In what may appear a departure from the Sunusi Lamido Sanusi years, the new Governor of the. Central Bank of Nigeria (CBN) Mr. Godwin Emefiele has revealed that under his watch, the apex bank will pursue a gradual reduction in interest rates.
Emefiele made this disclosure yesterday at a world press conference to outline what he called his people centered vision of the CBN.
According to Emefiele, “high interest rates create a perverse incentive for commercial banks to simply buy virtually risk-free government bonds rather than lend to the real sector.
The CBN governor added that to enhance financial access and reduce borrower cost of credit, that the CBN “would pursue policies targeted at making Nigeria’s Treasury Bill (T-Bill) rates more comparable with other emerging markets and by extension, pursue a reduction in both deposit and lending rates.”
A reduction in deposit rates he said “would encourage investment attitudes in savers, a reduction in lending rates would make credit cheaper for potential investors.”
The CBN he said will also begin to include the “unemployment rates as one of the key variables considered for its monetary policy decisions, but in the interim, will 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.”
The apex bank governor also announced that all charges on deposits have been stopped with immediate effect. This is to ensure that the CBN has more cash under its control.
This decision Emefiele said was taken because “we have become aware of complaints by customers particularly regarding the charges being imposed for cash deposits. This has resulted in customers devising various means to avoid the charges through opening of multiplicity of accounts and other disingenuous behaviour all aimed at undermining the objective of this policy.”
With regards to Exchange Rate Policy under his tenure, Emefiele stated that “the Bank will continue to focus on maintaining exchange rate stability and preserve the value of the domestic currency.”
In addition, the bank he said “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 and to support this strategy, we will strive to build-up and maintain a healthy external reserves position and ensure external balance.”
He reiterated that “Charges on withdrawals, in view of their eventual elimination, remain sustained at the current 3 percent for individual transactions exceeding N500,000 and 5 percent for corporate transactions exceeding N3 million. Currently, these fees go entirely to the commercial banks. However, going forward, the Central Bank shall determine what percentage of these fees on excess drawings that will be redeemed by the bank while the rest shall be remitted to the CBN.”
The core of Emefiele’s vision he said will be “to effectively manage potential threats to financial stability, and create a strong governance regime that is conducive for financial intermediation, innovative finance and inclusiveness.”
This vision he noted will be anchored on two main pillars these are: “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 under his watch 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;
• 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, banks shall be enjoined to proffer remedial actions where weaknesses are 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.
• 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.
Going forward, the CBN Governor said he will work towards reducing the effect of information asymmetry in the credit market by: enhancing the operation of Credit Reference Bureaus; establishing Secured Transaction and National Collateral Registry; strengthening the sanction system to include: blacklisting of companies/individuals that have been found to be serial loan defaulters.
“Indeed, these 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 our 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; and the establishment of a National Credit Scoring System that will improve access to information on borrowers and assist to make good credit decisions,” he said.
The new regime’s take on banking supervision Emefiele disclosed “would be to work towards a better risk-based supervision framework to be achieved 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 analyze and monitor the risks inherent in these credits. In other words, every examiner is a generalist.”
“In connection with the above, specialization will 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 Central Bank officials prepare adequately for public engagements,” he said.
The CBN’s new agenda for Development Finance, Emefiele revealed, would be hinged on the core principle “that the CBN will act as a financial catalyst by targeting predetermined sectors that can create jobs on a mass scale and significantly reduce our import bills.”
He said the apex bank would deploy developmental initiatives to create an enabling environment with appropriate incentives to empower innovative entrepreneurs to drive growth and development. 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.”
Some of the Central Bank’s developmental functions, he said, “will include credit allocations and direct interventions in key sectors of the economy such as Power, Agriculture, MSME, Oil & 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.”