Following the unveiling of a five-year policy thrust by the Central Bank of Nigeria, experts are unanimous in their optimism that the blueprint will provide the much-needed impetus for economic transformation, report Kunle Aderinokun and James Emejo
Settling down for business following a rare re-appointment for a second term in office, the CBN Governor, Mr. Godwin Emefiele, last week, unveiled his plan aimed at strengthening the economy by implementing policies that seek to boost the confidence of investors, encourage local production and enhance non-oil exports, price stability as well as massive job creation.
Emefiele had launched an ambitious policy direction for the CBN, targeting double-digit growth, single-digit inflation, $12 billion non-oil exports by 2023 and raising financial inclusion to 95 per cent level by 2024.
He also pledged to retain managed-float exchange rate and announce a bank recapitalisation that will see banks raise their capital base above the N25 billion minimum level that one of his predecessors, Prof. Charles Soludo, introduced in 2004.
Instructively, the apex bank boss promised to embark on a programme that would lead to the recapitalisation of the banking industry within the next five years, citing the need to position Nigerian banks among the top 500 in the world.
As a result, he stressed that banks will be required to maintain higher levels of capital and liquid assets in order to reduce the impact of an economic crisis in the financial system.
But this did not come as a surprise to many observers, considering the extent of impairment of banks’ balance sheet caused by the value of non-performing loans as well as recent interventions by the CBN to stabilise some of them.
Expanding on the planned recapitalisation, the CBN boss said the 2004 banking industry recapitalisation, which increased banks’ capital base from N2 billion to the current N25 billion had weakened.
He said:”You will all agree with me that it was Governor Soludo in 2004 that did the last recapitalisation we had, moving the capitalisation from N2 billion to N25 billion.
“And I must commend those efforts because it resulted in positioning Nigerian banks not only in Africa but also being among the banks in the world in terms of capitalisation and it also increases or helps to strengthen the banking industry capacity to take on large ticket transactions- and those are some of the things we badly need today.
“And if you relate N25 billion in 2004 exchange rate which was about N100- N25 billion, it is certainly only about $200 million . Today, if we relate N25 billion at N360, you can see that it is substantially even lower than $75 million.”
According to the CBN governor, what we are trying to say is that recapitalisation has weakened quite substantially and there is a need for us to say it is time to recapitalise Nigerian banks again.
“It is a policy thrust which will be discussed at the Committee of Governors’ meeting and of course, the framework for the recapitalisation of Nigerian banks will be unfolded for the whole world to know.”
He assured that the CBN would work with the fiscal authorities to pursue a double digit growth rate within the next five years as well as attempt to bring down the rate of inflation to single digit and accelerate the rate of employment in the country.
Emefiele further listed the CBN priorities over the next five years to include preservation of domestic macroeconomic and financial stability; foster the development of a robust payments system infrastructure that will increase access to finance for all Nigerians thereby raising the financial inclusion rate in the country; continue to work with the Deposit Money Banks (DMBs) to improve access to credit for not only small holder farmers and MSMEs but also consumer credit and mortgage facilities for bank customers.
Apparently poised to solve the problem of access to finance by young entrepreneurs, the CBN said going forward, its intervention support programme will also be extended to the youth population who possess entrepreneurship skills in the creative industry.
He said within the intervening period, the CBN will further encourage banks to direct more focus in supporting the education sector, apparently to try to arrest the sector’s dwindling fortunes.
He said he will strive to grow the external reserves; and support efforts at diversifying the economy through the CBN intervention programmes in the agriculture and manufacturing sectors.
He said:”We are confident that when implemented, these measures will help to insulate our economy from potential shocks in the global economy.
“In my second term in office, part of my pledge, is to work to the best of my abilities in fulfilling these objectives.”
He also disclosed that the apex bank will leverage monetary policy tools in supporting a low inflation environment, while seeking to maintain stability in exchange rate- with a key emphasis on supporting improved GDP growth and greater private sector investment.
He maintained that going forward, decisions by the monetary policy committee on inflation and interest rates will be dependent on insights generated from data on key economic variables as well as seek to broaden financial inclusion by ensuring that at least 95 per cent of all eligible adults have access to financial services by 2024.
Emefiele further stated that the apex banking regulatory institution would strive to sustain a positive interest rate regime “to the delight of our important stakeholders” adding that monetary policy measures will be geared towards containing inflationary pressures and supporting improved productivity in the agricultural and manufacturing sectors.
He said working with stakeholders, the CBN intends collaborating with others to reduced the cost of food items, which have considerable weight on inflation.
Emefiele said:”Our ultimate objective is to anchor the public’s inflation expectation at single-digit in the medium to long run. We believe a low and stable inflationary environment is essential to the growth of our economy because it will help support long term planning by individuals and businesses.
“It will also help to lower interest rates charged by banks to businesses thereby facilitating improved access to credit, and a corresponding growth in output and employment.”
Emefiele noted the CBN, in the next five years will continue to operate a managed float exchange rate regime in order to reduce the impact which continuous volatility in the exchange rate could have on the economy, adding that the country remained committed to a free trade regime that is mutually beneficial and particularly aimed at supporting domestic industries and creating jobs on a massive scale for Nigerians while the dynamics of global trade continues to evolve in advanced economies.
He said the CBN will support measures that will increase and diversify Nigeria’s exports base and ultimately help in shoring up reserves.
He said: “We intend to aggressively implement our N500 billion facility aimed at supporting the growth of our non-oil exports, which will help to improve non-oil export earnings.”
He said though the goals are onerous and tasking, the CBN will remain committed to fulfilling its mandated objectives of price and exchange rate stability.
According to him, we will continue to work to safeguard the stability of our financial system, while supporting the development of a payment system infrastructure that will improve access to credit for all eligible Nigerians.
“Nevertheless, additional emphasis will be placed on supporting greater growth of our economy and in reducing unemployment, through targeted interventions in the agricultural and manufacturing sectors.”
Also, Emefiele said the CBN will launch a Trade Monitoring System(TRMS) in October, which is an automated system that will reduce the length of time required to process export documents from one week to a day, adding that the measure will help support efforts at improving non-oil exports of goods and services.
He said the CBN will also work with its counterparts on the fiscal side in supporting improved FDI flows to various sectors namely agriculture, manufacturing, insurance and infrastructure. He noted that the measures while supporting improved inflows into the country, will also help to stabilise exchange rate and build external reserves.
According to him, strong emphasis will also be placed on improving speed and efficiency of payments channels, while working to ensure that digital channels are safe and secure as this will help to build confidence in the nation’s payment system.
Emefiele explained that in order to improve utilisation rate, the CBN will continue to ensure that payment channels are interoperable, to enable individuals with digital devices to transact across different banks or payment modes-assuring of significant improvement in the payment system within his new tenure.
He said the CBN will further work with NIBSS, banks and Fintechs in developing a regulatory sandbox to “enable us to test financial innovations by Fintechs and banks in a controlled environment, in order to assess its impact on the growth and safety of our financial system.”
The CBN governor said he will boost productivity growth through the provision of improved seedlings, as well as access to finance for rural farmers in the agricultural sector, across 10 different commodities namely rice, maize, cassava, cocoa, tomato, cotton, oil-palm, poultry, fish and livestock/dairy.
“Our choice of these 10 crops is driven by the amount spent on the importation of these items into the country, and the over 10 million jobs that could be created over the next five years if efforts are made to expand cultivation and processing of these items in Nigeria.
“So far, we have held series of engagements with importers and producers of these products. Most of them have committed that they would install or expand their production capacities in Nigeria. We believe these measures will help to boost not only our domestic outputs but also improve our annual non-oil exports receipts from $2 billion in 2018 to $12 billion by 2023,” he explained.
He said CBN intervention programmes will strengthen the linkage between farmers and agro-processors/manufacturers by ensuring that the output of farmers is purchased by agro-processors/manufacturers.
However, even though Emefiele’s policy thrust had been welcomed as the right step in the right direction towards returning the economy on the path of sustainable growth, the implementation should be carefully considered.
Reacting to aspects of the blueprint, especially the proposed recapitalisation of banks, economist and former Director General, Abuja Chamber of Commerce and Industry (ACCI), Mr. Chijioke Ekechukwu, said, “I agree with the plan of recapitalisation of banks. Much as some banks may already have the intended capital benchmark. There is a lot of liquidity constraints with many banks currently.
“When a new capitalisation policy is implemented, it will stimulate the economy again and funds will be available for credit facilities at cheaper rates. Banks, however, should be given enough period of time to implement it so that they won’t be choked to untimely death.
Ekechukwu dismissed claims that beefing up banks’ capital base could lead to unwholesome practices, which will in turn lead to accumulation of impaired facilities.
He added: “Banks all over the developed world are capitalised up to over $50 billion. That is why there is no Nigerian bank that is among the biggest 300 in the world. This will make them create consumer credit, retail credit and corporate credit”
Also, commenting on the development, Founder/Chief Executive, Global Analytics Consulting Limited, Mr. Tope Fasua, said, “I read between the lines and I believe the CBN wants banks to sit up just in case it calls for more capital. Personally I don’t think we should be embarking on another consolidation process because we can see that capital inadequacy is not the problem we have in our banks.
“We should look elsewhere. The more the capital we ask our banks to put up the higher the risks they seem to be taking. After Soludo’s 2005 consolidation, we had to put up over 600 billion naira to bail out a few banks that were deemed too big to fail.
“Then we created an AMCON in 2010/11 to bail the banks out of about N6 trillion of sticky loans which are still sticky at AMCON. Some economic advisers are calling for AMCON2 already since they have seen how easy it is to bail out the banks with taxpayer’s money. It’s unfortunate.”
According to him, by 2016, we had gone back to the old era of specialised banking and we now have a few merchant banks. Fintechs are also in the space already giving the banks some challenge and they cannot be ignored. So I will advise that we don’t go down the route of another consolidation.
“We should think deeper and find a way to get our banks to not lose their heads and to get Nigerians especially those who do big business to have a better credit culture. The problem of high NPLs we have is usually due to moral hazards like insider loans et al.”
Furthermore, a source confided in THISDAY that though the plan to recapitalise the banks appeared to be timely, it must be implemented with caution.
He said:”When in 2004 this policy came up, which is basically an aspect of Basel II requirement to increase capital to N25 billion, the banks became stronger and had the capacity to lend big and they were playing big.
“Of course, there are some risks management implications as a result of over trading among others. And following from that, some of those banks had problems and we have AMCON and the rest is history.”
“But going three to four years back, some big banks were reporting losses and average capital adequacy ratio of banks deteriorated for two reasons- bad loans as a result of the recession and so on and average CAR of deposit money banks went down.
The CBN governor said they are coming up but everybody knows that they are being micromanaged.
“So, the key thing is right now, the banks are basically categorised into three and even if you want to raise capital, you have to segregate.”
He pointed out that though there is currently an underlying imperative for recapitalisation, but the CBN needed to tread with caution as the economy was just recovering from a recession.
He also noted Emefiele’s plan to pursue a double-digit growth rate was a noble objective though it needed a complementary response from the fiscal authorities.
He said:”The whole plan is very good but it can only go in consonance with fiscal authorities and the key thing that we have to be realistic as a country and look at this issue this issue of fuel subsidy. We have to look at this issue of subsidising consumption. When you are taking up to 30 per cent of your budgetary provision to subsidise our cars flying at a cheaper rate and nothing productive, it is going to be very difficult to have such growth projection that the CBN has talked about.”
On his part, Professor of Capital Market/ Chairman, Chartered Institute of Bankers of Nigeria, Abuja Branch, Prof. Uche Uwaleke, said:”Ememefie’s five-year policy thrust is a good development with a lot of positive impact on the economy. The recapitalisation of banks will strengthen financial system stability and put our banks in a stronger position to finance big projects needed for development as well as play in the global scene.
According to him, the planned introduction of a trade monitoring system that reduces the length of time it takes to process export documents from one week to one day will surely boost exports. Also commendable is the plan to scale up the anchor borrower programme and target for massive funding support 10 commodities that consume a lot of foreign exchange to import.
“This will help conserve forex, grow external reserves, reduce food prices and possibly create job opportunities. The plan to build a robust payment infrastructure including through promoting payment service banks, shared agent networks, mobile money will go a long way in helping to achieve the target of 95 percent financial inclusion by the year 2024,” he said.
Continuing, he added:”Similarly, the boost in the collateral registry where over N400 billion worth of assets have been registered as well as the NISRAL microfinance bank will no doubt improve access to finance by micro and small businesses.
“The major risk I see in the pursuit of price and monetary stability which is the core function of the CBN is the volatility in crude oil price given our dependence on the sector. The CBN is therefore advised to have a plan B in its five-year plan. It is also vital to get the cooperation of the fiscal authorities, especially when it comes to the task of achieving double digit growth because on this very score, the CBN cannot clap with one hand.”
Similarly, President of the Chartered Institute of Bankers of Nigeria (CIBN), Mr. Uche Olowu, described the planned recapitalisation of banks as a step in the right direction.
Olowu, in an interview with THISDAY, said for Emefiele to have said the banks should be ready for another round of recapitalisation, “it means their capitals have been eroded and if the banks would take on more business and to be well positioned for the kind of opportunity that would come, then they have to be recapitalised.”
He added:“This is because without capital, it would be difficult for you to do the kind of business you are expected to do. So, if a regulator has said that, he has all the data.
“All the banks need to do is to re-strategise and start working towards the direction of the CBN. Today, if they have to play in certain markets, they definitely need to beef up their capital.”
But, a former bank Chief Executive Officer, Mr. Okechukwu Unegbu, said the pronouncement by the CBN governor could send panic into the system if not properly managed.
Unegbu, who is presently the CEO of Maxifund Investments and Securities Plc, said beyond recapitalisation, the issue of human capital in the banking industry should also be given attention.
He said:“We must understand that everything is not about money coming into the system. We should be talking about capacity building and the type of personnel behind these institutions.
“These days, a lot of bankers don’t have career path. Most bankers don’t have job satisfaction. Today, the level of fraud in the system is on the rise and it is a result of deficiency in capacity building. So, it is not only money that we should be talking about.
“If these institutions don’t have the required capacity and you throw money into them, they would probably be out of business before you know it.”
Also, the Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, said the first step ought to be for the regulator to evaluate whether the recapitalisation that was done in 2004 has any impact on the industry and the economy.
According to him, consolidation can either be regulatory induced or market-induced.
“What is the objective of the new recapitalisation? Is it that the buffers are not enough? Is it that the banks are distressed? What is the need for doing it?,” he asked.
“Obviously, there is always the need for buffers, but you cannot make the minimum capital requirement a buffer requirement.
“Those who are well capitalised would be able to do things and would be able to differentiate themselves from others who are not well capitalised. I think that without knowing the objective for the consolidation and an evaluation of the current consolidation to see whether it has achieved the objective for which it started; or is it competitive pressure to say because Ghana and few other countries have done it?”
In his own analysis, Director, Union Capital Ltd, Egie Akpata, said, “The CBN governor should be applauded for providing plenty of guidance on the next five years,” noting, “now the various players in the economy can plan using this document as a guide.”
Akpata who also said, the new five-year policy plan of the CBN is in line with the approach of the past few years under Emefiele, however contended that, “some of the targets around financial inclusion and non-oil exports are extremely ambitious and might be difficult to achieve due to factors outside the control of the CBN.”
He argued that, “The intention of the CBN to increase its efforts at direct lending to the agricultural and manufacturing sectors suggests that the banking system is not able to carry out its primary role.” “This plan is not very clear on how banks will be incentivised to lend to these priority sectors since their inability to provide credit is why the CBN is lending directly to these areas,” he added.
While saying “the issue of bank recapitalisation seems to be a distraction,” Akpata believed, “If big banks were the solution to many issues, the CBN would not have to lend directly into the economy.” He advised that, rather than worry about Nigerian banks being in the top 500 globally, “the CBN should ensure that existing banks operate efficiently and have prudent risk management.”
“Unfortunately, a few distressed banks still exist and the CBN simply cannot afford to keep recapitalizing them. It might be time to let 1 or 2 banks fail so as to force the survivors to operate more responsibly,” he added.