CBN’s agenda for industrial sector : A timely elixir?




Good economy thrives on production level and activities of a country. The Central Bank of Nigeria (CBN) has initiated moves to bail out the manufacturing sector from the lingering crisis besetting it over the years.  At a seminar organised by the CBN, in Benin City, Edo State, last week, the CBN governor, Sanusi Lamido Sanusi, provided further details on the apex bank’s intervention since 14th August 2009 and the new four pillars of banking reforms being pursued. 


“I AM convinced this this economy is not going anywhere until we face the problems of manufacturing, agricultural productivity, power reforms, petroleum subsidy and so on”. the Governor of the Central bank of Nigeria (CBN), said recently at a forum in Benin City, Edo tandem with this disposition, CBN has discussed with 300 companies to give N130 billion for manufacturers with seven per cent interest rate for about 10-year period.


According to the governor, saving and creating jobs is very important as well as creating output and then see the way for the market to go.Sanusi also stressed the importance of infrastructure to the success of a manufacturing business, saying that the money collected by manufacturers from banks have been used to buy generators, thereby becoming a power plant in setting up an industry. “Many of them today are IPPs”, he said.


Sanusi stated that the Asset Management Company will purchase the toxic loans for Tier One or Tier Two capital as the case may be for the banks, and get the banks ready for whatever type of bank combination or mergers as the directors deem fit.His words: “We have also got the banking system to levy itself on 30 basis points of their total assets to complement the CBN into the sinking fund and finance the resolution without adding to the fiscal debt.”


“No Central Bank in the world has done this to bring the system from the brink of catastrophe without adding to fiscal debt nor losing money,” he said.The governor also refuted the idea that the CBN is opposed to shareholders.His words: “A bank has to be profitable on a sustainable and steady basis to make profit. To that extent, we cannot have a safe and sound institution without the shareholders. We are not interested in loss making institutions.


“So, the idea that the CBN is opposed to shareholders is false. What is true is that where there is a conflict between depositors and shareholders, I am morally bound to take side with depositors.“So, the desire of bank managers and shareholders for profit must not be taken ahead of depositors. In a bank, the shareholders are not the most important of the stakeholders. We will not allow people to destroy depositors at the expense of shareholders,” he said.Therefore, the four pillar reforms was introduced by the apex bank to guarantee the safety and soundness of the banking system.


The pillars are: Enchanting the quality of banks; establishing financial stability; enabling healthy financial sector evolution; ensuring that the financial sector contributes to the real economy.Pillar one – Enhancing the quality of banks consists of five-part programme namely: Industry remedial programmes, regulatory reforms, strengthening the implementation of the Risk Based Supervision (RBS) methodology, consumer protection and internal transformation of CBN.


The Industrial Remedial Programmes are aimed at fixing the key causes of the crisis, namely: Data Quality, Enforcement, Governance, Risk Management and Financial Crime.Regulatory reforms entail systematic review of regulations and guidelines around the key causes of the crisis by industry regulators.It also entails harmonisation and raising to world class standards, supervision processes, technology and people as well as establishment of a centre of competence for International Financial Reporting Standards (IFRS).


In strengthening the implementation of the risk based supervision, (RBS) methodology, the examiners must get accreditation in RBS for industry communication and engagement while there will be monitoring mechanism to measure the programme’s impact with high level response to issues raised by the industry.Talking about consumer protection, this pillar ensures that consumer receive an appropriate level of protection by increasing consumer understanding of basic financial services and products while conducting customer satisfaction surveys.


“A consumer protection unit is already functional in the newly created financial policy and regulation department of the bank.”Concerning the internal transformation of the CBN, the areas where it is going to be transformed are: Corporate governance, management information system, people development and disclosure.The key thrust of pillar two involves the CBN providing leadership in some areas and championing some causes.


The creation of a new macro-prudential framework is designed to ensure that monetary policy is not only shaped by systemic risk trends but also consistent with the expanded hybrid goals for product and assets price stability.Establishment of the financial stability committee includes working together with the monetary policy committee to achieve these objectives.


To ensure financial stability, the CBN will also champion development of the capital market through the improvement of its depth and accessibility as an alternative to bank funding as well as fiscal policies to reduce oil related volatility in the system, for example, through the establishment of a stabilisation fund such as the sovereign wealth fund being contemplated.Enabling healthy financial sector evolution is embedded in pillar three and is also broken down into several sub-pillars.


It ensures the emergence of a competitive banking industry structure and provision of the required infrastructure for the financial system such as the credit bureau and registrars.This also entails improvement in the cost structure for banks through cost control and business process outsourcing, reliable and secure payments system as well as reduction of the informal sector and greater financial inclusion.


Really, the CBN has an important role to play in determining the ultimate structure of the banking sector.The apex bank has also welcomed foreign participation in the sector in order to improve and strengthen the financial system but is mindful not to allow the entry of foreign banks to affect the development of the local banking sector.


And while domestic mergers and acquisitions activities that would create stronger banks would be supported, other types of banks that would drive regional economic development will be licensed.In fact, the Asset Management Corporation (AMCON) was established as part of the broad resolution strategy.In line with the required infrastructure, three private credit bureaux were recently licensed – XDS Solutions, CR Services Limited and CRC Limited.


The CBN will also work with the Securities and Exchange Commission (SEC) towards the creation of a single registrar for all securities in the country while other infrastructural issues are to be addressed in due course.The apex bank said that it will continue to encourage the development of electronic channels to drive down industry cost structure while working with the banks to improve on the quality of service delivery in order to improve customer confidence.


In reducing the informal sector and greater financial inclusion, the size of the informal sector as a percentage of the Gross National Product has been estimated at 57.9 per cent in Nigeria by the World Bank, which is higher than the positions in Brazil, Ghana, Turkey, Malaysia and South Africa.According to the apex bank, the enhanced financial inclusion will result in; more accurate measurement of economic outputs, increase in the tax base and tax revenue with more effective policy development and more efficient use of financial infrastructure.


“All these will in turn improve policy efficiency and help in poverty reduction.”Pillar four seems very important: This is because it will ensure that financial sector contributes to the real economy.This pillar will involve the CBN as an institution, playing a key role in several areas and activities as advocate for the economic development of the country taking into cognisance its resources, independence and the respect it has in the society.


The activities of the CBN in this area will include; leveraging on the role of the CBN governor as an adviser to the president on economic matters to ensure that the financial sector contributes to the real economy.It will also provide leadership in the accurate measurement of the relationship between the real economy and the financial sector and the transmission mechanism.


This will also entail evaluating on a continuous basis, the effectiveness of existing development finance institutions and initiatives in agriculture, manufacturing and import-export credits.According to the apex bank, it will take a public lead in encouraging the examination of critical issues for economic development, such as the impact of infrastructure, for example, power, port and railway.


It will lead further studies on the potentials of venture capital and private-public partnership initiatives for Nigeria.It will also corporate with state governments in running pilot programmes that are aimed at directing the financial sector’s contribution to the state’s social economic development.






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