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Here’s why CBN mandated these banks to have ₦15bn collateral each

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Central Bank of Nigeria, Emefiele, Textile

The Central Bank of Nigeria (CBN) has made it compulsory for all current and intending settlement banks in the country to have treasury bills valued at ₦15 billion, which will be used as collateral for their settlement roles.

This was disclosed in the apex bank’s recently published Monetary, Credit, Foreign Trade and Exchange Policy Guidelines for Fiscal Years 2018/2019.

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In addition to the ₦15 billion collateral requirement, prospective settlement banks will also be required to be capable of providing agency facility to other banks, clear on their behalf, and have enough branches across locations where the CBN is currently located. The compulsory collateral of  ₦15 billion will be subject to periodic reviews.

Any bank applying for direct participation as a settlement bank shall be required to possess the capacity to provide the required clearing collateral of N15 billion, subject to periodic review. It shall have the ability to offer agency facilities to other banks and to clear and settle on their behalf. It shall also have an adequate branch network, in all the CBN locations.

The apex bank further stated that it would keep categorising banks into settlement and non-settlement banks, such that settlement banks would be those who are directly involved in the clearing houses, while the non-settlement banks who will not.

Banks that meet the specified criteria shall continue to be designated as “Settlement Banks.” Consequently, non-settlement banks, called “Clearing Banks” shall continue to carry out clearing operations through the settlement banks under agency arrangement. The terms of agency arrangements shall be mutually agreed between the Settlement Banks and the Clearing Banks.

Meanwhile, the CBN also restated its commitment to keep using the risk-based supervision (RBS) method for all regulatory purposes. This is with the objective of providing effective assessment of the safety and soundness of financial institutions in the country. The risk-based supervision method for banks “is achieved by evaluating their risk profile, financial condition, risk management practices and compliance with applicable laws and regulations.”

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On a final note, the CBN directive required banks to seek profitability, albeit legally. It also enjoined banks to desist from charging excessive rates. In the same vein, lenders are to formulate the habit of publicly declaring their prime and maximum rates for lending.

 

Emmanuel holds an MSc. in International Relations and a B.A in Philosophy & Logic, both from the University of Ibadan. He is a communications professional. As a Lead Business Analyst at Nairametrics, he focuses mostly on quoted companies, their products/services, and the economy in which they operate. Emmanuel is also experienced in the areas of corporate communication, brand communication, corporate storytelling, public relations, business research, management/strategy, etc. You may contact him via his email- emmanuel.abara@nairametrics.com.

1 Comment

1 Comment

  1. Anodebenze

    May 19, 2018 at 3:02 pm

    ugodre,i am not one fond of complaint,but I am going to complain.i thought Godwin (my main man) did start this open market operation (OMO) and is this guidline by the cbn part of the omo.if they started this omo,it will push the economy by at least 2%,paving way for cut in public bank interest.
    The Cbn did cut pbi by 1% about a year ago,but inflation did jump,and the cbn did restore to status quo.to me,it means the economy is capable of growing more than it would even in this recession.maybe with the decreasing in inflation,and with this omo,it is possible at the next monetary meeting cut in PBI.
    I thought I saw it last week in nairametric,no Nigerian media company pick this news,as this is a major and creative intiative move by this govt,since they took over,as they keep blaming past govt.this omo will remove this fear of increases in inflation by the cbn.
    Can you bring this up again,please,i abeg you.in this news report,it also said railway from lagos to Ibadan to be done before the end of this year,construction to be done by the chinese

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Business News

U.S.A calls for an independent probe of AfDB president, Akinwumi Adesina

There were allegations of a certain number of appointments and departures deemed questionable and several contracts approved under Adesina’s leadership which were in violation of the bank’s statutory and ethical rules.

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AfDB partners DFID to unveil $80m infrastructure financing for Africa, ADB launches $3 billion “Fight COVID-19” Social Bond, US calls for an independent probe of AfDB president, Akinwumi Adesina

This appears not to be the best of times for Akinwumi Adesina, the President of Africa Development Bank (AfDB), who is in the process of canvassing votes for a second term. This is because the United States Government is pushing for more investigation into his activities.

The U.S Treasury Secretary, Steven Mnuchin, has called for an independent probe into allegations by a group of whistleblowers against the AfDB President, thereby rejecting plans by the bank’s board to stop the investigation on the issue.

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According to a monitored report from Bloomberg, a letter which was dated May 22 and addressed to the Chairperson of the AfDB board of directors, Niale Kaba, stated that the US Treasury Department disagreed with the findings by the bank’s ethics committee that cleared Adesina of any wrongdoing.

According to the US treasury secretary, “We have deep reservations about the integrity of the committee’s process. Instead we urge you to initiate an in-depth investigation of the allegations using the services of an independent outside investigator of high professional standing.”

It can be recalled that a group of anonymous staff had accused Adesina of multiple cases of abuse and breaches of the bank’s code of ethics. The allegations include various cases of alleged breaches of the code of conduct, unethical conduct, private gain, an impediment to efficiency, preferential treatment, and involvement in political activity, all affecting confidence in the integrity of the bank.

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(READ MORE:AfDB, Asian Bank, others worsen poor nations’ debt problem – World Bank)

There were allegations of a certain number of appointments and departures deemed questionable and several contracts approved under Adesina’s leadership which were in violation of the bank’s statutory and ethical rules.

Although Adesina insisted on his innocence, having been cleared by the bank’s Ethics Committee of all charges brought against him, the whistleblowers expressed serious doubts about the ability of the African Development Bank to conduct an independent investigation. Therefore, they said they did not have enough confidence in the Ethics committee handling the case dispassionately.

The criticism by the United State Government, who is the biggest non-African shareholder, follows questions about the bank’s internal processes and comments by World Bank President, David Malpass in February that multilateral lenders including the AfDB tend to lend money too quickly, and in the process add to the debt problems in Africa. Adesina had refuted this claim, describing it as not fact based.

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Economy & Politics

BREAKING: Nigeria’s GDP grows by 1.87% in Q1 2020, as non-oil sector weakens

Nigeria’s Gross Domestic Product (GDP) grew by 1.87%(year-on-year) in real terms, representing a drop of 0.23% points compared to Q1 2019 and 0.68% points decline compared to Q4 2019

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Covid-19, Conditional cash transfer: FG gives reason for disengagement of 2 Payment Service Providers, President Buhari asks the Chief Justice to release prisoners due to coronavirus

Nigeria’s Gross Domestic Product (GDP) grew by 1.87%(year-on-year) in real terms. This is according to the first quarter (Q1) GDP report, released by the National Bureau of Statistics (NBS) on Monday.

The performance recorded in Q1 2020 represents a drop of 0.23% points compared to Q1 2019 and 0.68% points decline compared to Q4 2019, reflecting the earliest effects of the disruption, particularly on the non-oil economy. Quarter on quarter, real GDP growth was –14.27% compared to 5.59% recorded in the preceding quarter.

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The oil sector recorded a real growth rate of 5.06% (year-on-year) in Q1 2020 indicating an increase of 6.51% points relative to the rate recorded in the corresponding quarter of 2019.

Details shortly…..

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Coronavirus

New normal for the informal sector

Africa is the world’s last frontier in the fight against extreme poverty where one in three Africans−422 million people−live below the global poverty line.

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Post COVID-19 and Africa's informal sector: Africa and Nigeria "The new normal"

The outbreak of the novel Coronavirus disease (COVID-19) in China has extremely changed the world, as it has turned into a major pandemic and affected millions of people around the world regardless of geographical location, age, race, gender, etc.

While this crisis is first and foremost a public health issue, which has claimed the lives of thousands of people worldwide and still counting, the economic fallouts will no doubt be overwhelming and will likely lead to major economic meltdowns; both in the formal and informal sectors.

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According to Brookings Institute, Africa is the world’s last frontier in the fight against extreme poverty where one in three Africans−422 million people−live below the global poverty line. This fact brings to fore, the alarming consequences of COVID-19 in the economic sectors which will increase the income gap backward rather than reduce the number of people living below the global poverty line.

The informal sector arguably constitutes the largest employer of labor in Africa. The International Labour Organisation estimates that more than 66% of total employment in Sub-Saharan African is in the informal sector. With a pervasive informal sector, city governments have been struggling with how best to respond to the COVID-19 pandemic. Furthermore, informal enterprises are typically characterized by low wages and non-exportable goods and services. This sector provides crucial livelihoods to the most vulnerable of the urban poor.

(READ MORE: Recalibrating Job creation within COVID-19 realities )

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The spread of COVID 19 poses a big threat to small scale businesses which serve as a major source of livelihood for many Africans. It is important that, just as Africa is working towards combating the spread of the virus, the government should help to support this vital, yet often excluded segment of the economy.

Post COVID-19 and Africa's informal sector: Africa and Nigeria "The new normal"

The informal sector is very much essential for the welfare of the people living in the local communities and for the expansion of the economy at large. As Africa’s informal sector provides about 80% of employment and contributes over 50% GDP, it is reason enough to save this crucial sector from jeopardy.

Taking Nigeria to be the case study, the wave of the pandemic is showing no sign of reduction unless a permanent solution is found.

However, looking on the bright side, there is a possibility that a vaccine could be found sooner or later to counter this unpleasant enemy. But until then, how will we as a country adjust to the “new normal”, that is life after COVID-19, as the experts who used this terminology explained that life, as it was before, will not come back to normal for some time to come. Let’s take a few instances.

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One major normal, which is of general importance with a massive impact on our livelihood, is the loss of jobs. Yes, our means of making ends meet have been threatened. Many people will be rendered jobless as all economic activities the world over, have slowed down.

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Those who will be hit the hardest are, as already mentioned, small-scale businesses that may find it challenging to adapt to the new normal of doing business via virtual means, etc. The small-scale businesses are also employers of labor, so going down means their employees will suffer the same loss with them. Amongst the unemployed, the hardest hit is the daily wage workers whose livelihoods are based on their daily incomes.

(READ MORE: 7 common money mistakes I made and why you should avoid them)

Therefore, a lot of people will suffer unemployment in this time, and paying bills such as house rent bills, food bills, school bills will become near impossible.

Post COVID-19 and Africa's informal sector: Africa and Nigeria "The new normal"

Another new normal is that, classes and lessons will have to be done online, and this could be the pattern for some time to come. This will pose major challenges for parents who do not have the resources to acquire gadgets or even buy the data required for their wards/children to participate in online classes. This new normal is also applicable to post-secondary students, who have a higher need for gadgets and data to participate in online classes.

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By this time in the old normal, schools would have begun a new term. Being the third term in which promotional exams are done, both parents and pupils will be up and doing to ensure preparations in order to secure promotions. Most especially those preparing to take examinations to secure admission into the universities.

The question posed here is, how can the government help in reducing the burden of both the parents and the students who are on lockdown right now and can’t make ends meet talk less of spending the little resources being managed this period to acquire required gadgets or even data? As we are all aware the data rate in our country is high, unlike in most countries where data is cheap or even free. Can the government help in reducing the data rates in order to reduce the burden on parents and students?

(READ MORE: Rethinking Inclusive Education: COVID-19 realities, post implications on education)

With the wave of the pandemic being on the rise, so many countries have moved away from multilateralism and have retreated into fending for themselves with several measures to protect their own people and economies, regardless of the effects on the rest of the world which has led to certain restrictions.

Post COVID-19 and Africa's informal sector: Africa and Nigeria "The new normal"

This restriction could also be the new normal, as we are left with the questions of what if? What if the COVID 19 pandemic continues in a second wave, with borders still shut, food importation restricted, what if we can no longer travel out for medical attention and must rely on our hospitals here? Talk less of education, what if we can no longer travel out to study abroad and must rely on our educational system here?  We can no longer be dependent on the world for everything.

For a country of over 200 million people, we cannot continue to keep ignoring the dangers that lie ahead if we do not begin to depend largely on what we produce locally, because the security and well-being of our nation is solely based on building a productive and well-diversified economy.

We have no clear vision of what the world will look like after the pandemic is over, therefore as a nation, we need to seize the opportunities of the “new normal” and make the best out of them. As much as all these new developments seem troubling, it is a clear opportunity to work things out for a better future ahead.

We must look inwards as a nation and guarantee food security, high quality and affordable healthcare for all social classes, and pioneering education for our people. We can transform Nigeria into a modern, sophisticated and self-sufficient economy in which we don’t have to be dependent on other countries for everything and can thrive on our own, protecting the poor and vulnerable and being able to compete with other strategic sectors internationally.

(READ MORE: Gold prices surge by 17.4% in 2 months due to global economic crisis)

To achieve this goal, what needs to be done include:

  • Supporting both the smallholder and large-scale agriculture production.
  • Creating a better educational system that will enable creativity and reasoning in order to prepare our children for the world tomorrow.
  • Creating more factories, storages, and logistics companies which also serve as a way of creating job opportunities for the youths.
  • Developing initiatives programmed to help support or promote youths who want to acquire skills and take them up as professions.
  • Providing security for the poor and vulnerable, and developing the policies that bring financial services to them.
  • Developing a standard and trusted health care system to keep Nigerians healthy irrespective of social class.
  • Creating easy access to cheap and long-term credit for SMEs and large corporates.
  • Creating a reliable power supply that can engender industrial activities.
  • Developing venture capitalists for nurturing new ideas and propagate Nigerian businesses to compete globally.

This is the opportunity to create a better Nigeria and do the needful to become a better country.

COVID-19 may have thrown us all into a crisis of unprecedented proportions but we can still make the best out of it. However, mismanagement of the challenges could leave us to suffer untold hardships for some time to come.


Written by Abraham John Onojaa

abrahamjonoja@gmail.com

+2348164208130

 

 

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