the
recession and so on and average CAR of deposit money banks went down.
The CBN governor said they are coming up but everybody knows that they are being micromanaged.
“So, the key thing is right now, the
banks are basically categorised into three and even if you want to raise
capital, you have to segregate.”
He pointed out that though there is
currently an underlying imperative for recapitalisation, but the CBN
needed to tread with caution as the economy was just recovering from a
recession.
He also noted Emefiele’s plan to pursue a
double-digit growth rate was a noble objective though it needed a
complementary response from the fiscal authorities.
He said:”The whole plan is very good but
it can only go in consonance with fiscal authorities and the key thing
that we have to be realistic as a country and look at this issue this
issue of fuel subsidy. We have to look at this issue of subsidising
consumption. When you are taking up to 30 per cent of your budgetary
provision to subsidise our cars flying at a cheaper rate and nothing
productive, it is going to be very difficult to have such growth
projection that the CBN has talked about.”
On his part, Professor of Capital
Market/ Chairman, Chartered Institute of Bankers of Nigeria, Abuja
Branch, Prof. Uche Uwaleke, said:”Ememefie’s five-year policy thrust is a
good development with a lot of positive impact on the economy. The
recapitalisation of banks will strengthen financial system stability and
put our banks in a stronger position to finance big projects needed for
development as well as play in the global scene.
According to him, the planned
introduction of a trade monitoring system that reduces the length of
time it takes to process export documents from one week to one day will
surely boost exports. Also commendable is the plan to scale up the
anchor borrower programme and target for massive funding support 10
commodities that consume a lot of foreign exchange to import.
“This will help conserve forex, grow
external reserves, reduce food prices and possibly create job
opportunities. The plan to build a robust payment infrastructure
including through promoting payment service banks, shared agent
networks, mobile money will go a long way in helping to achieve the
target of 95 percent financial inclusion by the year 2024,” he said.
Continuing, he added:”Similarly, the
boost in the collateral registry where over N400 billion worth of assets
have been registered as well as the NISRAL microfinance bank will no
doubt improve access to finance by micro and small businesses.
“The major risk I see in the pursuit of
price and monetary stability which is the core function of the CBN is
the volatility in crude oil price given our dependence on the sector.
The CBN is therefore advised to have a plan B in its five-year plan. It
is also vital to get the cooperation of the fiscal authorities,
especially when it comes to the task of achieving double digit growth
because on this very score, the CBN cannot clap with one hand.”
Similarly, President of the Chartered
Institute of Bankers of Nigeria (CIBN), Mr. Uche Olowu, described the
planned recapitalisation of banks as a step in the right direction.
Olowu, in an interview with THISDAY,
said for Emefiele to have said the banks should be ready for another
round of recapitalisation, “it means their capitals have been eroded and
if the banks would take on more business and to be well positioned for
the kind of opportunity that would come, then they have to be
recapitalised.”
He added:“This is because without
capital, it would be difficult for you to do the kind of business you
are expected to do. So, if a regulator has said that, he has all the
data.
“All the banks need to do is to
re-strategise and start working towards the direction of the CBN. Today,
if they have to play in certain markets, they definitely need to beef
up their capital.”
But, a former bank Chief Executive
Officer, Mr. Okechukwu Unegbu, said the pronouncement by the CBN
governor could send panic into the system if not properly managed.
Unegbu, who is presently the CEO of
Maxifund Investments and Securities Plc, said beyond recapitalisation,
the issue of human capital in the banking industry should also be given
attention.
He said:“We must understand that
everything is not about money coming into the system. We should be
talking about capacity building and the type of personnel behind these
institutions.
“These days, a lot of bankers don’t have
career path. Most bankers don’t have job satisfaction. Today, the level
of fraud in the system is on the rise and it is a result of deficiency
in capacity building. So, it is not only money that we should be talking
about.
“If these institutions don’t have the
required capacity and you throw money into them, they would probably be
out of business before you know it.”
Also, the Chief Executive Officer,
Financial Derivatives Company Limited, Mr. Bismarck Rewane, said the
first step ought to be for the regulator to evaluate whether the
recapitalisation that was done in 2004 has any impact on the industry
and the economy.
According to him, consolidation can either be regulatory induced or market-induced.
“What is the objective of the new
recapitalisation? Is it that the buffers are not enough? Is it that the
banks are distressed? What is the need for doing it?,” he asked.
“Obviously, there is always the need for buffers, but you cannot make the minimum capital requirement a buffer requirement.
“Those who are well capitalised would be
able to do things and would be able to differentiate themselves from
others who are not well capitalised. I think that without knowing the
objective for the consolidation and an evaluation of the current
consolidation to see whether it has achieved the objective for which it
started; or is it competitive pressure to say because Ghana and few
other countries have done it?”
In his own analysis, Director, Union
Capital Ltd, Egie Akpata, said, “The CBN governor should be applauded
for providing plenty of guidance on the next five years,” noting, “now
the various players in the economy can plan using this document as a
guide.”
Akpata who also said, the new five-year
policy plan of the CBN is in line with the approach of the past few
years under Emefiele, however contended that, “some of the targets
around financial inclusion and non-oil exports are extremely ambitious
and might be difficult to achieve due to factors outside the control of
the CBN.”
He argued that, “The intention of the
CBN to increase its efforts at direct lending to the agricultural and
manufacturing sectors suggests that the banking system is not able to
carry out its primary role.” “This plan is not very clear on how banks
will be incentivised to lend to these priority sectors since their
inability to provide credit is why the CBN is lending directly to these
areas,” he added.
While saying “the issue of bank
recapitalisation seems to be a distraction,” Akpata believed, “If big
banks were the solution to many issues, the CBN would not have to lend
directly into the economy.” He advised that, rather than worry about
Nigerian banks being in the top 500 globally, “the CBN should ensure
that existing banks operate efficiently and have prudent risk
management.”
“Unfortunately, a few distressed banks
still exist and the CBN simply cannot afford to keep recapitalizing
them. It might be time to let 1 or 2 banks fail so as to force the
survivors to operate more responsibly,” he added.
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