Expectations From The New CBN Governor

By John Tosin Ajiboye

I congratulate the new CBN Governor, Godwin Emefiele, the former group Managing Director of Zenith Bank Plc.

The Delta-born banker who was born on 4 August, 1961 in Lagos, assumed duty, Monday 2 June, 2014 as Nigeria’s 11th Central Bank governor, having been cleared by the senate on 26 March, 2014. He succeeds Sanusi Lamido Sanusi.

Emefiele’s nomination on 20 February, 2014 came as a surprise to some people not because he was not qualified but because his name never featured on the list of potential candidates jostling for the plum job.

Touted as front runners were Minister for Trade and Investment, Mr. Olusegun Aganga, his counterpart in finance ministry, Dr. Yerima Ngama, while in the banking circle, names of former Deputy Governor, Tunde Lemo, immediate past MD of Access Bank, Mr. Aig Imokhuede and CEO of Asset Management Company of Nigeria (AMCON), Mustapha Chike–Ob. These men were touted as top contenders being considered by the Presidency for Sanusi’s replacement but as fate would have it, a University of Nigeria, Nsukka trained astute banker and also a Harvard University trained Financial Strategist who graduated as the best MBA student (Finance) from UNN after obtaining a Second Class Upper degree in Banking and Finance in 1984 is now the sitting Governor of the Bankers’ of Bank in the most populous country in Africa.

However, to whom much is given much is expected. The new CBN governor will be expected to continue and possibly build on the successes recorded by his predecessor, especially in attaining a workable monetary policy, banking reforms and the cashless policy.

The country’s currency and external reserves have not been on very sound footing in recent times. While the Naira has continued to slide against the US dollar, even as it is officially said to exchange at N155.75 per dollar, Nigeria’s external reserves have steadily dropped from about $50 billion mid last year to its present balance of less than $37.8 billion. Emefiele will, therefore, need to introduce more proactive measures, including further tightening of the Cash Reserve Requirement (CRR) on public sector bank balances to help stabilise the Naira and also lead to raising the nation’s foreign reserves.

On February 20, as news of Sanusi’s suspension filtered into the financial markets, the Naira took a hit, following an all-time low, exchanging for N167.74, before recovering to close at 165.60 to the dollar. The flurry of activities that day prompted the CBN, under the acting governor, Mrs. Sarah Alade, to intervene in the market by selling more dollars to calm the markets.

Price stability is so central to economic management that it is almost the major criterion by which a central bank is assessed in its effectiveness. This explains why it is the number one among the mandates or objectives of the central bank, clearly stated in Section 2 of the CBN Act 2007:

The principal objectives of the Bank shall be to:

(a) Ensure monetary and price stability;

(b) Issue legal tender currency in Nigeria;

(c) Maintain external reserves to safeguard the international value of the legal tender currency;

(d) Promote a sound financial system in Nigeria; and

(e) Act as banker and provide economic and financial advice to the Federal Government.

These are the reasons for the creation of the central bank, and therefore any other activities it indulges in are at best ancillary; otherwise they might just be unnecessary or even irrelevant. Emefiele should therefore leave politics to the politicians and focus on his core objective of managing the monetary policy of the country.

The introduction of a cashless policy will, no doubt, stand as one of the remarkable accomplishments of the CBN under Sanusi Lamido. Associated to this is the $50 million biometric solution project which was inaugurated by the outgoing CBN chief executive six days before his suspension.

The project aims at building a central database of bank customers in the country. It will specifically serve to identify those transacting business with Automated Teller Machines (ATM) and Point of Sales (PoS) machines. Incidentally, the new CBN Governor already serves as chairman, Biometrics Sub-committee of the Bankers’ Committee. Mr. Emefiele must therefore make sure there is continuity as regards the project.

On the other hand, the CBN is charged with regulating and supervising the banking and financial systems to protect the national economy while considering both the banks and the prosperity of the people. Either interest should not subordinated to the other.

Nigerian banks charge the highest fees and rates in the world, but must Nigerians continue to expect higher charges and more exploitation from the commercial banks under the watch of the central bank with the new governor in charge?

Below are some of the charges Nigerian banks are charging:

Customers pay N5-10 per sms alert, even for bank error repeat texts; though bulk sms texts are offered to businesses by mobile networks at N1/sms.

Hardware token for security is issued at N2000 ($12);

Bank statements are charged at about N40/page;

Renewal ATM card is issued at a charge of N1000 ($6);

N500 monthly maintenance fee for current accounts ($3);

You also have the Value added tax, for ‘no value added.’

Even reference letters are fulfilled at a charge of up to N2000 ($12).

When compared to US banks, there is no COT, no deposit fine, no withdrawal fine, customers have several free banking options, ATM cards are replaced for free, bank statements are obtained for free, and text messages are free. But not so in Nigeria where banks are run by the Cabal and the people are unprotected  as the Central Bank works in the interest of the banks and not the people. Now that he has assumed duty to head the Apex bank, the obnoxious aspect of policies Godwin Emefiele applied to manage Zenith Bank at the expense of the masses should not be introduced to other banks now that he is in charge of CBN.

In 2012, Zenith Bank made a N55 billion in COTs, one of the highest incomes generated from this ‘fine’ of all banks. COTs represents 10% of bank revenue. Sanusi Lamido Sanusi had promised to finally phase out COTs by 2016. The banks had contested this. Nigerians are now expecting the new CBN governor to work in the interest of the masses on this among other items by reducing or totally cancelling all these arbitrary charges.

Closely linked with this is perhaps of how the banking system, within a high interest rate regime, will be able to increase credit to the private sector. In the event that banks are hamstrung by high interest rates, the major losers will be the Small and Medium enterprises, which, unfortunately, will be the fulcrum for the achievement of an all-inclusive macro growth in Africa’s most populous nation. In the same vein, the micro-finance banks in Nigeria have the potential to build the country’s Small and Medium Scale Enterprises and as a result reduce unemployment in the land. The new governor should see the significance of micro-finance banks as the catalyst towards development of SMEs in the country.

On its part, the government must not heed the calls for the reduction in the powers of the CBN Governor and instead government must allow the new helmsman unfettered space to carry out his agenda. There is widespread agreement that central bank independence leads to better monetary policies. The logic of independence can be seen by looking at the different horizons of elected officials and of central banks. Political independence and non-partisan monetary policy provide the promise of policy stability over time, which in turn stabilizes expectations in asset markets. Such stability and continuity are essential to a successful monetary policy.

I wish Mr. Emefiele a successful tenure as CBN Governor.

•Ajiboye, public affairs analyst, writes in from Lagos, Nigeria via [email protected].