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Godwin Emefiele, the new governor of the Central Bank of Nigeria, unveils his plans for the apex bank, shifting focus on development banking to provide jobs and infrastructure
| By Maureen Chigbo | Jun. 16, 2014 @ 01:00 GMT
GODWIN Emefiele, the new CBN governor who assumed office June 3, hits the ground running by unveiling his agenda for the apex bank to achieve a better monetary policy, curb unemployment and generally provide a better living condition for Nigerians. Centring his policy on development banking and shifting emphasis from financial stability, Emefiele is driving at getting the CBN to be people-oriented. His vision is to start the CBN on a course of championing policies that would promote the sustainability of its hard-earned macroeconomic stability.
“The vision of the Central Bank of Nigeria is to ‘be the Model Central Bank delivering price and financial system stability and promoting sustainable economic development.’ This vision draws inspiration from our understanding of the multiple mandate of the Bank to pursue both price and financial system stability as well as provide complementary developmental functions by creating an environment for Nigerians to live better and more fulfilled lives. Rather than being competing goals, as some may argue, these mandates are truly complementary,” Emefiele said in his maiden press conference in Abuja to unveil his agenda for the financial sector.
According to him, “price stability can rarely be adjudged a goal in itself except cast against the ultimate objective of improvement in the quality of life. Price stability, therefore, remains a cardinal contribution, indeed a cornerstone, to the ultimate goal of economic development. I believe that reasonably stable prices provide a catalyst for rational consumption and investment decisions and for orderly economic progress. That is why throughout most of economic history, periods of price and financial system stability have coincided with economic growth and development.
“In order to realise the CBN’s vision, therefore, I believe we must start with championing policies that promote the sustainability of our hard-earned macroeconomic stability. We shall pursue a gradual reduction in interest rates. A comparison of selected macroeconomic aggregates from some emerging market countries including South Africa, Brazil, India, China, Turkey, and Malaysia indicate that Nigeria has one of the highest T-bill rates. Such high rates create a perverse incentive for commercial banks to simply buy virtually risk-free government bonds rather than lend to the real sector,” he said.
Emefiele who assumed office as the new CBN governor on June 3, wants to enhance financial access and reduce borrower cost of credit by pursuing policies targeted at making Nigeria’s Treasury-bill rates more comparable with other emerging markets and by extension, pursue a reduction in both deposit and lending rates. “While a reduction in deposit rates would encourage investment attitudes in savers, a reduction in lending rates would make credit cheaper for potential investors. The bank would also begin to include the unemployment rate as one of the key variables considered for its monetary policy decisions. 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,” he said.
On the exchange rate policy, the CBN’s key goal would be to maintain exchange rate stability. “In view of the high import-dependent nature of the economy and significant exchange rate pass-through, a systematic depreciation of the Naira would literarily translate to considerable inflationary pressure with attendant effect on macroeconomic stability. Therefore, under my leadership, the bank will continue to focus on maintaining exchange rate stability and preserve the value of the domestic currency. We will sustain the managed float regime in the management of the exchange rate, as this will allow the Bank to intervene when necessary to offset pressures on the exchange rate. To support this strategy, we will strive to build-up and maintain a healthy external reserves position and ensure external balance,” the governor said.
According to him, “there is no doubt that reducing the interest rate and maintaining the exchange rate are very daunting twin goals. However, the CBN would work assiduously with all stakeholders to device countervailing measures that would ensure that these goals are mutually achieved.
“We hope to sustain the effective management of potential threats and avoid systemic crisis. The core of my vision is to effectively manage potential threats to financial stability, and create a strong governance regime that is conducive for financial intermediation, innovative finance and inclusiveness. In this regard, we hope to anchor on two main pillars: managing factors that create liquidity shocks and zero tolerance on practices that undermine the health of financial institutions.”
In order to achieve these goals, the CBN, he said would work with the relevant stakeholders to aggressively shore up reserves. “We hope to engage the fiscal and political authorities, as well as other stakeholders to improve our policy buffers, which will further create space for the bank to implement monetary policy using its limited instruments,” he said.
Further, Emefiel said that the CBN would enhance the bank’s supervisory purview over the banking system as well as strengthen macro-prudential regulation by improving supervisory diligence, ethical standards as well as highest level of professionalism in carrying out on and off-site supervision activities; Strengthen risk-based supervision mechanism of Nigerian banks to ensure overall health and banking system stability. To that end, he said banks would be enjoined to proffer remedial actions where weaknesses would be observed in RBS examination reports so as to avoid further build-up of NPLs. “Where banks proffer inadequate remedies, the CBN shall advance its own solutions and insist on compliance; In the light of the size of the economy following the rebased GDP, the trigger thresholds from a macro-prudential perspective are no longer adequate. In due course, the CBN would consider and announce measures to effectively address this anomaly. It will pursue a zero-tolerance policy on fraudulent borrowers. “We will collaborate with commercial banks to significantly improve the credit culture in the Nigerian banking system. The CBN’s focus would be directed at serial debtors who access loans from different banks and default on all of them even when they have the means to pay,” Emefiele said.
In going forward, he promised that the CBN would work towards reducing the effect of information asymmetry in the credit market. In this regard, it would enhance the operation of Credit Reference Bureaus; establish Secured Transaction and National Collateral Registry; strengthen the sanction system to include: blacklisting of companies/individuals that might have been found to be serial loan defaulters. “Indeed, their names would be circulated in the banking system to guide banks in identifying bad borrowers and denying them access to credits in the banking system; implement stringent loan provisions and penalties for banks that lends to blacklisted persons and companies; intensify its collaboration with relevant agencies, and in particular, the justice ministry, to strengthen bank’s ability to enforce contracts and recover matured debts; renew vigorous advocacy for the creation of commercial courts for quick adjudications on loan and related offences; establish a National Credit Scoring System that will improve access to information on borrowers and assist to make good credit decisions.
“Our take on banking supervision would be to work towards a better risk-based supervision framework,” he said.
Emefiele hopes to achieve this by training sector-specific bank examiners. For example, while the banking industry has excessive concentration in oil and gas loans, the CBN does not have the expertise to analyse and monitor the risks inherent in these credits.
To rectify the situation, Emefiele believes that specialisation would help reduce an increasing 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 CBN officials prepare adequately for public engagements.
The CBN under Emefiele is similarly planning some measures to improve the current cashless policy. The policy which was introduced in 2012 with pilots now completed in Lagos, Kano, Anambra, Abia, Rivers, and the federal capital territory, FCT, is expected to go nation-wide on July 1. The CBN governor said over the course of the pilot, the apex bank became aware of complaints by customers particularly regarding the charges being imposed for cash deposits. To avoid the charges, he said, several customers devised various means by opening multiple accounts and in some cases, used disingenuous behaviour all aimed at undermining the objective of the policy. Based on those realities and in order to reflect the goal of having more cash under our control, the CBN governor stopped all charges on deposits with immediate effect. However, charges on withdrawals, in view of their eventual elimination, he said, would remain sustained at the current three percent for individual transactions exceeding N500,000 and five percent for corporate transactions exceeding N3 million.
Currently, these fees go entirely to the commercial banks. But in the new dispensation, the CBN would in future determine what percentage of the fees on excess drawings that would be redeemed by the bank while the rest shall be remitted to the CBN.
The second aspect of Emefiele’s vision, which centres on development banking, is the core principle of the CBN acting as a financial catalyst by targeting predetermined sectors that can create jobs on a mass scale and significantly reduce the nation’s import bills. The CBN would deploy developmental initiatives to create an enabling environment with appropriate incentives to empower innovative entrepreneurs to drive growth and development. “It is important to stress here that the CBN would not be targeting individual companies but rather specific sectors. We would establish rules and criteria that create a level playing field so that anyone who fairly qualifies can benefit from these schemes,” he said.
Some of the CBN’s developmental functions will include credit allocations and direct interventions in key sectors of the economy such as power, agriculture, medium scale and medium enterprises, MSME, oil and gas, and health. While playing an active developmental role, the CBN will not only operate within the law and its mandate but will also be transparent about what it believes as strategic and appropriate interventions.
Emefiele said Nigeria has witnessed impressive GDP growth rates over the past seven years. Yet, he said, the country would need a corresponding reduction in the unemployment rate, which had risen to 23.9 percent in 2012 relative to 13.9 percent in 2000. Particularly worrisome is the rate of youth unemployment, which is put an annual growth rate of 1.8 million Nigerians to the labour pool. Based on the reality, he said the CBN could not afford to sit idly by and concentrate only on price and monetary stability. Hence, the CBN would put additional measures in place towards identifying productive sectors of the economy and channeling credit towards the sectors, while imposing proper monitoring and performance measures in order to ensure that the goals of increased employment and poverty reduction were attained. This would also require a review of the bank’s development finance programme, the participatory agencies responsible for the disbursement of funds, improving our monitoring capacity and developing performance targets relevant to the focus on generating employment and poverty reduction. To be effective, the bank plans to work with fiscal authorities in reducing other structural distortions to productive growth, enhance access to credit, as well as stimulate growth and employment generation.
The CBN has also devised a new framework for funding SMEs. Funding for SMEs in Nigeria has largely been viewed from a social development perspective with the goal to reduce poverty through job and wealth creation. This has put the development of the sector squarely in the hands of the government, with mixed results. “We propose a business approach to funding SMEs, which requires the strong involvement of the private sector. The new framework proposed will combine the profit motives of the private sector and the development objectives of the government. It proposes a structure that enables the government to leverage the project selection and credit analysis processes of private sector investors who will place more of their resources at risk in funding the SMEs,” the governor said.
At the moment, the CBN has a number of initiatives including the N220 billion to finance small- and medium-scale enterprises with specific focus on women entrepreneurs and to be administered through microfinance banks owned either by state governments and/or private organisations. While the private sector invests more of their risk capital in the selected companies, the CBN funds would be channeled towards resolving challenges such as access to collateral, enterprise development support, development of a nationwide credit scoring system, etc.
Aside from the new collaboration with the private sector, the CBN wants also to design a programme for citizens who need as low as N50,000 without collaterals through registered and accredited local cooperatives. “We shall encourage venture capital companies and business angels to fund SMEs and invite the Bankers’ Committee to play more active role in supporting SMEs,” Emefiele said.
According to him, given the CBN’s mandate to “develop and implement various policies, programmes and schemes aimed at the effective, efficient and sustainable delivery of financial services to special sectors of the economy”, the CBN must play an important role in ensuring the success of the power sector reforms. The corresponding effect on the GDP that could occur as a result of improvements in the power sector, he said, could not be overstated. “We will facilitate investment in key parts of the value chain by providing funds at concessionary rates to targeted investments in the power sector. We will encourage investment in the gas to power infrastructure to improve the reliability of supply of gas to the existing and new power plants. We will also support investments in renewable energy in rural areas through matching funds schemes, and providing first loss guarantees,” the CBN boss said.
The oil and gas sector is not left out in the new CBN governor’s calculation to move the economy forward. Although Nigeria produces millions of barrels of crude oil per day, the importation of refined petroleum products alone consumes about 35 percent of our annual import bill. Under the new dispensation, the CBN plans to support efforts at domesticating our oil and gas resources to ensure that much more of these resources are produced and used here in Nigeria. This, it is expected to stimulate inclusive growth, create jobs and reduce the pressure on the exchange rate occasioned by demand for imports of finished petroleum products. These initiatives will be pursued in collaboration with the ministry of petroleum and natural resources, who set the core priorities for the sector. Also, any initiatives proposed, will need to be aligned with the policy intent of the PIB. With this in mind, the CBN wants to contribute to policy development of the sector.
In recognition of the fact that one of the sticking points in the passage of the PIB is the proposed fiscal regime, the bank would henceforth play an active role in working with the ministry of petroleum and natural resources and other stakeholders to secure a win-win outcome for the sector. On upstream investment incentives, Emefiele said to reduce the losses (theft and leakages) in the amount of produced crude oil officially sold, “we will support initiatives to meter at ports and secure pipelines. Working with the lead ministry, we will look at investment incentives that encourage local Niger Delta based SMEs to play an active role in metering services and pipeline protection technologies,” adding: “We recognize that there is a significant requirement for investment in the upstream sector especially for the federal Government owned component of Upstream Joint Ventures. They currently struggle to match the investment in infrastructure provided by the IOC partners. Alongside the ministry of finance and the ministry of petroleum and natural resources, we will support efforts to secure these investments. We will explore how this can be done through international capital markets. This will require looking at the current JV structures and ensuring that our proposals sit alongside the PIB proposals.” The apex bank similarly plans to support refineries and pipeline construction. “We will support the ministry of petroleum and natural resources by looking at investment incentives in refining and promoting investment in the construction of much needed gas pipelines. We will also support the establishment of small-scale modular refineries that can serve some of our domestic markets. We will consider giving priority to the main arteries to the gas fired power plants.”
On the health sector, Emefiele said that given the myriad of issues facing this sector, which has led to a huge bill of foreign exchange use for medical travels overseas, the CBN intends to play a facilitating role by unlocking the potentials that exist for the private sector to invest at various points along the healthcare value chain including hospital services, health insurance, pharmaceuticals, supply chain, and financing.
This window of opportunity, has already led the private sector to establish an institutional platform for health known as the Private Sector Health Alliance of Nigeria, PSHN, with the support of the government. The CBN will explore opportunities for partnering with the PHN to galvanize the private sector into playing a more active role in the health sector. The bank will maintain a keen interest in supporting the development of institutions, create an enabling environment to trigger private sector investment and curb the growing trend of medical tourism, he said.
Going by Emefiele’s new agenda for the CBN, it appears that the economy of the country and the future of monetary policies in the country may start moving at the right direction. So far, economic analysts who have spoken on the agenda were not disappointed. But only time will tell how well the intentions of the new CBN government will be well implemented bearing in mind that the country is never short of good policies. But the bane towards bettering the life of the masses has always been policy summersaults and poor implementation. Will this be different? Time, they say, will tell.
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