Cardoso: Nigeria Doesn’t Require Funding Support from IMF to Close Liquidity Gap, for Now

•Says FX inflows hit $24bn in Q1

•Declares recapitalisation will boost banks’ resilience, support for economy

•Voids price verification system for import and export transactions effective July 1

Emmanuel Addeh and James Emejo in Abuja

Governor of Central Bank of Nigeria (CBN), Mr. Olayemi Cardoso, has said the country currently does not need any concessionary funding intervention from the International Monetary Fund (IMF), as it has “access to enough exposures from different areas that should be able to see us through”.

Cardoso, in a 20-minute interview with Bloomberg, also disclosed that the country’s total foreign exchange (FX) inflow hit $24 billion in the first quarter of the year.

He said the problems with Nigeria were only temporary, adding that recent policy efforts by the fiscal authorities are adequate to increase revenues and tax to Gross Domestic Product (GDP).

He emphasised that Nigeria was looking to double diaspora remittances.

Separately, Cardoso, yesterday, said the apex bank would continue to collaborate with relevant financial institutions, the fiscal authorities, and the National Assembly to ensure a successful recapitalisation of the banking industry.

Speaking on “The Impact of the Recapitalisation of Nigerian Banks,” at the UK-Nigerian Chamber of Commerce forum in London, he said the CBN would ensure adequate protection of property rights and interests of minority shareholders.

On whether the country would need to resort to IMF for cheaper funding to bridge existing liquidity challenges, Cardoso said, “Well, as at now, as far as I can see, we have what it takes from existing sources to close the gap and move the country forward.”

He added, “I think as at now, we have access to enough exposures from different areas that should be able to see us through.

“The problem Nigeria has from our perspective is temporary – they are just temporary issues. And I believe that as some of the things (policies) are kicking in, for example, efforts from the fiscal side will increase revenue and tax to GDP will go up.

“So, as these things begin to kick-in and some of the focuses we are having, like the IMTOs (International Money Transfer Operators), I think those gaps will be eliminated.”

The central bank governor said, “In terms of liquidity, we have a situation, especially on the foreign exchange side, which is also very critical, where we’ve seen an increase.

“The first quarter of this year has resulted in, through using a number of these measures, a total inflow of about $24 billion. Now, this is almost about, I would say about 40 per cent to 50 per cent more than the quarters up to about 2021.

“So clearly, it’s having a positive impact. And we believe that continuing on this trajectory, we’ll see liquidity continue to increase.”

He stated that Nigeria was looking to exploring multiple FX sources, including from the diaspora as well as Eurobond, to bolster its FX earnings.

According to him, “And even talking about things like how to attract more foreign exchange flows, we’ve had a recognition of the huge role that the diaspora, the Nigerian diaspora plays.

“They remit a tremendous amount of money into the system over a period of time.

“And we set up a committee, which reports directly to me with the goal of doubling the amount of inflows coming from International Money Transfer Operators (IMTOs) to more or less service that segment of the autonomous players.

“And already, it’s beginning to bring about results. And again, we’re confident that with these kinds of measures, liquidity will improve in our country.”

He explained that capital inflows remained very important to improving the economy, stressing that in the case of Nigeria, the pass-through from the foreign exchange rate into inflation is quite significant.

The CBN governor stated that Nigeria should have a diversity of FX inflow sources, not just Eurobond market or foreign portfolio investors, explaining that the problems that the country currently has are temporary.

He stated that when he took over as head of the apex bank about 10 months ago, there were a lot of distortions in the FX market, stating that he and his team have tried to fix the problems gradually in the last few months.

Cardoso said, “There were backlogs of foreign exchange that needed to be settled and there was so much, an incredible amount of uncertainty. And we basically had to look at this and say, well, what are the things we need to do to restore confidence and even for local people not to panic and to have the confidence in their own currency.

“And a number of things were done, which included appreciating the fact that there were a lot of distortions within the foreign exchange system that did not give people the confidence to want to invest and to want to keep their money in Naira.

“Everybody exchanged into dollars and held dollars. And we addressed those, including a flurry of different circulars, addressing some to the banks and addressing some to the system, the operations of the system itself.

“And we feel that a number of things have happened, one of which is the fact that more confidence has come back into the market.”

Cardoso added, “A lot of inflows have come back because there was very little liquidity at the time. And potential players within the market, both on the buy and the sell side, are more confident in the future. And when I talk about even the buy side, bear in mind the fact that in the past what used to happen was people were panicking and front-loading their requests.

“Now a lot of that has also calmed down. And there’s no inclination to do that because liquidity has come back into the market. So, we’re relatively pleased with how far we’ve got up to now.

“In the past two or three weeks, after a period of volatility, we’ve seen a lot of stability within the market. There’s hardly been any movement in the currency. The rates have merged in the past few.”

According to him, the two different FX rates have more or less collapsed into one rate, which allows companies to plan.

He stated, “We don’t believe that we’ve gotten to the position we want to stay at. This is continuous work in progress. And we will do everything possible to ensure that we continue to manage the fundamentals that affect the market in such a way that it will continue to improve.”

Represented in London by CBN Deputy Governor, Financial Systems Stability, Mr. Phillip Ikeazor, Cardoso emphasised the significance of the UK-Nigerian Chamber of Commerce forum. He restated CBN’s commitment to fostering stronger, healthier, and more resilient banks capable of withstanding economic shocks and supporting the federal government’s goal of achieving a GDP of $1 trillion by 2030.

He said the anticipated impact of the recapitalisation programme would include an increase in banks’ lending capacity, a boost in the volume of foreign direct investment (FDI), and an increase in foreign exchange liquidity.

The CBN governor said the banking sector consolidation would also contribute to GDP growth, better risk management, improved credit ratings, a diversified ownership base, better governance and strategic decisions, and increased market volume and value, leading to a more vibrant equity market.

He said, “With the recapitalisation programme, our goal is to trigger the emergence of stronger, healthier and more resilient banks.”

He stressed that several factors influenced the new minimum capital requirements, including macroeconomic conditions, stress test outcomes, and the need for improved risk management. 

Cardoso said, “We will rigorously enforce our ‘fit and proper criteria’ for prospective new shareholders, senior management and board members of banks, and proactively monitor the integrity of financial statements, adequacy of financial resources, and fair valuation of banks’ post-merger balance sheets.”

He noted the significant opportunity the exercise presented to engage investors, policymakers, and technocrats on the critical issue of bank recapitalisation in the country.

The central bank governor explained that since his assumption of office in October 2023, his priorities at the CBN had included achieving monetary and price stability, maintaining a stable exchange rate, controlling inflation, and creating an enabling environment for businesses.

He clarified that the recapitalisation directive excluded retained earnings from the minimum capital requirement to simplify capital calculations and enhance transparency.

He said the decision, rooted in the BOFIA Act 2020, aligned with international standards, like Basel III, and emphasised core capital elements to improve financial stability.

Reflecting on the successful 2004/5 Banking Sector Reforms, which consolidated the industry, increased capital bases, and boosted resilience against the global financial crisis, the apex bank boss assured that the current recapitalisation drive also aimed to build on these achievements.

CBN Voids Price Verification System for Import and Export Transactions Effective July 1

Meanwhile, citing recent developments in the FX market, CBN yesterday announced the discontinuation of the Price Verification System (PVS) it earlier introduced as part of the documentations required for all import and export transactions.

The “Go-live Price Verification System Portal”, which was introduced in 2022 and 2023, was intended to end manual documentation processes with a view to curtailing alleged underhand dealings by some operators.

However, the apex bank declared that effective July 01, 2024, all applications for Form ‘M’ shall be validated without the PVS report generated from the system.

The bank disclosed the discontinuation in a circular dated June 26, 2024, which was signed by CBN acting Director, Trade and Exchange Department, Dr. W.J. Him, and addressed to all Authorised Dealer Banks (ADBs), and the public.

“For the avoidance of doubt, by this circular the Price Verification Report is no longer a requirement for the completion of a Form ‘M’,” the apex bank stated.

CBN had in January 2022 announced that effective February 1, 2022, all import and export operations would require the submission of an electronic invoice (e-invoice) authenticated by Authorised Dealer Banks (ADBs) on the Nigeria Single Window portal – Trade Monitoring System (TRMS).

The apex bank stated that the introduction of the e-valuator and e-Invoice would replace hard copy final invoice as part of the documentation required for all import and export transactions going forward.

CBN disclosed that in a circular, titled, “Guidelines on the Introduction of E-Evaluator, E-Invoicing for Import and Export in Nigeria.”

The apex bank pointed out that the new regulation aimed to achieve accurate value from import and export items in and out of the country, adding that the new system will operate on a Global Price Verification Mechanism guided by a benchmark price.

The benchmark price is the actual spot market price obtainable at the time of consummation of invoicing in that market where the goods are traded.

Imports and exports with unit prices more than 2.5 per cent of the verified global checkmate prices would be queried and will not be allowed for successful completion of either Form M or Form NXP, as the case might be, the CBN had explained.

The guidelines, however, provided exemptions from compliance with the new regulation for all individual invoices with a value of less than $10, 000 (or its equivalent in another currency), except where suppliers had an annual cumulative invoicing value equal to or above $500, 000 (or its equivalent in another currency).

Such would be required to submit their invoices, regardless of the individual value of an invoice.

Exemptions were also granted to import and export transactions made by all security agencies in the country.

CBN said supplies to diplomatic and consular missions as well as international agencies dependent on the United Nations were further exempted from the regulation, including donations made to foreign governments or international organisations to foundations, charities and recognised humanitarian organisations – and goods directly supplied by a foreign government.

The circular added that fees, where relevant, shall be advised from time to time as the system progressed.

Essentially, the guidelines stipulated that an importer/exporter of goods into Nigeria shall ensure that the purchase/sales contract with a foreign supplier/buyer stipulated compliance with the obligations set out in the regulation and that the supplier’s/seller’s invoice must be submitted in electronic format and authenticated by ADB as part of the documentation for payment.

Among other things, no importer/exporter might effect payment to the credit of any foreign supplier unless the electronic invoice had been authenticated by the ADBs presented together with the relevant documents for payment.

Similarly, on August 17, 2023, the central bank declared that effective August 31, 2023, all applications for Forms M shall be accompanied by a valid Price Verification Report (PVR), which must be generated from its Price Verification Portal.

The apex bank also announced the Go Live of the price verification system, following the successful conduct of the pilot run and various trainings held with all the banks.

The bank stated that the PVR had become a mandatory trade document precedent to the completion of a Form M going forward.