News Column

CBN Will Reduce Interest Rates, Enhance Forex - Emefiele

June 6, 2014

Rotimi Durojaiye and Kingsley Ighomwenghian

Godwin Emefiele, Governor, Central Bank of Nigeria (CBN) on Thursday unveiled his vision of an apex bank that is professional and apolitical.

Addressing a press conference in Abuja, the new CBN boss brightened up the hopes of real sector operators, when he pledged a gradual reduction in interest rate regime to ensure cheaper borrowing.

This, he said, has become necessary going by a "comparison of selected macroeconomic aggregates from some emerging market countries, including South Africa, Brazil, India, China, Turkey, and Malaysia (which) indicate that Nigeria has one of the highest T-bill rates.

"Such high rates create a perverse incentive for commercial banks to simply buy virtually risk-free government bonds rather than lend to the real sector," he said.

To enhance access to cheaper funds, he said the CBN "would pursue policies targeted at making Nigeria's T-bill rates more comparable with other emerging markets and by extension, pursue a reduction in both deposit and lending rates.

"While a reduction in deposit rates would encourage investment attitudes in savers, a reduction in lending rates would make credit cheaper for potential investors."

Emefiele, 52, who until Monday, was Group Managing Director of Zenith Bank Plc, lamented high unemployment rate, particularly among the nation's predominant youthful population. Henceforth, he assured, the CBN "would also begin to include the unemployment rate as one of the key variables considered for its Monetary Policy decisions".

With 1.8 million Nigerians joining the labour market yearly, he said, the CBN "cannot afford to sit idly by and concentrate only on price and monetary stability".

"Additional measures would be required towards identifying productive sectors of the economy and channelling credit towards these sectors, while imposing proper monitoring and performance measures in order to ensure that the goals of increased employment and poverty reduction are attained."

He said exchange rate stability would remain a key goal of the CBN, and that in view of the high import-dependent nature of the economy and significant exchange rate pass-through, a systematic depreciation of the naira would spur inflationary pressure leading to macroeconomic stability.

The CBN Governor also promised to partner relevant stakeholders to aggressively shore up Nigeria's reserves and improving policy buffers, which will further create space to implement monetary policy using available instruments.

The outcome of the nation's rebased GDP, he continued, has shown that "the trigger thresholds from a macro-prudential perspective are no longer adequate," hence the need to consider and announce measures to effectively address this anomaly.

Also on the card, he added, is enhanced supervision of the Nigerian banking system, in addition to stronger "macro-prudential regulation by improving supervisory diligence, ethical standards as well as highest level of professionalism in carrying out on and off-site supervision activities".

The Governor announced abolition of "fees associated with limits on deposits and reconsider ongoing practice in which all fees associated with limits on withdrawals accrue to banks alone".

He said the CBN would continue to pursue a zero-tolerance policy on serial debtors, calling for a return of commercial courts, while urging commercial banks to significantly improve the credit culture in the Nigerian banking system.

According to him, the focus would be "directed at serial debtors who access loans from different banks and default on all of them even when they have the means to pay".

He also promised that the CBN will henceforth move to reduce the effect of information asymmetry in the credit market by enhancing operation of Credit Reference Bureaus, besides blacklisting companies and individuals found to be serial loan defaulters. Names of such debtors, he said, would be circulated to guide banks in identifying bad borrowers and denying them access to credits in the banking system, just as banks that lend to such class of debtors would be penalised. The CBN, he promised, would intensify "collaboration with relevant agencies, and in particular, the Justice Ministry, to strengthen bank's ability to enforce contracts and recover matured debts".

For enhanced banking supervision, he said the apex bank would undertake sector-specific training for bank examiners, adding that "while the banking industry has excessive concentration in oil and gas loans, the CBN does not have the expertise to analyse and monitor the risks inherent in these credits. In other words, every examiner is a generalist".

"In connection with the above, specialisation will help reduce an increasing reliance on outside consultants, ensure that confidential supervisory information are protected and guarantee a staff depth that can generate robust in-house data to help senior central bank officials prepare adequately for public engagements."

Emefiele proposed a new approach to funding SMEs, involving the private sector that combines "the profit motives of the private sector and the development objectives of the government".

"Aside from this new collaboration with the private sector, the CBN will also design a programme for our fellow citizens who need as low as N50,000 without collaterals through registered and accredited local cooperatives.

"We shall encourage venture capital companies and business angels to fund SMEs and invite the Bankers' Committee to play more active role in supporting SMEs," he added.

"To ensure that high value is extracted from funds provided for intervention programmes in agriculture, such interventions will now be driven towards improving productivity in areas with high domestic demand, where opportunities exist to improve domestic supply, like rice, fish, wheat and sugar, which constitute the lion's share of Nigeria's N1.3 trillion food import bill annually, thereby conserving foreign exchange."

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Source: AllAfrica

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