CBN Signals Retention of Tight Monetary Policy, Targets Rate Convergence

• Banking industry fines drop by 79%

Obinna Chima

with agency report   

As the Monetary Policy Committee commences its two-day meeting today, a Deputy Governor of the Central Bank of Nigeria (CBN), Dr. Joseph Nnanna has disclosed that the central bank is likely to retain its tight monetary stance on persistent dollar shortages.

The CBN has also restated its resolve to converge the multiplicity of exchange rates in the forex market.

The exchange rate of the naira against the U.S. dollar appreciated on the parallel market last week when it gained N6 to close at N380 on Friday, stronger than N386 last Monday, as the central bank sustained its dollar injection in the interbank forex market.

However, in other segments of the market – banks and Travelex – the naira traded at N362 to the dollar.

But Nnanna told Bloomberg at the weekend that the aim of the new forex window for investors was to “achieve the convergence” between the different exchange rates.

The currency trades at N382 to the dollar on the new window for investors, 18 per cent weaker than the interbank forex rate.

“If we achieve convergence, I don’t think the window will be necessary anymore because you’ll have one exchange rate for the economy,” Nnanna said.

One advantage of the foreign exchange shortages is that they have forced Nigerians to buy more local products, including food such as rice, Nnanna said.

“The craze for imported goods has declined,” he said. “Our consumption pattern is changing. We are producing what we used to import before.”

The central bank will boost lending to agricultural businesses through its intervention funds, he said.

“We won’t lose sight of our developmental function, in the sense that if there’s a sector where we need to intervene, we will do so,” Nnanna said.

“We are more bullish with the agriculture sector.”

Also, CBN spokesman, Isaac Okorafor in a statement yesterday reiterated the CBN’s commitment to ensure that there is enough forex supply to genuine customers to achieve the rate convergence.

CBN Governor, Mr. Godwin Emefiele had at the end of the MPC meeting last March stressed that one of the objectives of the central bank was the rate convergence in the various segments of the market.

Instructively, Nigeria’s external reserves shed $183 million to $30.724 billion as of May 17, compared with the $30.911 billion on May 11.

As the MPC meeting commences today, watchers are expectant to see the decisions the committee would take.

According to Nnanna, this is not the time to ease policy.

Inflation slowed for a third month in April, but at 17.24 per cent remains almost double the upper limit of the central bank’s 6-9 per cent target.

“We are battling with liquidity as it were, so a tight monetary policy will remain for now,” he said.

Nnanna said he would probably replace Sarah Alade as Deputy Governor in Charge of Economic Policy at the central bank, a role that’s key to wooing back foreign investors and helping the nation alleviate its dollar-squeeze.

Alade retired in March and was the best known of Nigeria’s four deputy governors among global bond and stock investors, often accompanying Emefiele on roadshows.

Nnanna is currently in charge of financial system stability and has overseen the economic policy brief since Alade’s departure.

“It appears that I will take on that responsibility permanently” once the presidency picks a new deputy governor, Nnanna said.

“It would mean working hand in hand with the governor to engage both foreign investors and domestic investors. I’ve been meeting with domestic investors already,” he said.

Meanwhile, the fines imposed on commercial banks for contravening CBN and the Securities and Exchange Commission (SEC) regulations dropped significantly in 2016, compared to the previous year.

According to the 2016 audited results of 14 banks listed on the Nigerian Stock Exchange (NSE) assessed by THISDAY, the combined fines paid by the banks dropped by 79 per cent to N955 million last year, compared with N4.541 billion that they had to part with as penalties in 2015.

The offences and fines imposed by the CBN and SEC were listed in the 2016 annual reports of the banks.

Some of the contraventions included late rendition of daily returns; illegal international money transfer services; failure to file Suspicious Transaction Reports (STRs) in respect of accounts linked to Bank Verification Numbers; unlawful disclosure of customers’ information to third parties; and non-refund of customers’ funds short-changed by ATM non-dispensing/partial dispensing errors.

Others included commencing branch operations without the CBN’s approval; penalties for forex-related issues; late publication of accounts; failure to classify customers’ risk categories and lack of due diligence; and contravention of anti-money laundering rules.

For instance, FBN Holdings Plc which was penalised N1.001 billion in 2015, was only fined N102 million in 2016. Also, the penalty Zenith Bank paid in 2016 was put at N16 million, as against N60 million recorded the previous year.

United Bank for Africa (UBA) Plc also paid N246 million as penalty in 2016, as against N2.969 billion in 2015. First City Monument Bank took some corrective measures as its penalty dropped to N88.8 million, from N180.1 million in the previous year, just as Sterling Bank’s fine dropped to N14.371 million in 2016, from N100 million in the prior year.

Similarly, Jaiz Bank was penalised N0.1 million in 2016, lower than the N12.358 million it paid in 2015, Union Bank of Nigeria Plc also paid N48 million in 2016, down from the N67 million paid the previous year, while penalties paid by Stanbic IBTC Holdings were reduced to N70 million in 2016, from N100 million the previous year.

Commenting on the sharp drop in fines and penalties, the chief executive of Financial Derivatives Company Limited, Mr. Bismarck Rewane said the banks were more compliant in 2016 so as not to strain their profitability.

Rewane, who spoke to THISDAY, said the regulations might also have been fewer last year.

“The banks are becoming more complaint. It also shows that the level of scrutiny might have increased. In 2017, we could also notice that the penalties might reduce because the regulations are being relaxed.

“So what we saw last year was that the banks were careful in managing their risks because their profitability was under pressure,” he added.

Moody’s Investors Service recently maintained its stable outlook on the Nigerian banking system, reflecting the rating agency’s view that acute foreign currency shortages in the country will gradually ease.