• CBN to Prioritise Price Stability to Attract Investors, Boost Growth

The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, has said the bank will pursue price stability as an anchor for economic growth as well as attract foreign investors as the country battles recession and rising inflation.

Emefiele said in an interview with The Banker Magazine that:
“The CBN does not reckon that curbing inflation, attracting foreign investors and supporting growth are mutually exclusive objectives. Rather, the monetary policy committee’s decision reflects the (central bank’s) prioritisation of its core mandate of pursuing price stability as an anchor and enabler for economic growth.

“As we have consistently said, the bank would continue to ensure that its decisions do not only consider price and financial system stability, but also issues of employment and growth.”
He reiterated that the reintroduction of a flexible exchange rate system has helped increase transparency in the FX market, cleared an estimated $4 billion backlog in FX demand, reduce arbitrage and speculative opportunities, and create a more predictable structure for businesses to prioritise their FX demand, we believe that this policy has been beneficial to the economy.

“This policy has led to a gradual but steady inflow of new FX into the market. All of these have largely met the bank’s expectations in the short term. We believe that these benefits will become magnified as the policy’s sustenance improves the credibility of the CBN and investors trust us more to return more forcefully as active participants in Nigeria’s FX market.

“Obviously, the reintroduction of the flexible exchange rate system immediately led to a depreciation of the naira in the interbank market, and helped close the significant spread with the parallel market. Also, this policy encouraged movement of FX demand from the parallel to the interbank market,” which also brought the two rates closer.

“Finally, new foreign portfolio inflows into the interbank market and our recent policy of allowing commercial banks to transfer some share of diaspora remittances to bureaux de change have also helped moderate rates in both markets,” Emefiele noted.

For now, however, a lack of hard currency is continuing to squeeze economic growth. Businesses, particularly those that must import goods, are bearing the brunt of this, as are Nigeria’s banks. In August, the CBN barred nine lenders for their failure to shift dollar-denominated funds from the state-owned gas group NNPC and the state-owned oil group NLNG to the treasury single account (TSA), a recently introduced single repository for all government funds.

“One of the most sacred obligations of a commercial bank is to produce customers’ deposits ‘on demand’. That is why these deposits are classified as ‘demand deposits’. Some of our banks failed to meet this obligation with respect to deposits of United States dollars by the NNPC and the NLNG. We had given them quite some time to transfer these balances into the federal government’s TSA,” Emefiele added.

Some banks’ failure to comply with this directive led the central bank to expel them from the interbank FX market. International press reports have indicated that some of these lenders blamed their breach of this directive on the lack of dollar liquidity in the market. Nevertheless, the CBN’s actions sit within the wider government’s attempts to impose greater transparency on the movement and allocation of public funds.

“When we became uncomfortable with their plans and seriousness to comply with the TSA, we thought we had to take strong action to ensure these monies were returned. The good news is that this action jolted them and some of the banks have transferred all their balances, while the remainder now have stronger and more credible plans to return these funds,” the CBN governor explained.

Despite the challenges in the economy, Emefiele remained upbeat about the prospects for Nigeria’s economy. As part of a wider package of reforms, President Muhammadu Buhari has tripled capital expenditure plans under the 2016 budget, though this is contingent on securing external financing.

“The Nigerian economy is adjusting to the aftermaths of the oil price shocks that led to a slowdown in output growth in 2015, and eventual contraction in output in the first half of 2016. Energy shortages, high electricity tariffs, FX supply shocks and depressed consumer demand have also exacerbated the adverse nature of this adjustment.”

“However, we are very optimistic that a strong rebound in the economy will occur soon. This optimism stems from our expectations that the reforms pursued by the new administration are in the right direction and are beginning to lay a foundation for renewed growth,” he stated.

Meanwhile, in an attempt to ensure strict compliance with all extant regulations, particularly those relating to forex transactions, Financial Action Task Force (FATF) and Anti-money Laundering/Combating the Financing of Terrorism (AML/CFT), the CBN said it had resolved to enhance the minimum qualification for the position of Chief Compliance Officers (CCOs) of commercial banks.

According to the CBN, going forward, banks are required to appoint not only a CCO who must not be below the rank of a General Manager, regardless of the category of the institution, but also an Executive Compliance Officers (ECOs) who must not be below the level of an Executive Director.

In a circular posted on its website at the weekend, the central bank stated that while the CCO is expected to report to the ECO, the ECO on the other hand would be reporting directly to the board of directors of the bank.

“The CBN will hold the ECO responsible and accountable for any breach of any extant regulation in the bank. For avoidance of doubt, the CBN shall suspend/dismiss any ECO and CCO found wanting in the discharge of his/her responsibility,” the apex bank warned.

According to the circular, the DMBs are required to forward the names of their ECOs and CCOs together with their curriculum vitae to the CBN for approval on or before October 10, 2016.

The ECOs are however allowed to combine the responsibility with other functions while CCOs will focus only on compliance matters in the bank, the CBN added.