Adelabu: Financial Stability Crucial to CBN


Obinna Chima
The Deputy Governor (Corporate Services), Mr. Adebayo Adelabu has stressed that financial system stability is crucial to the Central Bank of Nigeria (CBN), saying most of its policies in recent time have been geared towards ensuring the safety and soundness of the banking system.

Adelabu made the remark in a Keynote address he delivered at maiden financial journalists and banks’ image makers’ parley organised by the Centre for Financial Journalism (CFJ Nigeria), held in Lagos recently.
He spoke on the topic: ‘Financial System Stability: The Role of Financial Journalists and Banks’ Image Makers.’

According to him, in order to promote a sound financial system in Nigeria, the central bank has continued to ensure high standards of banking practice and financial stability through its surveillance activities, as well as the promotion of an efficient payment system.

However, he noted that in addition to its core monetary functions, the central bank has performed some major developmental functions, by intervening in all the key sectors of the Nigerian economy namely: financial, agricultural and industrial sectors.

“On our part at the CBN, we have taken proactive steps to check further depletion of the reserves. Between 2014 and now, we have taken deliberate action and issued policies to check rent-seeking among operators of bureaux de change (BDCs) to check, unauthorised financial transactions and the ‘dollarising’ of the economy. We went a major step further in January 2016, when we stopped the weekly sale of foreign exchange to BDCs.

“Recently, the CBN, in line with the decisions reached at the last Monetary Policy Committee (MPC) meeting, issued guidelines reintroducing and operationalising Nigeria’s flexible exchange rate market. The main thrust of this policy is that the forex market will now operate a single market structure through the inter-bank/autonomous window. Let me stress here that the workings of the inter-bank trading that commenced most recently are consistent with the CBN’s objectives of ensuring efficiency and facilitating a liquid and transparent foreign exchange market,” he added.

According to him, another novel and key feature of the new guidelines is the non-deliverable over-the-counter (OTC) naira-settled futures, with daily rates on the CBN-approved FMDQ Trading and Reporting System.

This, he pointed out would encourage end-users to spread out their demand for Spot FX deals as they are now able to lock down the exchange rates for future FX requirements. This also has the potential to eradicate the constant front-loading of FX requirements and minimise the disequilibrium in the spot FX market. End-users will make better judgment as to the timing of accessing the spot FX market.

“The availability of the OTC FX Futures will also improve the business planning practice of end-users and FX sellers, as the future exchange rate is guaranteed through the OTC FX Futures. We note that this would help moderate volatility in the exchange rate by moving non-urgent demand for foreign exchange from the spot to the futures market.

“Towards achieving the Bank’s mandate of ensuring the safety and soundness of the financial system, the Bank has continued to conduct risk-based examination of all banks with high and above average composite risk rating.

“Consequently, we have carried out series of solvency stress test, liquidity stress test, foreign exchange examination of all banks as well as the routine and targeted examination of all discount houses and financial holding companies. Our efforts are aimed at promoting financial system stability by ensuring that banks are adequately capitalised and have enhanced risk management systems,” he said.

Other critical areas where the central bank had contributed towards ensuring stability in the financial system are in the aspects of development finance, payments system and consumer protection, he said.

Earlier, the Publisher of Businessday, Mr. Frank Aigbogun, commended the founder of the CFJ Nigeria, Mr. Ray Echebiri. Aigbogun, also urged financial journalists to develop passion to carry out their jobs.

“Perhaps more importantly, you must be open to self-development. As individuals, we all must do more to earn the recognition of being a financial journalist. Whether you are selling an online publication or you are in the traditional media, there is absolutely no choice –knowledge is everything, you just have to keep learning,” he said.