The Central Bank of Nigeria (CBN) Governor, Godwin Emefiele on Monday said banks are to be recapitalized.
This is part of a five-year agenda unfolded by the CBN boss who said:
- Micro, Small and Medium Enterprises (MSMEs) will be strengthened;
- domestic macroeconomic and financial stability will be preserved; and
- a robust payments system infrastructure that will increase access to finance for Nigerians will be fostered.
Emefiele spoke in Abuja during a news briefing on his policy road map for the next five years as governor of the apex bank.
He plans to pursue a programme that will make the banking industry rank among the top 500 in the world.
In the CBN governor’s view, the N25 billion capital base of commercial banks has weakened substantially.
He said: “In the next five years, we intend to pursue a programme of recapitalising the banking industry so as to position Nigerian banks among the top 500 in the world. Banks will, therefore, be required to maintain higher level of capital, as well as liquid assets in order to reduce the impact of an economic crisis on the financial system.”
Emefiele noted that the last time commercial banks recapitalised was in 2004 under when Prof. Charles Soludo held the fort at the CBN.
He recalled that the banks recapitalised from N2 billion to N25 billion.
Emefiele said: “Those efforts resulted in positioning Nigerian banks not only in Africa but also being among the top banks in the world in terms of capitalisation and also helped to increase and strengthen the banks’ capacity to take on large ticket transactions and those are some of the things we badly need today.
“If you relate it, N25 billion in 2004 exchange rate, which was about N100/$, N25 billion, is almost about $200 million today, if you relate N25 billion at 360, you can see that it is substantially lower than $75 million. So, what we are trying to say is that the capitalisation has weakened quite substantially, and there is a need for us to say that it is time to recapitalise Nigerian banks again.
“It is a policy trust, which will be discussed, at the Committee of Governors meeting and, of course, the framework for recapitalisation of Nigerian banks will be unfolded for the whole world to know.
“We will continue to improve our onsite and off-site supervision of all financial institutions, while leveraging on data analytics and our in-house experts across different sectors to improve our ability to identify potential risks to the financial system as well as risks to individual banks to help ensure that the necessary safeguards are put in place by banks and financial institutions to protect against loss of data, fraud and cyber incursions in their respective systems.”
The CBN’s intervention in the power sector will continuing, but the apex bank was unhappy “with the way the whole power sector arrangement is unfolding, but in the course of time, we will provide our advice as to the best ways to really tame this power issue”.
The CBN, Emefiele said, has done some interventions; the N213 billion meant to settle some of those obligations and also the N700 billion.
Admitting that there were challenges arising from power, the CBN chief pleaded that Nigerians should “try to harness the innate strengths in us not to allow not-accessing power to derail us from our own shared objectives that we must work hard, create jobs and improve supply and stabilise prices in Nigeria”.
He said: “Don’t get me wrong, we would continue to intervene in that sector but it should not be an excuse to let down our guards to result in a situation where there will be unemployment and hopelessness in our country.”
The CBN, under Emefiele’s watch, plans to work closely with fiscal authorities, to target double digit growth by the next five years.
He said: “At the CBN, we commit to working assiduously to bringing down inflation to single digit while accelerating the rate of employment.
“The priorities at the CBN over the next five years will also see the preservation of domestic macroeconomic and financial stability; fostering 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; continuing to work with the Deposit Money Banks to improve access to credit for not only small holder farmers and MSMEs but also consumer credit and mortgage facilities for bank customers.
“The CBN’s intervention support shall also be extended to our youth population who possess entrepreneurship skills in the creative industry.
“The CBN shall also during this intervening period encourage Deposit Money Banks to direct more focus in supporting the Education Sector; grow the external reserves; and support efforts at diversifying the economy through intervention programmes in the agriculture and manufacturing sectors.”
When implemented, the CBN governor said the measures “will help to insulate our economy from potential shocks in the global economy”.
In macroeconomic stability, Emefiele said, there would be emphasis on supporting improved GDP growth and greater private sector investment.
“We intend to leverage monetary policy tools in supporting a low inflation environment while seeking to maintain stability in our exchange rate,” Emefiele said.
He went on: “As a result; decisions by the Monetary Policy Committee (MPC) on inflation and interest rates will be dependent on insights generated from data on key economic variables and would also strive to continue to sustain a positive interest rate regime to the delight of our important stakeholders.
“Monetary policy measures embarked upon by the CBN will be geared towards containing inflationary pressures and supporting improved productivity in the agricultural and manufacturing sectors. Working with other stakeholders, the CBN intends to bring down the cost of food items, which have considerable weight in the Consumer Price Index basket.
“The CBN’s ultimate objective is to anchor the public inflation expectation at single digits in the medium to long run. 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.”
On exchange rate stability, the CBN plans to continue operating a managed float exchange rate regime in order to reduce the impact which continuous volatility in the exchange rate could have on our economy.
Emefiele said: “It will support measures that will increase and diversify Nigeria’s exports base and ultimately help in shoring up reserves. “While the dynamics of global trade continues to evolve in advanced economies, Nigeria remains committed to a free trade regime that is mutually beneficial, but, particularly aimed at supporting our domestic industries and creating jobs on a mass scale for Nigerians. 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 went on: “The CBN will launch a Trade Monitoring System (TRMS) in October 2019, which is an automated system that will reduce the length of time required to process export documents from one week to one day. This measure will help support efforts at improving non-oil exports of goods and services.
“The CBN has pledged to work with their counterparts in the fiscal arm to support improved FDI flows to various sectors, such as agriculture, manufacturing, insurance and infrastructure. These measures, while supporting improved inflows into the country, will help to stabilise our exchange rate and build our external reserves.”
The CBN has initiated move to encourage banks and financial institutions to lend from their balance sheet to support the growth of critical sectors of the economy, such as agriculture, MSMEs and the real estate sector.
The CBN chief said: “Greater emphasis will be on improving consumer spending and business investment by MSMEs will be critical to sustainable double digit growth of the Nigerian economy.
“MSMEs today constitute over 90 percent of businesses in the country. Through the national collateral registry, over N400 billion worth of movable assets have been registered by MSMEs in the registry.
“We intend to triple this number over the next three years. Our ultimate objective is to broaden the range of collaterals that MSMEs can provide to banks in order to obtain credit. This will help improve access to credit for farmers and MSMEs, and it will also support the growth of their respective businesses.”
On unique identification, the CBN governor said: “In order to ease the constraint poor identification has on availability of credit to prospective banking customers, the CBN will support an aggressive enrollment of prospective banking customers in the informal sector onto the BVN system.
“The current enrollment of 38 million unique banking customers will be expanded to 100 million over the next five years. Ongoing partnership with NIMC will also enable integration between the two databases. This effort will improve the comfort level on banks in providing services to an expanded customer base. It will also aid in the development of a credit profile for banking customers, which will assist in improving access to credit for credit worthy borrowers by banks.”
On mortgage lending, Emefiele lamented that a lot of equity was tied down in mortgage assets, which are cash backed.
He said: “In order to support the growth of Nigeria’s real estate industry, the CBN will work in developing a framework that will enable banks to securitise mortgage loans, which can then be sold in the capital markets.
“Adequate safeguards will be put in place to reduce the risk of delinquency in the mortgage backed assets that will be sold in the capital markets. These measures will reduce the credit and liquidity risk to banks of holding these assets on their balance sheets and improve the amount of funds available to support mortgage loans. It will also reduce the high cost of obtaining mortgages for banking customers.”