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Slide 39 -
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Professor Chukwuma C. Soludo, CFR, CBN Governor Outline The Journey So Far Introduction At 50, the Central Bank of Nigeria has come a very long way, and evolved with the Nigerian economy and the Financial System
With the Central Bank Ordinance passed on 17th March, 1958; first Governor of CBN (Mr. Fenton) assuming duty on July 24, 1958; first meeting of Board of Directors held on 30th July, of the same year, and the 1958 Act came into full effect on September 15, 1958, the CBN was ready to commence operations which it actually did on 1st July 1959
In 1959, the Nigerian economy was powered mainly by the three regional economies and dominated by groundnuts, palm produce, and cocoa Our Operating Environment: Then and Now Acknowledgements The Executive and Legislative Arms of Government
14 Heads of State; 9 Governors of Central Bank;
126 Directors; 19,563 Staff (5,028 staff serving)
5,356 Pensioners
The Ministries and Agencies connected with economic and financial policies and regulation (Ministries of Finance, National Planning, Justice, SEC, NDIC, DMO, OAGF)
CEOs of banks and other financial institutions; money market operators
Nigerian Stock Exchange; operators of the capital market
Nigeria’s Development partners– the IMF, World Bank, UNDP; UKDFID, USAID, EU, etc.
CBN Governors (1958 – 2008) Evolution of CBN & Its Mandate In 50 years, the CBN has had three major Acts (1958, 1991, and 2007) with some amendments. There have been periodic interruptions of the Bank’s operational independence, but the 1991 Act (as amended) clearly spelt out the Bank’s operational independence
However, it has remained relatively stable in relation to its governance and mandate
With 9 Governors in 50 years, the CBN has been spared the volatility in Nigeria’s political history and remained one of the most stable Central Banks in the world
The CBN has evolved in terms of its organizational structure, complexity, skill pool, efficiency and effectiveness
Evolution of the CBN Evolution of CBN Since the 1958 Act, the mandates of the CBN (with modifications) have included:
Ensure monetary and price stability (2007 Act)
Issue legal tender currency in Nigeria
Maintain external reserves to safeguard the international value of the legal tender currency
Promote a sound financial system in Nigeria
Act as a banker and provide economic and financial advice to the Federal Government
In essence, the CBN is:
The Monetary Authority of Nigeria
A Regulatory Institution for Banks and Others
The Banker and Adviser to the FGN The CBN Mandate Evolution of Monetary Policy in Nigeria Plans to adapt a form of Inflation Targeting framework Outcome: Monetary & Price Stability 1970s, 80s: Improved monetary management
90s: Higher Inflation (fiscal dominance)
2004-2007: Single digit inflation, effective monetary and fiscal coordination Outcome: Increased Credit to Private Sector (N’b) Issuance of Legal Tender and Transformation of Payments System CBN moved from issuance of Nigerian Pounds (July 1959) to issuance of Nigerian Naira since 1973
Denominations issued in response to changing economy
Promoted the transformation of the payments system from a predominantly cash to increasingly sophisticated electronic system Issue Legal Tender Currency & Payments System Management of External Reserves Changes in practice have reflected changes in the CBN Law and improvements in the capacity of CBN Staff
Framework has moved from passive to active reserve management
Collaborated with the World Bank on Reserves Advisory and Management Program (RAMP) in 2003
Established a modern Dealing Room
Appointed External Asset Managers to manage a portion of the external reserves
Diversified assets portfolio of external reserves in 2007 Management of External Reserves (US$’ml) Reforms in Exchange Rate Management Moved from fixed regime to flexible (market-determined) in 1986
From Retail DAS to wholesale DAS in 2006
Deepened Interbank Forex transactions
Liberalised the Forex market Outcomes
More Efficient Forex market
Higher accumulation of Reserves
Convergence of Rates (2006-2008) Outcome: Exchange Rate Convergence Evolution of Banking Supervision 1892 – 1951 1960 – 1965 1966 to date 1986 – 2003 2004-2005 Nigeria following the World Nigeria setting pace for the world 2006 to date: Post-Consolidation Sound Financial System End Dec. ‘03: Pre-Consolidation (Where We Were)
89 banks with 3,282 branches characterised by structural and operational weaknesses such as:
Low capital base & poor asset quality
Oligopolistic structure; insolvency and illiquidity
Weak corporate governance; poor rating of a number of banks
Overdependence on public sector funds and income from foreign exchange trading
Lack of capacity to support the real sector of the economy New Regulatory Landscape Tightening of Regulation and Supervision
Greater emphasis on enforcement of Code of Corporate Governance
Resident Examiners have been deployed to banks since January 2009
Standby teams of target examiners being deployed to any bank at any time to ensure timely regulatory actions if necessary
Review of Contingency Planning Framework for Systemic Distress in Banks
Introduction of Credit Bureau
Strengthening of institutional coordination through the Financial Sector Regulatory Coordinating Committee (FSRCC)
Adoption of common accounting year end for all banks with effect from end-Dec. 2009, aimed at improving data integrity and comparability
Adoption of the International Financial Reporting Standards (IFRS) Initially 25 (now 24) well capitalized banks owned by the Private Sector
Asset Base grew by 439.4% between 2003 and March 2009
Capital adequacy ratio was 22% by end December 2008
Ratio of non-performing loans to total loans down from 22% in 2003 to 6% in 2008
About 10 Nigerian banks in top 1,000 banks in the world, and 3 in top 2,000 companies in the world (none in 2003)
Nigerian banks as Nigeria’s leading multinationals
Branch Expansion outside Nigeria - 37 in Africa and 9 outside Africa
More effective supervision (24 rather than 89)
Microfinance Banks - 866 licensed (104 under AIP) Sound Financial System: Post- Consolidation The Nigerian Banking Sector Pre and Post Consolidation Outcome In spite of the Global Crises and the banks’ exposure to the capital market:
Banks total exposure to Capital market as at end January 2009 was N784 billion or about 10% of total loans
Amount banks are prepared to turn over to an Asset Management Company (AMCON) if such were set up by end of the year = N 350– N 400 billion or approx 4 – 5% of loans as at Feb. 2009
About 15 banks would have no need for AMCON
Total Non-performing loans as percentage of total as at Feb. 28, 2009 = 6.2% (Estimated non-performing loans as at end of December 2009 = about 7.4%)
CAMELS rating of the banks as at end-December 2008, showed an average composite score of 62 per cent and average industry rating is satisfactory
Average capital adequacy ratio of 22 per cent, among the highest in the world Banker and Adviser to Government CBN is always a key partner in the development of Government Economic Policies and various National Development Plans since inception
The Bank provides periodic Economic and Financial advice to Government
As Banker to the Federal Government – deployed first rate IT infrastructure to ensure e-payment Developmental Activities Targeted Funding Facilities
CBN Funding Contributions to the establishment of DFIs: NEXIM; BOI; FMBN; NACRDB; AFC
Agricultural Credit Guaranteed Scheme Fund (ACGSF)
Microcredit Fund (N50 billion)
Small and Medium Enterprises Loans Scheme (1&11)
Small and Medium Enterprises Equity Investment Scheme (SMEEIS)
Recent N200 billion Fund for Large Scale Commercial Agriculture
Entrepreneurship Development Centres (EDCs) in 3 Zones since 2008 (trained 9,000 people so far, and expected to create 525,000 jobs in 3-5 years)
Active Foundation Role in Establishment of NDIC and SEC
Corporate Social Responsibility
Support to tertiary institutions
Provides Technical and financial support to the National Bureau of Statistics
Support for Government and Professional Institutions in capacity development and strengthening The Road Ahead Effect of the Current Global Economic Crises The current economic crises will reshape the global competitive landscape but CBN will continue to do her best to ensure that our monetary policies are in line with global best practices and reflective of our peculiarities, and that our regulations support the Nigerian economy to achieve her full potential The Road Ahead Context: Key Drivers of the Environment for Central Banking in the next 50 Years?
Financial globalization will deepen, with intensified cross-border regulation and supervision
Globalization with weak governance structures and hence increased uncertainties and vulnerabilities to more devastating future financial crises
Regionalism: common currencies and regional central banks (Nigeria just signed an MOU with AUC granting Nigeria hosting right to African Central Bank (ACB). If monetary unions succeed in Africa, there may be no Central Bank of Nigeria in the next 50 years
Central Banks increasingly being required to make “financial system stability” an explicit goal, and potentially increasing role in financial system regulation and supervision
Increasing integration of financial markets and difficulty of measuring and controlling domestic monetary aggregates The Road Ahead Continue to maintain macro stability – price stability consistent with long term economic development
Amend BOFIA to strengthen regulation/supervision
Other Legal Reforms – to fast-track markets/institutions for efficient credit system
Increasing investment in production & processing of timely & robust data for economic management
Mortgage and Consumer Credit Reforms
Deepen and Mainstream Microfinance System
Continued Strengthening of Corporate Governance
Capacity Building for Financial System staff (Knowledge, skills) professionalism) The Financial Systems Strategy (FSS 2020) as Medium Term Strategy To make Nigeria Africa’s Financial Centre of choice by 2020 through:
Developing Nigeria’s financial sector & engineering Nigeria’s evolution into the International Financial Community
Strengthening domestic financial markets
Enhancing integration with external financial markets
Building an International Financial Centre
Providing enabling environment & infrastructure
Establishing the financial system as a growth catalyst Conclusion The Past is Behind Us, and the Future ahead is full of uncertainties and Challenges.
50 Years is only a beginning, not an end for the Central Bank
As Nigeria aspires to claim the 21st Century, the CBN in the next
50 Years must be proactive in leapfrogging the financial system to ensure success
Your contributions during this Conference
could put us on this sure path!
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