The Governor of the Central Bank of Nigeria (CBN), Mr. Olayemi Cardoso on Friday said events of the past few years under Godwin Emefiele (immediate past Governor of the bank) put the apex bank in ‘bad light’ before Nigerians.
Cardoso said the bank under his leadership will refocus on core mandates of the CBN hitherto deviated from to revive the ailing economy.
The former Lagos State Commissioner for Economic Planning and Budget gave the assurance in a keynote address he delivered at the Chartered Institute of Bankers of Nigeria (CIBN) 58th Annual Bankers’ Dinner and Grand Finale of the Institute’s 60th Anniversary held in Lagos on Friday.
“I am aware that events over the past few years have also put the CBN in bad light. These issues can be attributed to various factors; such as corporate governance failures, diminished institutional autonomy of the Central Bank of Nigeria, a deviation from the core mandate of the Bank, unorthodox use of monetary tools, an inefficient and opaque foreign exchange market that hindered clear access, a foray into fiscal activities under the cover of development finance activities. There was also a lack of clarity in the relationship between fiscal and monetary policies, among other challenges.
“Hitherto, the CBN had strayed from its core mandates and was engaged in quasi-fiscal activities that pumped over N10 trillion in the economy through almost different initiatives in sectors ranging from agriculture, aviation, power, youth and many others. These clearly distracted the Bank from achieving its own objectives and took it into areas where it clearly had limited expertise.
“Under my leadership, the Central Bank of Nigeria will vigorously address these issues. We will tackle institutional deficiencies, restore corporate governance, strengthen regulations, and implement prudent policies. We assure investors and the business community that the economy will experience significant stability in the short-to-medium term as we recalibrate our policy toolkits and implement far-reaching measures.
“The primary mandate of the CBN is to ensure price stability, in addition to other objectives such as issuing legal tender currency, safeguarding external reserves, promoting a sound financial system, and providing economic and financial advice to the government. In line with our strategy to refocus on our core mandate, the CBN will discontinue direct quasi-fiscal interventionist activities and instead utilise orthodox monetary policy tools for implementing monetary policy.
“As part of this refocus, the CBN has just approved the adoption of an explicit inflation-targeting framework to enhance the effectiveness of our monetary policy. The details and requirements for this framework are currently being finalised alongside the fiscal authorities. Additionally, the CBN will provide forward guidance, enhance transparency, and maintain effective communication with the public to anchor expectations and build trust among stakeholders.
“We have already witnessed improvements in FX market liquidity in recent weeks, as the market responded positively to tranche payments which have been made to 31 banks to clear the backlog of FX forward obligations. We have been subjecting these payments to detailed verification to ensure only valid transactions are honored.
“In a properly functioning market, it is reasonable to expect significant FX liquidity, with daily trade potentially exceeding $1 billion. We envision that, with discipline and focused commitment, foreign exchange reserves can be rebuilt to comparable levels with similar economies.”
The CBN boss pointed out that with right policy measures, the country could overcome the obstacles hindering economic growth and pave the way for progress and prosperity.
“Indeed, despite the challenging global and domestic macroeconomic environment, Nigeria’s financial sector has demonstrated resilience in 2023, with key indicators of financial soundness largely meeting regulatory benchmarks. Stress tests conducted on the banking industry also indicate its strength under mild-to-moderate scenarios of sustained economic and financial stress, although there is room for further strengthening and enhancing resilience to shocks. Therefore, there is still much work to be done in fortifying the industry for future challenges, a topic that I will delve into later in my address.
“In my recent speech at the 370th Bankers’ Committee meeting, I highlighted the economic agenda of President Bola Ahmed Tinubu’s administration. The administration, as outlined in the widely circulated Policy Advisory Council report on the national economy earlier this year, has set an ambitious goal of achieving a Gross Domestic Product (GDP) of $1 trillion over the next seven years, with clearly defined priority areas and strategies.
“Attaining this substantial target necessitates sustainable and inclusive economic growth at a significantly higher pace than current levels. The administration has already commenced this journey through fiscal reforms, including the removal of petrol subsidy and the unification of the foreign exchange market rate.
“Considering the policy imperatives and the projected economic growth, it is crucial for us to evaluate the adequacy of our banking industry to serve the envisioned larger economy. It is not just about the stability of the financial system in the present moment, as we have already established that the current assessment shows stability.
“However, we need to ask ourselves: Will Nigerian banks have sufficient capital relative to the financial system’s needs in servicing a $1.0 trillion economy in the near future? In my opinion, the answer is “No!” unless we take action. Therefore, we must make difficult decisions regarding capital adequacy. As a first step, we will be directing banks to increase their capital.”
He expressed confidence and optimism that by taking appropriate corrective actions and strategic steps, macroeconomic stability would be restored in Nigeria and the fundamental flaws in the economy addressed.
The CBN governor noted that the removal of petrol subsidy and the adoption of a floating exchange rate, among other government policies, were anticipated to have positive effects on the economy in the medium-term. These measures, according to him, were expected to enhance investor confidence, attract capital inflows, stimulate domestic investment, and ultimately improve the level of external reserves. Additionally, they are expected to contribute to the stabilisation of the domestic currency.
According to him, “Technology will continue to play a critical role in delivering financial services and enhancing financial inclusion. However, recent developments in the payment services landscape have raised concerns regarding the use of technology and the existing licensing and regulatory framework. “We have observed that some licensees are operating outside the approved activities, breaching the boundaries set for them. Any intentional or unintended non-compliance will be subject to sanctions, as operators have the responsibility to ensure that they are licensed for the activities they undertake.
“Concurrently, as we conduct a comprehensive review of the licensing framework for payment services, we will engage in extensive consultations to develop a new regulatory and compliance framework that is suitable for the technology-driven payment services sector. Looking ahead for the industry, banks should reassess the responsible banking framework to ensure that the requirements are effectively integrated into their strategies.
“I am aware that some banks have made commendable progress in this regard. Furthermore, the CBN is taking steps to enhance its in-house capacity so that it can assist other banks that still have progress to make in implementing their sustainability principles.”
According to Cardoso, while macroeconomic indicators were valuable in assessing performance, he was equally concerned about the well-being of the average citizen.
He noted that the plight of the hardworking masses in urban centers and villages was a pressing concern.
“We must ask ourselves if there is a potential future where a brilliant and motivated teenager from anywhere in Nigeria could attend a future anniversary dinner instead of being drawn into outlawed militant groups or extremist ideologies.
“Likewise, recognising the pivotal role that women play as critical players in the economy, one cannot overlook the significant impact that providing them with opportunities can have on Nigeria’s economic advancement. To address this, we need to develop stronger frameworks for measuring the human condition and ensure that policymakers and business leaders pay as much attention to these measures as they do to macroeconomic indicators. This means tracking indicators such as access to food, shelter, and healthcare, as well as education and skills training opportunities,” he added.
According to Cardoso, it was, “crucial that we prioritise price stability to safeguard the livelihoods of our fellow Nigerians. Stabilising the exchange rate is another critical aspect of our efforts to promote economic stability.
“To address these challenges, the CBN is committed to achieving monetary and price stability. This is not just a technical objective, but it has real-life implications for the well-being of our citizens. Through targeted policies, transparent market operations, and coordination between monetary and fiscal authorities, we can ensure a more stable exchange rate, control inflation, and create an enabling environment for businesses and individuals to thrive.
“We have critically reviewed the effectiveness of the Central Bank’s monetary policy tools and have spent time fixing the transmission mechanism to ensure the decisions of MPC meetings actually result in desired objectives. For quite some time, there has been a dislocation of our monetary transmission mechanisms rendering the MPC meetings largely ineffective.
“For the avoidance of doubt, the Central Bank of Nigeria Act 2007 requires that the meeting of the Monetary Policy Committee of the Bank holds at least four times a year, and the Bank has satisfied this requirement for 2023. Our focus has been on ensuring these meetings are useful and effective.”
He listed measures introduced to cage inflation in the past two months to include regular Open Market Operations (OMO) to mop up excess liquidity from the banking system in which it recently offered 17.5% for one-year tenor, attracting oversubscription of N350 billion; offering N108.1 billion worth of Treasury Bills with three tenors to the investing public, which can help reduce liquidity in the banking system and support government fundraising; removal of the cap on the remunerable Standing Deposit Facility (SDF) to increase activity in the SDF window and manage liquidity, sustained Cash Reserve Requirement (CRR) debits, which according to him, moderated liquidity in September and October 2023, and inauguration of a new liquidity management committee within the Bank that meets daily at 8am to assess liquidity conditions and ensure optimal levels.
