Analysis: New CBN governor must work to restore financial sector confidence

Godwin Emefiele, CBN governor

“Mr. Emefiele has the responsibility to find a way of restoring the era of strong legacy of excellent financial sector management set in motion by his predecessor.”

Godwin Emefiele assumed office on Tuesday as the 11th governor of the Central Bank of Nigeria, CBN.

The former Group Managing Director of Zenith Bank Plc. is succeeding Lamido Sanusi, whose suspension from office by President Goodluck Jonathan last February over alleged financial recklessness triggered a major crisis that not only unsettled the delicate stability of the entire banking sector, but also the confidence of investors in the country’s economy.

Though the crisis appears to have been brought under control in the last three month under the interim management of the acting governor, Sarah Alade, Mr. Emefiele appears to find himself in office as the helmsman at the CBN when the vestiges of the declining confidence are yet to completely ebb.

In the aftermath of the ugly face-off between Mr. Sanusi and the government over the $49.8 billion oil revenue controversy, the autonomy and independence of the CBN appeared to have been negatively impacted.

Followers of developments at the Central Bank said on Tuesday that as Mr. Emefiele assumes office, he needs to urgently settle in and map out ways of rebuilding the confidence and help railroad the county’s economy on the path of sustained stability and growth.

Despite the unfortunate politicization of the role of the bank governor, Mr. Emefiele has the responsibility to find a way of restoring the era of strong legacy of excellent financial sector management set in motion by his predecessor.

According to the former acting Governor, Mrs. Alade, the thrust of the concerns of the management of the Bank as she found out during her brief stint at the helm revolves around the need to sustain financial system stability and restore investors’ confidence in the country’s economy.

As he assumes office, the aggregate expectation of most Nigerians is that Mr. Emefiele would immediately think about how to exert the appropriate response, through appropriate monetary instruments, to contain potential shocks capable of unsettling the financial system stability.
Having overcome the uncertainty that beclouded the financial system in February and March as a result the Sanusi crisis, there has been some observed stability in the foreign exchange market, money market and capital market.

For Managing Director, Financial Derivatives Company, Bismarck Rewane, although the macroeconomic environment appears to be relatively stable, several risks are still lurking in the corner for the new CBN governor.

“The conflicting trends of core and headline inflation since January 2014 will have to be put in perspective as well as the concerns over the eroding fiscal buffers; all of these could accentuate another speculative attack on the naira,” Mr. Rewane said.

For the Lead Director, Centre for Social Justice, CSJ, Eze Onyekpere the challenge for the new CBN governor has to be how to assert his office and reassure all stakeholders, particularly executive and legislative authorities, on the need to maintain CBN’s autonomy and independence away from politics.

Mr. Onyekpere said Mr. Emefiele has to reposition the CBN as a team player in the administration, not in the sense of condoning corruption, but by ensuring coordination and harmony between the monetary and fiscal authorities in the country.

“Nigerians expect greater transparency and accountability in the management of the funds and policies of the CBN. There must be clear policy implementation pathways that are not based on the rule of the thumb of the new governor. In undertaking banking supervision, sound risk management should be mainstreamed, as an imperative to encourage banks to bring back vibrancy to the economy,” he said.

He stressed the need to control the level of inflation by keeping the rate at single digit, while continuing with measures to control excess liquidity in the system and balanced with the challenge of growing the economy.

Mr. Onyekpere said the mere fact that investors and producers borrow at very high uncompetitive rates to do business was the reason for the stunted growth of the economy and the difficulty in facilitating job creation, enhancing value addition, improving efficiencies and growing the capacity utilisation rate of industry.

Therefore, he said, access to credit at a reasonable rate for the real sector and the small and medium-term enterprises, SMEs should be one of the major policy concerns of the CBN under Mr. Emefiele’s leadership, to promote economic growth and poverty reduction.

The ability of the CBN to check the depreciation of the Naira in the short to medium term, he said, must also occupy the top priority in Mr. Emefiele’s agenda to ensure that the national currency does not continue to play a second fiddle to the major currencies of the world.

During the Sanusi administration, an interventionist policy was adopted by providing funding to some critical sectors of the economy, including agriculture, transportation, manufacturing, solid minerals exploration and mining activities.

While sustaining this policy should be an imperative for the new leadership at the CBN, analysts say care must be taken to ensure that the disbursement of these funds was targeted at clear identified projects with defined goals and objectives, with adequate standards to monitor and evaluate outcomes.

On this score, the new CBN has to ensure that the support to agriculture sector through the Nigeria Incentive-Based Risk-Sharing System for Agricultural Lending, NIRSAL, initiated by his predecessor was not only sustained, but also improved upon.

Provision should be made to ensure that credit guarantees continue to enable banks lend to farmers, particular those with proven capacity to produce food to feed the nation.
The role of the CBN in facilitating housing has been visible in recent times and must be sustained under the new leadership.

The recent launching the National Mortgage Refinance Company, NMRC by the Federal Government, which is expected to come on stream later this year, was to lay the foundation for the take-off of affordable housing scheme for low income earners in the country. The company requires the support of the CBN to succeed. This is one area Mr. Emefiele must take very seriously.

Besides, Afrinvest, a research and financial advisory agency, is concerned about the need to take proactive stance against what would likely play out in the run up to the 2015 political activities in the country.

The agency suggested the need for further tightening of the screws on the liquidity bolts of the economy by increasing the Cash Reserve Ratio, CRR on public sector deposit, which is currently at 15 per cent, to 100 per cent before the end of 2014 ahead of the elections.

The company is equally concerned about the rate at which the country’s external reserve was being gradually depleted, through borrowing to help ease the pressure in the domestic foreign exchange market.

This has resulted in the country’s external reserve being reduced from about $49 billion in May 2013 to about $37.3 billion in May 2014.
Nevertheless, there is every confidence that Mr. Emefiele’s record of exemplary achievement as an experienced banker in a reputable financial institution as Zenith Bank with over 26 years’ experience would be of immense advantage. But, even that may pose another challenge for him, as every Nigerian may be raising the bar of the standards of expectation from him.

Having led Zenith Bank to such a high level among some of the most successful banks, not only in Nigeria and the West African sub-region, most observers say the stake would be high to measure what he does with his tenure at the CBN.

The challenge of deploying this experience to ensure that CBN’s monetary policy was handled as a potent tool for building a stronger economy would be understandable high.
As the regulator of the banking sector and the country’s lender of last resort, the CBN under Mr. Emefiele’s leadership must see its role and responsibility as critical to the overall growth of the country’ s economy.

This is where the new CBN helmsman must ensure that he focuses his attention delicately on the deployment of the monetary policy by the Bankers’ Committee towards checking inflationary trends and ensure that it did go out of bounds.

Throughout the tenure of his predecessor, if there was any achievement that one could point a finger on, it was its ability to keep inflation under check at single digits. Officially, Nigeria’s inflation rate figure is put at a single digit of about 6 to 7 per cent. However, in reality, it could have risen to as high as 12 per cent but for the intervention of the CBN. Therefore, this makes keeping inflation under control a prime challenge of the new leadership at the CBN to stabilize prices of goods and services, if he must make a success of his mandate.

Beyond that, such policies as the cashless initiative in all financial transactions is one innovation that set the Sanusi-era apart from the past, when most transactions by Nigerians were mostly cash-based, no matter how much was involved.

When Mr. Sanusi assumed office, the issue of corporate governance infractions by bank executives was the challenge he had to face. Arguably, Mr. Sanusi did his best by ensuring that the system was not only cleaned and sanitised, but also that the perpetrators were made to pay for their misdemeanor by throwing them into jail.

Mr. Sanusi’s may not have been the best, but certainly there were some salient aspects of his tenure that should be kept. Where there is need to refine and adopt, Mr. Emefiele should not shy away from doing so.

One area that financial analysts say Mr. Emefiele’s management should tamper with is in moderating the current tight monetary policy of the CBN.

For ace Economist, Henry Boyo, the new CBN’s priority at the moment should not be different from the expectations of his office as spelt out by the mandate of the Bank in the enabling law. This includes maintaining price stability, which does not involve the prices of goods and services alone, but also the cost of funds, which has remained consistently high at about 20 per cent for the real sector.

The cost of funds may have stabilized at 20 per cent for several years, but Mr. Boyo pointed out that this was hardly the kind of stability that is capable of driving growth and bring small and medium scale enterprises into operation.

Therefore, the leadership at the CBN must roll out a policy that makes cheap funds available for small businesses and drive inclusive growth in the economy.

Beyond that, Mr. Boyo said Mr. Emefiele must stand up to be counted on the duties of supervising and regulating the operations of the CBN to meet the expectations of Nigerians, a key mandate that has been very difficult to achieve in the last two decades.

He said his immediate responsibility should be to bring sanity to the process of money supply in the system, which is the main driver of the growth in the economy.


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