Following the confirmation of Dr Olayemi Cardoso as the Governor of the Central Bank of Nigeria, CBN and the social costs of the reforms that have been substantially higher than anticipated, market operators believe that urgent attention is needed to save the economy from degenerating into another bubble, by addressing problems that are inimical to its growth.
They noted that the economy is grappling with the adverse effects of a depreciating exchange rate, soaring energy costs, ravaging inflationary pressures, a huge backlog of foreign exchange obligations, and debt service obligations.
A couple of days ago, the Senate confirmed the nomination of Dr. Olayemi Cardoso as the Governor of the Central Bank of Nigeria, CBN.
Cardoso was screened alongside four nominees for the positions of CBN Deputy Governors, to steer the affairs of the apex bank over the next five years.
The deputy governors include Mrs. Emem Nnana Usoro, Mr Muhammad Sani Abdullahi Dattijo, Mr. Philip Ikeazor, and Dr. Bala M. Bello.
It should be recalled that Nairametrics reported that Cardoso had resumed as the Acting CBN governor pending his screening and expected confirmation by the Senate.
What the operators are saying
The former President and Chairman governing council of, the Chartered Institute of Stockbrokers (CIS) and the Managing Director of Arthur Steven Asset Management Limited, Mr Olatunde Amolegbe reacting to the development in an exclusive chat with Nairametrics, revealed that it’s clear that the issue regarding FX needs to be dealt with and that the new CBN Governor also mentioned increased transparency in all aspects of the affairs of the CBN which according to him will be desirable.
- “He will also need to preempt and mitigate the potential risks facing the banking sector in the medium term due to recent government policies, in addition, he must look for solutions outside the classical economic theories because unusual times call for unusual solutions.
- The idea of moving interest in tandem with inflation will not work and could destroy whatever we have left of manufacturing and production in the country so he will have to move away from this approach and devise other methods to curb inflation,” he said.
Also, the Executive Vice Chairman, of Hicap Securities Limited, Mr. David Adonri said that the CBN is still undergoing reforms adding that the new administration should drill down more on the reforms.
According to Adonri, the reforms they need are to break up CBN as it is presently constituted such that the new CBN will focus entirely on monetary policy.
- “Out of this current CBN, a financial services authority should be created to handle banking and financial institutions supervisions.
- The commercial banking activities of the CBN should be relinquished to commercial banks. The development banking services should be relinquished to various development banks.
- The issuance of treasury bills on behalf of the Federal Government should be left to the Debt Management Office. The registrars’ activities performed by the CBN for the Federal Government’s financial instruments should be relinquished to various corporate registrars,” he said
Adonri noted that if these reforms are undertaken, then CBN will become more focused and more efficient as a monetary authority.
- “If the new management focuses on monetary policies, then they will not be subjected to conflict of interest as in the past when they handle other areas which they are not supposed to.
- If they focus on monetary policy formulation and implementation, their activities will impact every sector of the economy. This is because monetary policy is part of macroeconomic policy that will affect every sector of the economy,” he said.
According to The Managing Director of Crane Securities Limited, Mr Mike Eze, the CBN governor, must uphold the highest standards of corporate governance to maintain the credibility and integrity of the apex bank.
- “This includes ensuring a level playing field for all operators in the financial sector and implementing regulatory processes that are transparent, fair, equitable, and firm.
- The CBN leadership, any of its officers, members of the Monetary Policy Committee (MPC), and board members should avoid involvement in partisan politics. They should remain completely aboveboard, as any involvement of the apex bank or its agents in partisan politics would severely damage its credibility,” he said.
For the chairman of, the Progressive Shareholders Association of Nigeria, Mr. Boniface Okezie, unless the Government begins to tackle the problem of infrastructure, we cannot expect meaningful growth in the Nigeria capital market.
Okezie noted that the bullish rally recorded in the market so far may not be sustained due to the poor state of infrastructure.
He therefore charged the new finance minister and the CBN governor with the responsibility of putting adequate infrastructure in place in the financial market, adding that when adequate infrastructure is put in place, the economy grows, quoted companies would record improved performance, declare profit which would impact positively on the system.
Dr. Muda Yusuf, Director/CEO of the Center for the Promotion of Private Enterprise (CPPE) said the CBN must ensure strategic and transparent intervention in the forex market to minimize volatility, as far as the reserves can support.
Yusuf noted that in addition to the I&E window, it has become necessary to create an autonomous window in the banking system where the currency can trade freely without any encumbrances.
- “This is necessary to avert the diversion of remittances to other jurisdictions or the black market.
We cannot afford to live in denial at this time.
- The clearance of the backlog of forex obligations should be accorded high priority to restore the confidence of domestic and foreign investors,” he said.
Yusuf noted that it is imperative to deepen the financial intermediation role of the deposit money banks, which is their primary role in an economy.
- “This responsibility entails the mobilization of financial resources from the surplus end of the economy to the deficit segment of the economy. Financial conditions remain very tight for the private sector amid challenges regarding access and cost of credit.
Banking system credit to the private sector in Nigeria, as of 2022, was a mere 20.6% of the nation’s GDP, as against a sub-Saharan average of 28%, and a global average of 145%.
- Besides, small businesses, which account for an estimated 50% of the GDP, have access to just about one per cent of the credit in the banking system. The implication is that the banking system is still largely disconnected from the investing community, especially the small businesses in the economy. The financing gap in the small business space has been estimated at over N600 billion.
- This anomaly needs to be corrected. All these underscore the need to deepen synergy and complementarity between the banking system and the economic players, especially the MSMEs.
- The key metrics of the depth of the financial system include the ratio of financial assets to GDP; the ratio of deposit liabilities to GDP; and the ratio of money supply to GDP. Nigeria’s rating on account of these ratios is still very low, compared to other emerging economies. Therefore, deepening the financial system for stability is very critical,” he said.
Yusuf said there is a need to reduce the ratio of non-interest income as a percentage of the income of banks.
- “The ratio was 42.5% two years ago and would have gone up by now given the numerous headwinds confronting investors in the economy. In most developing economies, the ratio is less than 30%.
- This income structure reflects the failure of financial intermediation in the economy. This therefore needs to be addressed.
- The core function of the banking industry is financial intermediation. A situation where non-banking activities are crowding out the financial intermediation functions of the deposit money banks is detrimental to the growth of the economy,” he said.
