As President Muhammadu Buhari gradually winds down his first four years in office, he would best be remembered in the banking sector for galvanising the Central Bank of Nigeria (CBN) to initiate policies that brought positive disruption to the system.
These included the tight monetary stance such as the introduction of the Treasury Single Account (TSA), import restriction, introduction of the Investors and Exporters (I&E) foreign exchange (forex) window, the stability in forex and accretion to the foreign reserves and many others, which helped the country exit the first recession in more than 25 years.
These earned the reappointment of the CBN governor, Godwin Emefiele, for second term the first to be so honoured since 1999.
TSA is a financial policy in use in several countries all over the world. It was proposed by the Federal Government in 2012 under the Jonathan Administration and was fully implemented by the Buhari Administration to consolidate all inflows from all agencies of government into a single account at the CBN.
The introduction of the TSA policy was vital in reducing the proliferation of bank accounts operated by ministries, departments and agencies (MDAs) towards promoting financial accountability among governmental organs. The compliance of the policy in the country created challenges for majority of the MDAs.Commercial banks in Nigeria remitted over N2 trillion worth of idle and active governments deposits with full implementation of this policy in 2016.
It was recently disclosed that the Federal Government is now saving N45 billion monthly on interests through its implementation, its MDAs having achieved almost 100 per cent compliance. To this end, the International Monetary Fund (IMF) advised the government of Gambia to come to Nigeria and understudy the implementation model.
Recession hits Nigeria
The economy fell into recession by the second quarter of 2016 when the Gross Domestic Product (GDP) contracted by-1.49 per cent from where it dipped further to -2.34% by the third quarter. “After five quarters of uninterrupted GDP contraction (beginning from first Quarter of 2016), the economy exited from the recession during the second quarter of 2017”, said Emefiele.
On how the apex bank worked to ensure the country’s recovery, he said:
“The country’s overdependence on crude oil for forex revenue meant that shocks in the oil market were transmitted entirely to the economy via the forex markets as manufacturers and traders who required forex to purchase their inputs as well as goods, were faced with a depleting supply of foreign exchange in the country.
The impact of this decline on our reserves was evident in the rise in the value of the US Dollar relative to the Naira; and a rise in the Consumer Price Index due to the increase in the cost of imported inputs and goods. The Budget and National Planning Minister, Senator Udoma Udo Udoma, recently painted the scenario in numerical terms:
“ Investors and businessmen complained about the difficulties they encountered in doing business in Nigeria; Foreign reserves had dropped from $37.33 billion in June 2014 to $23.81billion in September 2016 and inflation had risen from 9.2 per cent in June 2015 and peaked at 18.5 per cent in December 2016 coupled with exchange rate instability as the Naira lost value in the parallel market, ultimately falling to as low as N520/$”.
In a bid to contain rising inflation and to cushion the impact of the drop in forex supply on the Nigerian economy, Emefiele explained that the apex the bank took three bold steps;
“First, The CBN tightened money supply in order to contain inflation while improving yields in local bonds, which attracted the attention of foreign investors. Second, we analysed our import bill and encouraged manufacturers to consider local options in sourcing their raw materials, by restricting access to foreign exchange on 41 items.
Third, the Investors and Exporters (I&E) forex window was introduced, which allowed investors and exporters to purchase and sell foreign exchange at the prevailing market rate.The impact of these three measures led to an increase in foreign exchange inflows into the country”.
Last week in Benin, he said “After five consecutive quarters of negative growth beginning in the 1st quarter of 2016, a coordinated approach by the fiscal and monetary authorities supported a rebound in the nation’s economy during the second quarter of 2017.
He then rolled out the CBN success in repositioning the economy:
“We have luckily exited recession; we have seen inflation trending downward to about 18.72 per cent in 2017 to about 11. 37 per cent today.
“We have seen the reserveS moving up. The nation’s foreign exchange reserves had risen to $45billion in April 2019 from $23billion in October 2016. The turnover in the I&E FX Window had reached over $48billion since the inception of the window. Emefiele said the introduction of the I and E window had helped in growing the country’s external reserves.
As a result of availability of foreign exchange, the CBN governor said that the exchange rate at I&E FX Window had been stable over the past 24 months at an average of N360/$, and the parallel market exchange rate had increased from N525/$ in February 2017 to N360/$ today.
“The recovery has been driven largely by improved non-oil activities especially the agriculture sector which expanded consistently by about 3.5 per cent to 4.3 per cent reflecting government’s efforts at diversifying the economy,” he added.
Skye Bank renamed Polaris Bank following licence revocation
The apex bank last September revoked the operating licence of Skye Bank Plc with immediate effect, and licensed. Polaris Bank, to take its assets and liabilities.
Emefiele explained that the decision was reached following the inability of the owners of the bank to shore up the capital of the distressed bank which had earlier received a N350 billion intervention in July 2016.
“Skye Bank requires urgent recapitalization as it can no longer continue to live on borrowed times with indefinite liquidity support from the CBN.
“We have decided to establish a bridge bank, Polaris Bank, to assume the assets and liabilities of Skye Bank.
“The strategy is for AMCON to capitalise the bridge bank and begin the process of sourcing investors to buy out AMCON.
Diamond Bank merged with Access Bank
Following the completion of its merger processes with Diamond Bank, Access Bank Plc last April 1 became the largest retail bank in Africa by customer base spanning three continents, 12 countries and with 29 million customers. Its Executive Director, Personal Banking, said that the merger created a Nigerian banking powerhouse and a Pan-African financial services champion with 27,000 staff across 592 branches.
He said that with the successful merger, the bank has a new visual identity which fuses the best of Access Bank and Diamond Bank.
CBN cuts interest rate to 13.5%
The Central Bank of Nigeria (CBN) last March resolved to reduce the Monetary Policy Rate (MPR), also known as interest rate, by 50 basis points to 13.5 per cent from 14 per cent. The MPR is the rate at which the CBN lends to commercial banks and often determines the cost of borrowing in the economy.
Since July 2016, the Committee had, for 13 consecutive times, maintained MPR at 14 per cent;
Giving reason for the decision, the CBN governor said it was to establish the foundation for the next phase of growth to consolidate on stronger macro-economic structures being built for the country’s economy.
His words: “In January 2017, inflation was at about 8.72 per cent. By October, as a result of the pressure in the global financial market, foreign reserves dropped to about $23 billion.
“In February that year, the exchange rate of the Naira rose to about N525 to the dollar, due to the pressures in the market.
“Compared with where the country is today, with inflation at 11.3 per cent; foreign reserves close to $45 billion (with prospects of this continuing); exchange rate converging in the official and parallel markets between N358 and N360 to the dollar; gross domestic product (GDP) in positive trajectory consistently for about five to six quarters, one will agree there is relative stability in the economy.
“Having seen MPR at 14 per cent since July 2016, and with relative stability in the macro-economic variables over the last two to two and a half years, the CBN believes the reduction in the lending rate should be the next phase we should begin to talk about consolidating the growth in the economy,” Mr Emefiele said.
“If one considers where Nigeria’s growth has always been (at 5 per cent), all factors remaining constant, and with macro-economic stability looking strong, we need to signal that we are slightly moving course a little further.
“While talking about low inflation rate regime; to build a stable exchange rate regime; stronger reserve management, naturally one should expect growth should be stronger. This means beginning to look at money supply, liquidity, interest rate and issues like that to see that the economy is pushed effectively towards growth,” he said.
Emefiele reappointed for 2nd term
President Muhammadu Buhari early this month nominated CBN Governor , Godwin Emefiele, for a second five-year term, making him the first to have his contract renewed since the end of military rule two decades ago.
Senate President Bukola Saraki read Buhari’s choice of Emefiele to lawmakers on on the floor of the upper legislative chamber. His appointment was subject to the Senate’s approval.
When he appeared before the Senate Committee on Banking, Insurance and other Financial Institutions for his reappointment screening, Emefiele said if given the second term , CBN under him would push very hard to ensure that those who seek to undermine the policies of Nigeria without respecting the laws of this country will be brought to book under any circumstances.