…says no to devaluation
…blacklists serial bank debtors
…stops cash deposit charges
…to crash lending rate
…intervenes in robust job creation
Tohomdet
The Central Bank Governor, Mr. Godwin Emefiele, yesterday unveiled his agenda, vowing to blacklist all fraudulent bank debtors and block them from obtaining further access to bank loans. He also directed banks to stop with immediate effect all cash deposit charges and maintained that the CBN would work toward bringing down interest rate with a view to enabling the real sector access credit to grow the economy.
Continuing, Mr. Emefiele said the apex would, in its monetary policy incorporate job creation in its policy formulation to open up employment opportunities to the nation’s teaming youthful population.
Addressing a crowded world press conference in Abuja, he said that he would be apolitical and remain professional in piloting a central bank is people oriented and that which will support efforts of the federal government in creating jobs, and ensuring economic growth and national development stating that monetary and fiscal policies have to work together to grow the nation’s economy.
Blacklisting bad debtors
Answering reporters’ questions Mr. Emefiele said “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, we 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 will work towards reducing the effect of information asymmetry in the credit market. In this regard, we shall do the following:
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 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. Establish a National Credit Scoring System that will improve access to information on borrowers and assist to make good credit decisions.
According to him “Our take on banking supervision would be to work towards a better risk-based supervision framework. This will 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.
Cashless policy
Continuing he said “We hope to better align the Cashless Policy. This policy was introduced in 2012 with pilots now completed in Lagos, Kano, Anambra, Abia, Rivers, and the FCT. The policy is now expected to go nation-wide on 1st July 2014. Over the course of the pilot, 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. Given these outcomes and to better reflect our goal of having more cash under our control, all charges on deposits are hereby stopped with immediate effect. Charges on withdrawals, in view of their eventual elimination, remain sustained at the current 3 percent for individual transactions exceeding N500,000 and 5 per cent 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.
“Let me now turn to the second aspect of my vision, which centres on development banking.
Central Banks and Economic Development
“For quite some time, the dominant school of thought regarding central banking was that focusing on low inflation will eventually lead to greater growth, increase in employment generating activities, and poverty reduction. However, early and recent evidence of central banking in places such as the United States, England, Japan, and France indicate that supporting selected economic sectors using “direct methods” of intervention have been essential tasks of their central banks. As Epstein (2005) encapsulates, “virtually all central banks, including the Bank of England (BOE) and the U.S. Federal Reserve (the Fed) have used direct means to support economic sectors. And this has not simply been a matter of historical aberration, but rather, it has been an essential aspect of their structures and behaviour for decades on end. In particular, a crucial role for both the BOE and the Fed has been to promote the financial sectors of their economies, and especially, to support the international role of their financial services industries. They have done this by using subsidized interest rates, legal restrictions, directed credit and moral suasion to promote particular markets and institutions. Moreover, at times, they have even oriented their overall monetary policy toward promoting the development of this particular economic sector”.
I ‘ll be professional
Mr. Emefiele promised to run a CBN “that is professional, a central bank that is people oriented, a central bank that dissipates its energy on building a resilient financial system that can serve the growth and development needs of our beloved country Nigeria”.
“We will be professional; we all be apolitical, we will not go into politics, what we will do is to focus on our banking business and use our skills to support the efforts of government in creating jobs for people. We will use our efforts to support economic growth and development of the country.
“It is not about politics but about what contributions are we going to make towards achieving economic growth and development in the country.
“We want a central bank to be able to stand and be counted and say that we were able to contribute to economic growth and development of Nigeria.
Interest rate to fall
The issue of the interest rate was one question I was confronted with at the senate hearing. The study that we conducted shows that when you compare with other frontier markets, our interest rates are very high. We are discussing with the Committee of Governors and will come out with policies that will bring down our interest rates.
“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.
“To enhance financial access and reduced borrower cost of credit, we would pursue policies targeted at making Nigeria’s T-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.
“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.
Reducing poverty
The governor said that steps would be taken towards making unemployment a key variable in his administration’s monetary policy considerations.
His words, “the Bank would begin to include the unemployment rate as one of the key variables considered for its Monetary Policy decisions.
“The issue is not just about GDP or at what rate will we grow GDP. People are now beginning to talk about job creation and inclusive growth and you find out that so many of our people particularly between the age range of 15 and 30 I can say are unemployed and that is the band within which you have the people who have the energy to work. Like I said earlier we are going to put in place a lot of policies that are going to help us not only to create jobs for but also develop their entrepreneurial skills.
“We will also make it easy for them to access finance. When you make it easy for them to access finance, you are reducing poverty”.
On the fears that the forthcoming election could trigger high inflation rate on account of the expected elections expenditures, Mr. Emefiele said he would adopt a tight monetary policy that would address the expected excess liquidity.
“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.
No devaluation
Asked if he would devalue the Naira, Mr. Emefiele said that as an import dependent economy devaluation of the nation’s currency was not an option.
His words, “for me, I have said that before, Nigeria is a predominately import-dependent economy where we import rice, we import practically everything.
“We import refined [products when we have crude oil. We import rice when our land is fertile. We import wheat when our land is fertile. We import sugar we import fish when close to 60 per cent of our environment is water.
“We need to do something about it. It not possible for us to consider depreciation, It is not possible to talk about depreciating are currency at this time until we are able to look into some of the structural problems that have made our import bills to be as high as it is today.
“We need to begin to look at how do we begin to produce some of these goods that we know that we can produce locally whereas we are importing them?
“When we are able to do that and we see a situation where we have transformed ourselves from being an import-dependent economy to an export oriented economy then we can begin to look at what are the advantages of depreciating our currency.
“At this time it is not an option. But we will continue to see what we can do in the short run to use short-term tools that we see we can use to hold on strong to our exchange rate, luckily prices seem favorable at above 100 dollars, luckily we have a reserve that can support close to about 8 months import, those are enough ammunition for us to continue and to hold on to exchange rate so we don’t go in the route of devaluation”
Upstream investment incentives
“To reduce the losses (theft and leakages) in the amount of produced crude that is 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.
