Amaka Agwuegbo writes that Mixed reactions have continued to trail the recent reform package of the Central Bank of Nigeria (CBN) in repositioning the economy, With a few weeks remaining for the governor of Central Bank of Nigeria, Professor Chukwuma Soludo, to leave office.
Stakeholders in the financial market, who spoke to Financial Vanguard, had mixed feelings as some hailed the package while others condemned it, saying it was belated.
Specifically, the national chairman, Progressive Shareholders’ Association of Nigeria, Mr. Boniface Okezie, commended the CBN governor for coming up with some of his policies at the time he did, saying the economy would have been worse than what it is now.
According to him, “The impact of the global financial crisis on our economy would have been very devastating if not for the banks’ consolidation. What would have been the fate of our economy if the financial crisis came before the banking consolidation? A lot of those weak banks would have gone under, leaving a lot of people in misery.”
He also noted that the CBN governor’s policy on common year-end for banks should have come earlier; stating that such is being practiced in developed countries. “Common year-end is obtainable in London and some other developed countries, and it is a good thing that it is being implemented in our banks. If Soludo had insisted on the common year-end before now, we would have more vibrant banks by now, which would invariable impact on the standard of living in the country,” he said.
Mr. Okezie, however, advised the Federal Government to beef up the country’s reserves saying “the raining days are yet to come”.
Also assessing Prof. Soludo’s policy, the president of Nigeria Shareholders Solidarity Association, Mr. Timothy Adeshina, said the CBN governor is just blowing hot and cold at the same time. He believes he has no stable policy but chooses to see the goalpost when he wants to.
He emphasized that when the policies of the Central Bank of Nigeria are not stable, such will not give room for economic planning and growth. “Some of his policies are not commendable and a good case in hand is the introduction of the new coins into the market. When the new coins were introduced, the old coins were not withdrawn from circulation. Besides, the new coins were not accepted, making it impossible for them to stay in circulation for long,” he said.
As a technocrat, Adeshina further added, “one expects that the CBN governor should have formulated policies that would work and be sustained because Nigeria has a peculiar economy and some policies that work in other countries may not work for us here.”
Mr. Timothy also believes Soludo has not done fairly well. He is of the view that for going back to some of the policies he earlier rejected, like asking banks to reduce their lending rates, saying such doesn’t say well of a man of his position. “The man is saturated and has nothing more to offer the nation. He should have left with Okonjo-Iweala, when the ovation was loudest,” he said.
The aims of the banking consolidation, according to him, were among others things to protect investors from weak banks and reduce the number of banks, “but that seems not to be, as those weak banks are springing up in form of micro-finance banks, which you see on every street corner.”
He concluded by saying that “There are other technocrats that are better and more qualified to do the job than Soludo, but our government felt that since he is a member of the United Nations’ Economic Team, he would perform better. I am sure most Nigerians are just as disappointed as I am in him”.
The micro-finance banks were established in line with the Microfinance Policy, Regulatory and Supervisory Framework and were expected to be adequately capitalized, appropriately regulated and supervised to address the financing needs at the lower segment of the economy. At present, there are 794 micro-finance banks in Nigeria.
The legal backing for monetary policy by the Bank derives from the various statutes of the bank such as the CBN Act of 1958 as amended in CBN Decree No. 24 of 1991, CBN Decree 1993 (Amendment), CBN Decree No. 3 of 1997 (Amendment), CBN Decree No. 4 of 1997 (Amendment), CBN Decree No. 37 of 1998 (Amendment), CBN Decree No. 38 of 1998 (Amendment), CBN Decree 1999 (Amendment) and CBN Act of 2007 (Amended).
The aims of the monetary policy are to, among others, maintain Nigeria’s external reserves to safeguard the international value of the legal currency; promote and maintain monetary stability and a sound and efficient financial system in Nigeria; act as banker and financial adviser to the Federal Government; and act as lender of last resort to banks.
Another policy is the de-marketing of banks, which became necessary as some banks, in order to remain in business, spread false rumours about other banks. Such rumours border on banks that are likely going under, or that their share price is falling and not being unable to meet their financial obligations to customers’ demand.
The CBN has threatened to impose heavy sanctions, such as blacklisting, on banks and their staff found to be engaged in the “ugly business” of de-marketing competitors. Only last Monday, the CBN issued a statement saying that Intercontinental Bank Plc, which was being touted as unsound, is very much healthy and has not been found wanting in any area of its banking transactions.
In fact, the apex bank said Intercontinental Bank as at the time of the publication had over N100 billion savings with the apex bank. The CBN had wondered how such a bank would be unable to meet its obligations.
The policy on banks consolidation on the other hand was aimed at ensuring that surviving banks become stronger, vibrant and reliable. This reduced the almost 90 banks in the country prior consolidation to the present 24 banks. The surviving banks were expected to have a minimum capital base of N25 billion. As at today, a good number of them have capital base in excess of $1 billion.
The policy on bureaux de change, BDC, was aimed at ensuring that activities in the parallel market were curbed. This necessitated CBN to mandate banks to set up BDCs to complement the activities of private operators.
Not so long ago, the CBN shut down the inter-bank foreign exchange market. This was aimed at curbing speculations and other malpractices in the foreign exchange market.
The common year end was introduced last year, to commence on December 31, 2009, but was suspended because it brought about intense competition among banks and it also jacked up the interest rate.
The announcement of the policy last year had sparked off an aggressive drive for deposit mobilisation by banks in an apparent bid to shore up their deposit base ahead of the harmonised year end.
To achieve their deposit mobilisation drive, banks jacked up deposit rates to as high as 18 per cent. Lending rate on the other hand hit 30 per cent. There was also the issue of banks recalling their credit to operators in the capital market, a development that stakeholders alleged exacerbated the market’s plunge.
It has now been re-introduced to mandate Nigerian banks to make full disclosure of their exposures to risks in the financial sector, to encourage greater transparency in the sector and to reaffirmed banks’ zero tolerance position for money laundering.
There are other technocrats that are better and more qualified to do the job than Soludo, but our government felt that since he is a member of the United Nations’ Economic Team, he would perform better. I am sure most Nigerians are just as disappointed as I am in him