CBN Targets Double-digit Growth, Single-digit Inflation by 2023

• Seeks $12bn non-oil exports, 95% financial inclusion by 2024
• To retain managed-float exchange rate
• Bankers back CBN’s plan for recapitalisation

Obinna Chima in Lagos and James Emejo in Abuja

Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele, yesterday unfolded the bank’s policy direction for the next five-year under his watch, targeting double-digit growth, single-digit inflation, $12 billion non-oil exports by 2023 and raising financial inclusion to 95 percent level by 2024.

He also pledged to retain managed-float exchange rate and announce a bank recapitalisation that will see banks jacking up their capital base above the N25 billion minimum level that one of his predecessors, Prof. Charles Soludo, introduced in 2004.

Emefiele’s policy thrust elicited swift reactions from stakeholders with the Chartered Institute of Bankers of Nigeria (CIBN) endorsing the move to recapitalise the banks.

However, some other financial market analysts expressed divergent views about this pronouncement.

Emefiele, at press conference in Abuja, gave more details of his five-year policy direction, listing CBN priorities over the period to include preservation of domestic macroeconomic and financial stability; fostering the development of a robust payments system infrastructure that will increase access to finance for all Nigerians thereby raising the financial inclusion rate in the country and working with the Deposit Money Banks (DMBs) to improve access to credit for not only small holder farmers and MSMEs but also consumer credit and mortgage facilities for bank customers.

He said henceforth, the CBN intervention support programme would also be extended to the youth population who possess entrepreneurship skills in the creative industry.

He said within the intervening period, the CBN would further encourage banks to direct more focus in supporting the education sector.

According to him, he will strive to grow the external reserves and support efforts at diversifying the economy through the CBN intervention programmes in the agriculture and manufacturing sectors.

He added: “We are confident that when implemented, these measures will help to insulate our economy from potential shocks in the global economy.

“In my second term in office, part of my pledge, is to work to the best of my abilities in fulfilling these objectives.”

He also disclosed that the apex bank would leverage monetary policy tools in supporting a low inflation environment, while seeking to maintain stability in exchange rate- with a key emphasis on supporting improved GDP growth and greater private sector investment.

He added that decisions by the Monetary Policy Committee on inflation and interest rates would also be dependent on insights generated from data on key economic variables.

Emefiele added that the CBN would seek to broaden financial inclusion by ensuring that at least 95 per cent of all eligible adults have access to financial services by 2024.

In addition, the apex bank will strive to sustain a positive interest rate regime, “to the delight of our important stakeholders.”

The CBN governor said monetary policy measures would be geared towards containing inflationary pressures and supporting improved productivity in the agricultural and manufacturing sectors.

Also, the CBN, working with other stakeholders, will reduce the cost of food items, which has considerable weight on inflation.

He said: “Our ultimate objective is to anchor the public’s inflation expectation at single-digit in the medium to long run.

“We believe a low and stable inflationary environment is essential to the growth of our economy because it will help support long term planning by individuals and businesses.

“It will also help to lower interest rates charged by banks to businesses thereby facilitating improved access to credit and a corresponding growth in output and employment.”

Emefiele also said the CBN would continue to operate a managed-float exchange rate regime in order to reduce the impact which continuous volatility in the exchange rate could have on the economy.

He added that the country remained committed to a free trade regime that is mutually beneficial and particularly aimed at supporting domestic industries and creating jobs on a mass scale for Nigerians while the dynamics of global trade continues to evolve in advanced economies.

He said the CBN would support measures to increase and diversify Nigeria’s exports base and help in shoring up reserves.

“We intend to aggressively implement our N500 billion facility aimed at supporting the growth of our non-oil exports, which will help to improve non-oil export earnings,” he stated.

He said though the goals were onerous and tasking, the CBN would remain committed to fulfilling its mandated objectives of price and exchange rate stability.

He added: “We will continue to work to safeguard the stability of our financial system, while supporting the development of a payment system infrastructure that will improve access to credit for all eligible Nigerians.

“Nevertheless, additional emphasis will be placed on supporting greater growth of our economy and in reducing unemployment, through targeted interventions in the agricultural and manufacturing sectors.”

Also, Emefiele said the CBN would launch a Trade Monitoring System (TRMS) in October, which is an automated system to reduce the length of time required to process export documents from one week to a day, adding that the measure will help support efforts at improving non-oil exports of goods and services.

He said the CBN would also work with its counterparts on the fiscal side in supporting improved FDI flows to various sectors namely agriculture, manufacturing, insurance and infrastructure.

He noted that the measures while supporting improved inflows into the country, would also help to stabilise exchange rate and build external reserves.

According to him, emphasis will also be placed on improving speed and efficiency of payment channels, while working to ensure that digital channels are safe and secure as this will help to build confidence in the nation’s payment system.

Emefiele said to improve utilisation rate, the CBN would continue to ensure that payment channels are interoperable, to enable individuals with digital devices to transact across different banks or payment modes.

He assured the public of significant improvement in the payment system during his new tenure.

He said the CBN would further work with NIBSS, banks and Fintechs in developing a regulatory sandbox to “enable us to test financial innovations by Fintechs and banks in a controlled environment, in order to assess its impact on the growth and safety of our financial system.”

The CBN governor said he would boost productivity growth through the provision of improved seedlings, as well as access to finance for rural farmers in the agricultural sector, across 10 different commodities namely rice, maize, cassava, cocoa, tomato, cotton, oil-palm, poultry, fish and livestock/dairy.

According to him: “Our choice of these 10 crops is driven by the amount spent on the importation of these items into the country, and the over 10 million jobs that could be created over the next five years if efforts are made to expand cultivation and processing of these items in Nigeria.

“So far, we have held series of engagements with importers and producers of these products. Most of them have committed that they would install or expand their production capacities in Nigeria. We believe these measures will help to boost not only our domestic outputs but also improve our annual non-oil exports receipts from $2 billion in 2018 to $12 billion by 2023.”

He said CBN intervention programmes would strengthen the linkage between farmers and agro-processors/manufacturers by ensuring that the output of farmers is purchased by agro-processors/manufacturers.

On the planned recapitalisation of banks, Emefiele said the CBN would embark on the programme to position Nigerian banks among the top 500 in the world.

According to him, when the scheme becomes effective, banks will be required to maintain higher level of capital and liquid assets to reduce the impact of an economic crisis on the financial system.

Providing insights into reasons for the planned recapitalisation, the CBN boss said the 2004 banking industry recapitalisation, which increased banks’ capital base from N2 billion to the current N25 billion, had weakened.

He said: “You will all agree with me that it was Governor Soludo in 2004 that did the last recapitalisation we had, moving the capitalisation from N2 billion to N25 billion.

“And I must commend those efforts because it resulted in positioning Nigerian banks not only in Africa, but also being among the banks in the world in terms of capitalisation and it also increases or helps to strengthen the banking industry capacity to take on large ticket transactions- and those are some of the things we badly need today.

“And if you relate N25 billion in 2004 exchange rate, which was about N100 to N25 billion, it is certainly only about $200 million. Today, if we relate N25 billion at N360, you can see that it is substantially even lower than $75 million.

“What we are trying to say is that recapitalisation has weakened quite substantially and there is a need for us to say it is time to recapitalise Nigerian banks again.

“It is a policy thrust which will be discussed at the Committee of Governors’ meeting and of course, the framework for the recapitalisation of Nigerian banks will be unfolded for the whole world to know.”

However, reacting to the CBN’s planned recapitalisation programme, CIBN President, Mr. Uche Olowu, described it as a step in the right direction.

Olowu, in an interview with THISDAY, said for Emefiele to have said the banks should be ready for another round of recapitalisation, “it means that capital has been eroded and if the banks would have to take on more business and to be well positioned for the kind of opportunity that would come, then they have to be recapitalised.”

He added: “This is because without capital, it would be difficult for you to do the kind of business you are expected to do. So, if a regulator has said that, he has all the data.

“All the banks need to do is to re-strategise and start working towards the direction of the CBN. Today, if they have to play in certain markets, they definitely need to beef up their capital.”

But the Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, said the first step ought to be for the regulator to evaluate whether the recapitalisation that was done in 2004 has any impact on the industry and the economy.

According to Rewane, consolidation can either be regulatory induced or market-induced.

He said: “What is the objective of the new recapitalisation? Is it that the buffers are not enough? Is it that the banks are distressed? What is the need for doing it?

“Obviously, there is always the need for buffers, but you cannot make the minimum capital requirement a buffer requirement.

“Those who are well capitalised would be able to do things and would be able to differentiate themselves from others who are not well capitalised. I think that without knowing the objective for the consolidation and an evaluation of the current consolidation to see whether it has achieved the objective for which it started; or is it competitive pressure to say because Ghana and few other countries have done it?”

Also, a former bank Chief Executive Officer, Mr. Okechukwu Unegbu, said the pronouncement by the CBN governor could send panic into the system if not properly managed.

Unegbu, who is presently the CEO of Maxifund Investments and Securities Plc, said beyond recapitalisation, the issue of human capital in the banking industry should also be given attention.

“We must understand that everything is not about money coming into the system. We should be talking about capacity building and the type of personnel behind these institutions.

“These days, a lot of bankers don’t have career path. Most bankers don’t have job satisfaction. Today, the level of fraud in the system is on the rise and it is a result of deficiency in capacity building. So, it is not only money that we should be talking about.

“If these institutions don’t have the required capacity and you throw money into them, they would probably be out of business before you know it,” he added.

But the Head of Research at FSDH Merchant Bank, Mr. Ayodele Akinwunmi, said with the double-digit growth the CBN governor has said he would be targeting in the next five years, recapitalising the banks would be essential.

“As the economy grows, lending activities would increase and more viable lending opportunities would be thrown up. As that increases, the capital that bank would require to support the expected increase in lending would increase.

“So, it is going to be a win-win for everyone. For me, if we are expecting double-digit growth in the Gross Domestic Product, then the financial system must then be well capitalised to ensure that they support that growth that we are expecting.

“Secondly, I think the capital market is deep enough to support any banking recapitalisation. So, until we see the modalities and the amount, for now, I think any bank in Nigeria can raise any money in the capital market to support their business,” Akinwunmi stated.