The Central Bank of Nigeria (CBN) Governor, Godwin Emefiele is seven years in office on Friday June 4. In those years, he has aimed at many targets and scored several direct hits. Aside its core functions of price and exchange rate stability, the CBN under Emefiele has performed some major developmental functions on all the key sectors of the economy supporting the Federal Government’s quest for better life for the people. Despite leading the apex bank at a period of trial for both the domestic and global economies due to the Covid-19 pandemic, Emefiele’s commitment to the apex bank’s developmental roles has helped reflate the economy and quickened Nigeria’s exit from recession.
When the Central Bank of Nigeria (CBN) Governor Godwin Emefiele unfolded his policy direction for the second term of five years, support for the domestic economy was one of the pledges that topped the list.
Under the exercise, the apex bank is to support the domestic economy as enshrined on its developmental functions meant to activate better life for the citizenry.
The CBN boss also plans to achieve $12 billion non-oil exports by 2023 and raise financial inclusion to 95 per cent by 2024 while retaining the managed-float exchange rate.
The CBN boss commitment to the domestic economy has led to more funding going to key segments of the economy to ensure the impact of the Covid-19 pandemic was reduced on the people and their businesses.
In line with its Covid-19 response plan, the CBN under Emefiele created credit facilities for the healthcare, N100 billion, Targeted Credit Facility, N100 billion, and manufacturing sector N1 trillion.
From January 2021 till date, N157.5 billion have been disbursed for 29 real sector projects under the Real Sector Support Facility , while N857.6 billion have been disbursed for 234 real sector projects under the RSS-DCRR (inclusive of (CMIS) from inception November 2018 till May 28, 2021.
Also from January 2021 to date, N26 billion have been disbursed for 10 projects under the Covid-19 Manufacturing Intervention Scheme (CMIS) while N255.9 billion have been disbursed for 78 projects under the CMIS from January 2020 till May 28, 2021.
Likewise, 98 healthcare projects have been funded to a tune of N97.44 billion under the Healthcare Sector intervention Facility (HSIF) as at May 28, 2021.
Seven years into his two terms of five years each, Emefiele’s scorecard looks good in the face of the daunting challenges inflicted by the pandemic businesses and economies across the globe.
Likewise, in the five year Policy Trust of the CBN- 2019 to 2024, Emefiele promised to improve access to credit for Micro, Small and Medium Enterprises (MSMEs) as well as spur consumer spending to stimulate growth and enhance employment, among others.
Following the an apparent credit squeeze which started in March 2019, the CBN boss modified some long-staring rules that were perceived, rightly or wrongly as one of the constraints to bank lending.
The Loan to Deposit Ratio (LDR) for commercial banks was adjusted upward from 30 per cent to 60 per cent , and later 65 per cent. The policy shift lead to over N2 trillion additional credit to the economy, with MSMEs benefiting more despite fears in many quarters that the LDR policy will increase the level of bad loans in the sector.
So far, expansion in credit has boosted business growth as it helps in changing savings into investment, but it is also a matter of concerns for prudential regulation.
However, as the credit expanded the ratio of bad loans to total loans continuously moderates due to policy measures that accompanied the credit cost policy like the Global Standing Instruction (GSI) policy that allows banks to debit accounts of loan defaulters in other banks. The GSI is linked to customers’ Bank Verification Number.
FBN Holdings Plc, United Bank for Africa Plc and Zenith Bank Plc expanded their loan books by the equivalent of about $1 billion in order to dodge heavy penalties from the CBN, S&P Global Market Intelligence calculations showed.
Analysts said many banks expanded their loan base following the CBN’s LDR plan, which also includes sanctions for defaulters through restriction on their deposits.
“The CBN will not allow people to borrow money and refuse to pay again. That era has gone. If you take money, you will pay back the loan. If you borrow money and refuse to pay, we will take your money wherever you are keeping it,” Emefiele said.
The CBN said the operationalization of the GSI require borrowers to sign a GSI mandate in hard copy or digital form, after which all qualifying accounts are linked to the borrower’s Bank Verification Number (BVN).
“The GSI mandate form authorises the recovery of an amount specified by the bank from any/all accounts maintained by the borrower across all financial institutions. The GSI empowers banks and other financial institutions to debit accounts of chronic loan defaulters in any bank within the country to ease NPLs growth in the country,” it said.
The apex bank said banks recovered N50 million bad loans from individual debtors in the first week of GSI implementation.
The CBN’s move to force banks to lend more is significant because over the past two years we’ve seen banks develop apathy in terms of credit creation, which has hampered domestic economic growth,” he said
President, Chartered Institute of Bankers of Nigeria, Bayo Olugbemi, said that the scourge of bad loans had been a long standing menace to the Nigerian banking sector.
According to him, the issuance of the GSI policy under Emefiele marks a new dawn in credit management and debt recovery processes in the country.
In the economic outlook for 2021, released by Lagos Chamber of Commerce and Industry, LCCI, its Director-General, Muda Yusuf, said several governments globally provided fiscal stimulus to support households, small businesses, and their economies generally, while central banks eased monetary policy conditions through large-scale purchases of financial assets and interest rate reduction to rescue their respective economies.
Growth of banks and naira status
Today, Nigeria boasts of one of the most advanced financial sectors in Africa even as quite a number of its banks now operate branches in other countries. They top banks are also adopting Holding Company Structure in line with their business expansion plans and determination to reach more offshore markets.
The naira has also come under pressure under Emefiele with the local currency devalued recently as foreign exchange earnings continued to dip in the face of commodities prices volatility.
Emefiele explained that Nigeria, like other emerging market countries and countries reliant on oil exports, the decline in crude oil earnings as well as the retreat by foreign portfolio investors significantly affected the supply of foreign exchange to Nigeria.
The CBN boss said the need to adjust for the decrease in supply of foreign exchange led to the depreciation of the naira.
“With the decline in our foreign exchange earnings and successive exchange rate adjustments, the CBN has continued to implement a demand management framework, which is designed to bolster the production of items that can be produced in Nigeria, and aid conservation of our external reserves,” he said.
Emefiele explained that due to the unprecedented nature of the shock, the apex bank has continued to favour a gradual liberalisation of the foreign exchange market in order to smoothen exchange rate volatility and mitigate the impact which, rapid changes in the exchange rate could have on key macro-economic variables.
This, he said, was in line with international best practices in countries where managed float arrangements are in operation.
“At the same time, measures are being taken by the authorities to improve our non-oil exports and other sources of foreign exchange. These measures have helped to prevent a significant decline in our reserves,” he added.
President, Association of Bureaux De Change Operators of Nigeria (ABCON), Aminu Gwadabe also linked the naira depreciation to forex speculators selling above CBN approved margin.
He said the naira for dollar policy instituted by the apex bank is already yielding positive results and is expected to add to the foreign reserves and keep naira upbeat.
Exit from recession
The economic impact of the pandemic was devastating to the Nigerian economy. The Nigerian economy which grew by 1.87 per cent in real terms in first quarter of 2020, contracted by 6.1 per cent and 3.62 per cent in second and third quarters of 2020, respectively. The economy slipped into recession in third quarter of 2020 after a two consecutive quarterly decline in national output. This marked the country’s second recession since the 2014 commodity price shock.
Despite these challenges, the CBN rose to the occasion through its developmental policy measures that included more loans to businesses. The National Bureau of Statistics (NBS) show that Nigeria’s gross domestic product (GDP) for the fourth quarter of 2020 grew by 0.11 per cent, indicating an exit from recession.
Economic revival plans
The CBN under Emefiele had in April 2020 developed a three-year policy plan to revive the economy. The Policy Response Timeline will guide Nigeria’s crises management, and orderly rebooting of the economy by relying on homegrown solutions.
In a report titled: Turning COVID-19 Tragedy into an Opportunity for a New Nigeria, the CBN boss said the policy framework will come in three phases- immediate term policy of zero to three months, short-term policy priorities of zero to 12 months and medium-term policy priorities of zero to three years.
Emefiele said the outbreak of the Novel Coronavirus Disease (COVID-19) in China has rapidly permeated and profoundly changed the world. While the crisis is first and foremost a public health issue which has claimed the lives of over 123,600 people worldwide, and counting, the economic damages are unprecedented on several fronts.
“That is why in response to COVID-19, the CBN is strengthening the Nigerian economy by providing a combined N3.5 trillion in targeted measures to households, businesses, manufacturers ad healthcare providers. These measures are deliberately designed to support the Federal Government’s immediate fight against COVID-19, to build a more resilient, more self-reliant Nigerian economy,” he said.
“We do not know what the world will look like after this pandemic. Countries may continue to look inwards and globalization as we know it today may be dead for a generation. Therefore, as a nation, we cannot afford to continue relying on the world for our food, education and healthcare. This time has come to fully transform Nigeria into a modern, sophisticated and inclusive economy that is self-sufficient. Rewards the hardworking, but protect the poor and vulnerable, and can compete internationally across a range of strategic sector,” he added.
Emefiele said there would be no need to continually rely on the world for anything and everything at any time. He said now is the time for Nigeria to look inwards as a nation and guarantee food security, high quality and affordable healthcare, and cutting-edge education for the people.
“For a country of over 200 million people, and projected to be about 450 million in a few decades, we can no longer ignore repeated warnings about the dangers that lie ahead if we don’t produce locally, because the security and well-being of our nation is contingent on building a well-diversified and inclusive productive economy,” he said.
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