Recently, a private sector initiative, Centre for the Promotion of Private Enterprise (CPPE), sent an agenda-setting document to the new Governor of Central Bank of Nigeria (CBN), Michael Olayemi Cardoso, in which it listed 10 points that must be implemented without delay in order to bring back life to the economy.
As he assumes office, the new CBN helmsman will face spiking inflation, higher interest rate, falling bank adequacy ratio, volatile exchange rate among others which will test his preparedness for the job. There is no contesting the fact that Cardoso’s appointment as the CBN governor is well deserved considering the fact that he is eminently qualified having proven his mettle.
How should he confront these and other challenges? According to this private sector initiative, the first step would be a recapitalization of the banking sector This, it insists, is imperative as the value of the naira continues to drop in the market. Instructively, CPPE argued that restoring confidence to the foreign exchange market, deepening the financial system, ensuring efficiency of the financial system, capital requirements for banks, addressing ways and means financing of fiscal deficit and complete jettisoning of the controversial naira redesign policy are urgent steps that must be taken in that direction.
Others are the tenure and cost of funds in the banking system, reducing concentration of risks in banking sector, initiation of stakeholders’ engagement and corporate governance.
It is important also to point out that Cardoso is assuming the leadership of the CBN at a very crucial time in the nation’s economic history. There is no gainsaying it that a serious confidence crisis in the foreign exchange market fueling an unprecedented speculative onslaught on the naira. Similarly, the economy is grappling with severe adverse effects of depreciating exchange rate, soaring energy costs, ravaging inflationary pressures, huge backlog of foreign exchange obligations that needs to be cleared and debt service obligations that need to be redeemed.
The economic management orthodoxy of market forces was being called to question in the country following the social outcomes of the recent market-oriented reforms of President Bola Ahmed Tinubu’s administration. CPPE maintained that some of these policies have evidently put the economic management team in quandary which it must endeavour to manage with an uncommon dexterity. But on the part of the CBN, it is pertinent, in our view, to enjoin Cardoso and his team to ensure strategic and transparent intervention in the foreign exchange market in order to minimise volatility.
Similarly, the CBN under new management may have to look at the import and export (I&E) window and possibly 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.
Perhaps, drawing from the experience of foreign airlines some of which are looking elsewhere for business opportunities as a result of the government’s inability to satisfy their foreign exchange earnings, the private sector initiative made an appeal to the government to accord high priority to this area so as to restore the confidence of domestic and foreign investors.
The brain behind the initiative, Dr Muda Yusuf, shedding more light on the call for recapitalization, recalled that the minimum capital requirements for banks was raised from N2 billion to N25 billion during the last banking consolidation exercise in 2004, which was an equivalent of $187 million capital base. He, however, noted that, today the same N25 billion is an equivalent of just $32.5 million, an indication of the phenomenal erosion of the capital base of the banks.
To that extent, therefore, recapitalisation of the banks, is imperative to ensure that the capital base of banks can support their current exposures in the interest of the stability of the financial system. This is even as the CPPE called for the indefinite suspension of the naira redesign policy as there was no compelling argument to undertake the policy in the first place.
Furthermore, before this time, industry players had called for the deepening of the financial intermediation role of the deposit money banks (DMBs) to increase the ratio of credit to the private sector in Nigeria that was a mere 20.6 per cent of the nation’s GDP in 2022, against sub-Saharan average of 28 per cent and global average of 145 per cent.
From the standpoint of CPPE, there is an urgent need to reduce the ratio of non-interest income as a percentage of income of banks, which was 42.5 per cent two years ago and would have gone up by now given the numerous headwinds confronting investors in the economy while in most developing economies, the ratio is less than 30 per cent.
Experts also believe that the spread between deposit and lending rates in the Nigerian banking system was too high an indication of serious efficiency issues in the banking system. In Nigeria, the spread is over 20 per cent, one of the highest globally. The average for sub-Sahara countries is 10 per cent and global average is about 6.6 per cent.
The argument that the ways and means finances of the CBN must be kept within statutory limits to avoid the damaging impacts of high-powered money on the macroeconomic environment, ought to draw the attention of Cardoso.
It is often said that he who wears the shoe feels its pinch. This, in the opinion of this newspaper, is the case with the private sector operators who, for many years, have been groaning under the yoke of harsh operating environment. The belief in those circles, and rightly so, in our view, is that the Central Bank of Nigeria (CBN), has a key role to play in redirecting the economy and placing it on a desired trajectory that will guarantee growth and development.
On the part of the new CBN helmsman, Cardoso, his appointment, considering his experience and his plans which he unveiled at the Senate screening, hold something to look forward to by Nigerians. It is heartening to note that he has pledged to accord priority to clearing the backlog of unsettled foreign exchange obligations, enhance transparency, fix corporate governance, ensure confidence in the autonomy and integrity of the bank. We are, therefore, persuaded to posit that, judging by his vast experience, the CBN Governor has what it takes to give the apex bank a new lease of life and ultimately ensure the building of a virile economy.