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*Unemployment rises to 23%
*Retains MPR at 12%
*Gross Domestic Product (GDP) grew by 8.68
Output and Prices
Provisional data from the National Bureau of Statistics (NBS) indicated that real Gross Domestic Product (GDP) grew by 8.68 per cent in the fourth quarter of 2011 up from 6.64, 7.72, and 7.40 per cent in the 1st , 2nd and 3rd quarters, respectively. The overall GDP growth rate in 2011 was estimated by the NBS at 7.69 per cent, marginally lower than the 7.87 per cent recorded in 2010. This projection is based on the estimated Quarter III and Quarter IV growth rate of 7.40 per cent and 8.68 per cent respectively. The 2012 Budget proposal assumed a growth rate of 7.2 per cent. This is in line with the latest World Bank forecast of 7.1 per cent growth for Nigeria in 2012. The Committee noted with satisfaction, the good 4 performance of non-oil activities including agricultural and services sectors as well as the recovery in crude oil output in 2011, particularly in the fourth quarter. In the Committee‟s view, the opportunity to build on the robust non-oil growth with further investments in infrastructure and manufacturing and processing activities should be utilized in order to mitigate any negative impacts from the likely external shocks during the year.
The Committee also noted the NBS survey data on the rise in the unemployment rate to 23.9 per cent in 2011 from 21.4 per cent in 2010. The latest unemployment rate is considerably higher than the 12.3 per cent recorded in 2006 by the NBS survey, which suggests that the consistently high output growth during this period had failed to create adequate employment for the growing labour force. In view of this, the Committee recommends that in addition to the structural reforms being currently pursued, emphasis should be placed on technical and vocational education in order to produce a labour force that is compatible with the current stage of the country‟s development.
In 2011, the Inflation rate fluctuated within the lower double-digits range during the early part of the year, but moderated thereafter. The year-on-year headline inflation rate, which was 12.1 per cent in 5 January 2011 rose to 12.8 per cent in March, before moderating to 10.2, 10.3, and 10.3 per cent in June, September, and December, respectively. Similarly, food inflation rose from 10.3 per cent in January 2011 to 12.2 per cent in March and thereafter moderated to 9.2, 9.5, and 11.0 per cent in, June, September, and December, respectively. Core inflation also rose from 12.1 per cent in January to 12.8 per cent in March stabilizing at 11.5, 11.6, and 10.8 per cent in June, September and December, respectively.
The headline inflation rate stood at 10.3 per cent in December 2011, by far the lowest since December 2008 and lower than the average of 12.75 per cent during the period 2001-11. Food inflation, at 11.0 per cent in December 2011, was lower than its level in the preceding three years. Similarly, the year-on-year core inflation declined in
2011. At 10.8 per cent in December 2011, core inflation was marginally lower than the 10.9 per cent in December 2010 and 11.2 per cent in December 2009. The Committee noted that both food and core inflation have remained high exerting immense pressure on the headline inflation rate. The Committee was therefore of the view
that while the focus on growth continues to be a key imperative, the containment of inflation equally deserves immediate attention. It noted that the inflation outlook in the short- term will be impacted by the anticipated fiscal injections in relation to the proposed 2012 budget, the recent partial deregulation of pump price of PMS, and 6 new tariff regimes on certain food imports. The Committee has also noted comments indicating possible plans by the National Assembly to revise the budget benchmark price of oil from $ 70 per barrel to $75 or even $80 per barrel. Such a measure would significantly increase expenditures especially given the already high oil output assumptions.
In addition, it would reduce accretion to the Excess Crude Account (ECA) and increase the inflationary pressure already in place on the supply-side. In the event of this happening, the likelihood of further tightening during 2012 increases. The Committee would like to reaffirm its commitment to price and exchange rate stability and its determination not to pursue an accommodative policy stance. The Committee therefore, strongly supports the recommendations of the Executive for a benchmark price of a maximum of $70 per barrel.
External Sector Developments
Foreign exchange reserves amounted to US$ 32.64 billion as at end December 2011, more or less flat relative to the US$32.34 billion as at end December 2010, despite the higher oil price in 2011. Notwithstanding the high prices of Nigeria’s reference crude oil (Bonny Light) which averaged US$106.32 per barrel for the year, the
limited accretion to external reserves was due to the high demand for foreign exchange in the market. The Committee noted that pressure on the exchange rate emanating from the high demand reflected the import-dependent nature of the economy, probably compounded by the activities of speculators. The reduction in
arbitrage opportunities in the oil marketing sectors combined with stronger controls in foreign exchange practices have already led to a noticeable moderation in foreign exchange net demand. The official wDAS rate (inclusive of 1 per cent commission) moved up from N151.62 per US$1 in January 2011 to N154.45/US$1 in June and
further to N158.21/US$1 in December 2011. The volatility in the official rates, however, was limited with the coefficient of variation being 9 1.28 per cent for the year as a whole compared to 0.32 per cent in 2010. The Committee commended the CBN for its efforts at establishing stability in the market. It also urged the CBN to strive to
eliminate speculative demand for foreign exchange. The Committee also noted that as at January 24, 2012, the exchange rate was N158.57/US$1, while the foreign exchange reserves amounted to $34.18 billion on January 27, 2012, which could finance over 6 months of imports of goods and services. The outlook for oil prices in the short-term as well as the forecast demand/supply balance, suggest that the current exchange rate band should be retained while still achieving moderate continuous accretion to reserves
The Committee’s Considerations
The Committee is pleased that ahead of most African countries, Nigeria had been proactive by responding to the threats of inflation induced by fiscal spending and global food, fuel and other commodity prices as well as to the challenges of financial stability. The Committee observed tat the mandate of the Bank was largely
achieved, as inflation was contained within tolerable levels and the exchange rate was generally stable throughout 2011. The resolution of the banking crisis during the year was also commended. Against this background, the Committee welcomed the stated fiscal stance of the Federal Government as part of its programmed movement 10
towards fiscal consolidation. The increased share of capital expenditure in the proposed total expenditure in 2012 is an important signal of the commitment of the Federal Government to improve the productive capacity of the economy. The Committee finds the current environment to be conducive for improved cooperation and coordination between fiscal and monetary
The Committee acknowledged that the decision to remove the fuel subsidy was a major development that took place since its last meeting in November 2011. It commended the Federal Government on the partial removal of subsidy on Premium Motor Spirit (PMS), which it noted will have salutary effects on the external reserves and exchange rate as well as on investment in oil and gas downstream sector. It further commended the Federal Government for the commitment towards the passage of the Petroleum Industry Bill (PIB) which, it believes, would further complement the benefits of the fuel subsidy removal. On the other hand, it recognized the possible
negative impact of the partial removal of fuel subsidy on the general price level and hence inflation in the short run. In this regard, it underscored the need for the speedy implementation of the palliative measures and entrenchment of social safety nets for the more vulnerable groups. However, the long-term benefits far outweigh the likely short term costs as far as inflation is concerned. 11 Furthermore, the Committee commended the fiscal authorities for the benchmark crude oil price of $70 per barrel as proposed in the 2012 budget and advocated for its retention as any upward revision would tend to undermine macroeconomic stability.
The Committee considered the need to sustain the high output growth that the country has seen in recent years partly because of the slowdown in the advanced and other emerging economies and partly because of the need to generate employment in the economy. However, to help generate new jobs, it would be essential for the Federal Government to move quickly with the structural reforms such as (a) power sector reforms, (b) implementing the agricultural sector transformation programmes and the associated value chain, and (c) refocusing attention to the provision of technical and vocational training to bring about skills development that would match the needs of the economy. The Committee underscored the need for maintaining price stability in a manner conducive to the achievement of employmentgenerating growth. In this connection, it observed that the announced increase in import duties on some food items by the end of June 2012 would exert further pressure on food prices which would
compound the effect of increased transportation costs induced by 12 the partial removal of the fuel subsidy on the general price level and the associated inflation expectation.
The Committee noted that historically, upward adjustments in the price of PMS have tended to have a short-term impact on the rate of inflation. A review of previous instances of adjustment in fuel prices shows that without exception, each instance is accompanied by an increase in the rate of inflation followed almost immediately
by a moderation in the short - to - medium term. Staff estimates indicate that inflation in the first two quarters of 2012 would range between 11.0 per cent and 14.5 per cent, and then moderate steadily towards the single digit zone by late 2013. Real interest rates are therefore likely to remain positive on a trend basis, even if the
rate of inflation were to rise briefly above the MPR in the second quarter. Finally, the Committee recognized the current security challenges and Government’s efforts to find a lasting solution through dialogue, economic measures and enhanced intelligence. It expressed confidence on the ability of Government to resolve the problem.13
Decisions In the light of the above, and considering the clear impact of previous tightening on the rate of inflation and exchange rates up to December 2011, the Committee unanimously decided as follows:
1. Retain MPR at 12.0 per cent with interest rate corridor of +/- 200
2. Retain CRR at 8.0 per cent;
3. Retain minimum liquidity Ratio of 30.0 per cent; and 4. Retain the Mid-point of exchange rate at N155/US$1 with a band of +/-3.0 per cent.
The Committee also resolved to watch closely developments with respect to the fiscal stance and to respond appropriately if, and when, the need arises.
Sanusi Lamido Sanusi, CON
Central Bank of Nigeria
January 31, 2012
It is beginning to look that Sanusi Lamido Sanusi, the executive governor of Central Bank of Nigeria (CBN) is stepping into a pathway of perplexing contradictions. At the time that International Monetary Fund (IMF) recommended for Nigeria to devalue naira, Sanusi was insisting that there is no need for the devaluation. He did everything he can to make it absolutely certain to every one listening that there is no logical financial reason to devalue the already malleable and soft naira. Most Nigerians were singing his praises that Nigeria has gotten a financial leader that cannot be intimidate by overbearing IMF, a leader that is not willing to be genuflecting to the international financial institutions. But apparently not, the CBN chieftain is doing Texas-Two Step backward dance.
Sanusi has begun to sing a new tune; it is no more the IMF asking him to drink the bitter liquid of devaluation. The CBN titan has chose to do it for the public good as it appears to keep the economy floating as the bulwark to the anticipated nosedive of oil price, with subconsequent lower foreign reserve. The reason that is more plausible is to appease the international financial powers who are probably breathing per irately down his neck. The naira has been devalued up to N160 to $1 but the devaluation will not stop there. Go and mark this, it is a slippery slope and the devaluation will continue. But interestingly, Nigeria does not have the requisite dollar reserve to satiate the demand that comes with the devaluation.
Finacial Times of London wrote: “Nigeria devalued the naira on Monday as falling reserves, caused by weak oil revenues, forced its hand. The central bank announced the naira would be pegged to the dollar within a target range of N150 to N160, up from a bracket of N145 to N155 per dollar. The bank wants to converge the official forex rates with the interbank rate and narrow arbitrage trading opportunities – the chance for investors to profit from the two different rates"
David Kahone of Financial Times further reported that, "The main reason for Nigeria’s decision to devalue, according to Renaissance Capital, the Russian investment bank, is a fall in its reserves brought about by lower than expected oil production in 2011 and a low projected oil price in 2012. Africa’s biggest oil producer derives some 75 per cent of its revenues from oil and is revising down its benchmark oil price in the 2012 budget to $70 per barrel from $75 per barrel – not an insignificant shift"
The apparent devaluation will not bring about any affirmative result that compelled CBN in first place to devalue naira. Nigeria had passed through this path before and it did not make a difference nor did it change the economic paradigm of the nation in good trends. The problem with Nigerian economy is beyond the application of monetary policy and in this case the devaluation of naira. Nigeria has major structural problem that cannot be rectify by artificial depreciation of the naira. The problem with country's economy is over reliance on oil and by thinking that the party will last forever. The idea of diversification is a lip service given by policy makers as the country is busy chasing a shadow that is merely a mirage. A nation cannot become economically independent by exporting one commodity with a weak currency which will eventually attract IMF's neo-liberal policies. As the country implement neo-liberal policies, it will not stop with devaluation of naira, the shrinking of spending on social program will follow put including the removal of fuel subsidy and banning of importation of many essential commodities. The government will balance the budget on the back of the poor people of Nigeria and suffering will geometrically increase.
The major contradiction coming form naira's devaluation is threat it posed to stabilizing inflation and the further erosion of domestic value of naira. Devaluation is another method of creating more money in the circulation especially with the weaken naira. With devaluation and subsequent enormous soft naira in circulation the prices of food, goods and services will go up; that will make the ugly hand of inflation to rigidly standout and making it more difficult to rein in inflation. Then CBN will restore to further mopping of the liquidity by tightening monetary tool, thereby jacking up interest rate which will conversely slow down the economic growth. No matter from which perspective or angle one looks at the naira devaluation its benefit is quite limited and there is no optimum quantifiable outcome. One thing it can do is to discourage importation, but Nigerians are already addicted to foreign products and travelling abroad; surely Nigerians will find a way to circumvent it and continue with their addictions.
The price of oil and foreign reserve have the propensity to be gyrating cyclically and using naira's devaluation to stabiles the economy is not logical at long term. It should be a tactical response to a momentarily problem but it is not strategically plausible to become the panacea. Nigerian economy is standing on a dislocated table that can be easily be pull down by forces of the market. The economy is growing at above 7 percent but without infrastructure and security the growth may not be sustainable.
CBN's chief Lamido Sanusi may do the public good and world economy good by devaluation that will make oil cheaper. It can be accepted for a short time but Nigeria may not necessarily be the beneficiary because Nigeria does not have arrays of commodities and finished products to export. This boils down on the lopsided economy and portrays how weak the manufacturing and agricultural sectors are in the country. The source of country's earning of foreign exchange must be expanded beyond oil export by diversification of the economy. This must be made perfectly clear to the policymakers that Nigeria cannot devalue her currency to a successful economy.
Central Bank of Nigeria raises benchmark interest rate to 9.25 percent, up from 8.75 percent
ABUJA (Reuters) - Nigeria's central bank monetary policy committee on Monday raised its benchmark interest rate for the fifth time this year in anticipation of upward inflationary pressures and to support the weakened local currency. The MPC lifted its benchmark rate to 9.25 percent, up from 8.75 percent, a move at the top end of analysts' expectations. Central Bank Governor, Lamido Sanusi, said although inflation had declined in the last two-months, high government spending, a new minimum wage, the likely removal of fuel subsidies and a flood of expected liquidity from the state "bad bank" were all likely to push prices higher.
"Concerns remain about sustaining the current inflation trend. The anticipated high liquidity in the near future would have a bearing on inflation in the near future," Sanusi told reporters, reading from the MPC communique in Abuja."The fiscal stance continues to be expansionary. In addition there is the weight of structural factors such as the announced hikes in electricity tariffs and the expected removal of the petroleum subsidy."
The committee voted 8-3 to raise rates and they all agreed to maintain a 200 basis point corridor around the MPR, meaning its recommended deposit rate is 7.25 percent and lending rate 11.25 percent. Sanusi said the decision to lift the benchmark rate was also influenced by the need to support the naira, which weakened to its lowest level against the U.S. dollar for four months on Monday.
The central bank has tried to prop up the local currency by selling dollars at a bi-weekly auction and through monetary tightening but without sustained success."It looks as though there is a clear intent to bring real interest rates to positive levels, in order to shore up support for the naira," said Razia Khan, Head of Africa Research at Standard Chartered.
"With GDP growth between 7-8 percent, and a questionable transmission mechanism of monetary tightening to the real economy in any case, this is something the CBN can afford to do."
Analysts had been divided on the likely outcome prior to the meeting. Seven of the 13 analysts polled by Reuters expected rates to rise by 25-50 basis points, with the rest predicting rates would be unchanged. Nigeria's inflation remained steady within the central bank's notional single-digit target in August, data showed this week. Headline inflation was 9.3 percent year-on-year in August from 9.4 percent in July, while growth in food prices, the largest contributor to the consumer inflation figure, rose to 8.7 percent in August from 7.9 percent in July.
But core inflation, which excludes some volatile components such as food and energy, remained in double digits in August and the central bank remains concerned about continued high government spending, especially recurrent expenditure. Nigeria's new finance minister, Ngozi Okonjo-Iweala, pledged to cut back government spending when she arrived last month but early benchmarks set out for the 2012 budget last week showed few signs of a promised fiscal prudence.
Okonjo-Iweala's cautious plans did not convince Sanusi.
"The government has announced a target of a 1 percent annual reduction in government recurrent spending and when viewed in the context of the anticipated injections associated with the new national minimum wage this reflects that the fiscal retrenchment is likely to be drawn out," he said.
Sanusi said stalling global economic growth was likely to impact Nigeria through a drop in trade and investment, while the recent poor performance of the Nigerian stock market was a reflection of declining risk appetite internationally
Nigeria’s central bank may raise its benchmark interest rate tomorrow for the fourth time this year to bring borrowing costs above inflation and slow price-growth to below 10 percent, according to a survey of analysts. Bank Governor Lamido Sanusi will raise the monetary policy rate to 8.5 percent from 8 percent, said London-based analysts Razia Khan at Standard Chartered Plc, Samir Gadio of Standard Bank Plc and Alan Cameron at CSL Stockbrokers Ltd. He is due to announce the decision in a televised press conference at 2.30 p.m. local time. "The debate is not about whether the MPR keeps rising - we are convinced it will - but how quickly it will rise," Cameron said in an e-mailed note on July 22. "We are still a long way from positive real interest rates."
Nigeria’s central bank may raise its benchmark interest rate tomorrow for the fourth time this year to bring borrowing costs above inflation and slow price-growth to below 10 percent, according to a survey of analysts.
Bank Governor Lamido Sanusi will raise the monetary policy rate to 8.5 percent from 8 percent, said London-based analysts Razia Khan at Standard Chartered Plc, Samir Gadio of Standard Bank Plc and Alan Cameron at CSL Stockbrokers Ltd. He is due to announce the decision in a televised press conference at 2.30 p.m. local time.
"The debate is not about whether the MPR keeps rising - we are convinced it will - but how quickly it will rise," Cameron said in an e-mailed note on July 22. "We are still a long way from positive real interest rates."
Inflation slowed in June to 10.2 percent from 12.4 percent the month before after the naira strengthened against the dollar, easing import costs. The central bank of Africa’s top oil producer has raised rates as it attempts to slow inflation that peaked at 15.6 percent in February of last year and tries to stem a slide in the local currency. The naira has strengthened 2.7 percent against the dollar since June 1.
"Even though the naira has been firmer in recent weeks, demand for foreign exchange remains elevated and foreign capital is unlikely to really start flowing in until positive real rates are achieved," Cameron said.
Plans by President Goodluck Jonathan to end fuel subsidies this year may also push prices higher.
Most members of the monetary policy committee "seem to be keenly aware of the impact that fuel price deregulation could have and for this reason are likely to continue voting for hikes," Cameron said.
CBN's Sanusi listed among world’s 100 most influential people
The story of Nigeria's first half-century of Independence is a tale of wasted potential: sub-Saharan Africa's most populous country, home to its biggest oil riches, impoverished by thieving autocrats. A key reason a new Nigeria no longer seems fanciful is Central Bank governor Lamido Sanusi.
Time 100 LIST includes names like President Obama, Oprah Winfrey and others
THE LIST OF TIME 100 INFLUENTIAL PEOPLE
Meet the most influential people in the world. They are artists and activists, reformers and researchers, heads of state and captains of industry. Their ideas spark dialogue and dissent and sometimes even revolution. Welcome to this year's TIME 100
THE FULL LIST OF TIME 100
• Wael Ghonim
• Joseph Stiglitz
• Reed Hastings
• Amy Poehler
• Geoffrey Canada
• Mark Zuckerberg
• Peter Vesterbacka
• Angela Merkel
• Julian Assange
• Ron Bruder
• Lamido Sanusi
• Colin Firth
• Amy Chua
• Joe Biden
• Jennifer Egan
• Kim Clijsters
• Ahmed Shuja Pasha
• Aung San Suu Kyi
• Cory Booker
• Gabrielle Giffords
• Katsunobu Sakurai
• Michelle Obama
• Paul Ryan
• Ai Weiwei
• Rob Bell
• Fathi Terbil
• Dilma Rousseff
• Tom Ford
• Liang Guanglie
• Sue Savage-Rumbaugh
• Takeshi Kanno
• Nicolas Sarkozy
• Michele Bachmann
• Saad Mohseni
• Chris Christie
• Matthew Weiner
• Lisa Jackson
• Jean-Claude Trichet
• Justin Bieber
• Prince William and Kate Middleton
• Joe Scarborough
• Blake Lively
• Hillary Clinton
• Muqtada al-Sadr
• Anwar al-Awlaki
• Kim Jong Un
• Saif al-Islam Gaddafi
• Hassan Nasrallah
• Nathan Wolfe
• Oprah Winfrey
• Sergio Marchionne
• Mahendra Singh Dhoni
• Felisa Wolfe-Simon
• Esther Duflo
• Larry Page
• Mia Wasikowska
• David Cameron
• John Lasseter
• Maria Bashir
• Mukesh Ambani
• Chris Colfer
• Major General Margaret Woodward
• Bruno Mars
• David and Charles Koch
• Hung Huang
• General David Petraeus
• Matt Damon and Gary White
• Cecile Richards
• George R.R. Martin
• Marine Le Pen
• Grant Achatz
• Feisal Abdul Rauf
• El Général
• Jamie Dimon
• Heidi Murkoff
• Jonathan Franzen
• V.S. Ramachandran
• Michelle Rhee
• Mark Wahlberg
• Rebecca Eaton
• Xi Jinping
• Kathy Giusti
• Arianna Huffington
• Barack Obama
• Lionel Messi
• Azim Premji
• Aruna Roy
• Ray Chambers
• Scott Rudin
• John Boehner
• Derrick Rossi
• Hu Shuli
• Benjamin Netanyahu
• Ayman Mohyeldin
• Charles Chao
• Bineta Diop
• Dharma Master Cheng Yen
• Patti Smith
Sanusi Lamido Sanusi: Afripol Person of the Week
The Governor of Central Bank of Nigeria (CBN), Malam Sanusi Lamido Sanusi has been in the position for less than two years but has taken pragmatic steps to reform Nigerian troubling banking system. Since his inception as the head of Nigerian Reserve Bank; the financial and economic experts at Afripol has been monitoring his application of monetary policy to stabilize the banking sector of the economy. We all can agree that he has done his level possible best, with affirmative result.
Malam Sanusi Lamido Sanusi is a free market banker and is dedicated in deepening a disciplined banking system with a well thought monetary policy. He has taken a bold but prudent step to rectify the crumbling Nigerian banking system. He introduced a reformed blueprint grounded in transparency and probity to check profligacy.
Without fear or favor he exposed the lapses in Nigerian banks and took the necessary steps to make things better. The failed banks were bailed-out, rescued and rejuvenated. The culprits in the banking sector especially the managing directors of five banks were sacked and the debtors to the banks were made to pay back the illogical deferred loans.
With quantitative easing he injected liquidity into the monetary base that aided to ease the credit crunch that brought back the availability of credits to the business community. With the prudent monetary policies, the Nigerian economy was not decelerated and the economic growth appreciated. At the end of the fourth quarter of 2110, the Nigerian economy was cruising at annual rate of 7.8 percent.
Sanusi brought a culture of professionalism and transparency that have been fizzled out for a while in Nigerian banking sector. He did not waited for banking sector to completely fall apart before he commenced with his encompassing and comprehensive banking reform. The good works he did as the chieftain of Nigerian Central bank has brought glowing attributes and accolades to him. Last week a well respected British publication, The Banker conferred to him the World’s Central Bank Governor of the Year for 2011.
Some experts were concerned about the large injection of funds into the banking sector, but this is not a zero-sum game but a win-win exercise for both the taxpayers and the banks. While the banks were rescued, the economic growth was not interrupted and taxpayers in near future will be compensated when the toxic securities are traded.
As a citizen and patriot, Sanusi spoke out on the nation spending one quarter of its generated fund on the business of running the country’s national assembly. This is about 25.4percent of Nigeria’s overhead cost in a country with 70 percent of its citizens living in poverty. Malam Sanusi Lamido Sanusi never back down and stood up for his principle and freedom of speech.
Sanusi has brought back the respect that the Nigerian banks once enjoyed, and foreign investors are looking favorably to Nigerian banking stocks. The most important accomplishment is bringing back confidence in the banking community. The Governor of Central Bank must be guiding and monitoring the inflationary trend that may be threatening to these great efforts and reforms.
For his hard work, vigilance, pragmatism and patriotism; The Management and Staff of Afripol Organization chose Malam Sanusi Lamido Sanusi as the PERSON OF THE WEEK.
Afripol recommends higher Monetary Policy Rate to counteract rising inflation
Central Bank of Nigeria (CBN) and its Monetary Policy Committee have decided to maintain the current benchmark interest rate at 6.25 percent. The retaining of the Monetary Policy Rate (MPR) at 6.25 percent was a surprise. Although there were no big changes in the economy and the economy was supposedly cruising at a steady pace at 7.9 percent for the full year growth. But that is not the complete picture, the large infusion of funds for rescued banks and reconstructions are likely to overheat the economy, subsequently triggering higher inflationary trends.
The once vulnerable banking sector with failed banks is being corrected. Initially the failed five banks were rescued with infusion of almost $4 billion dollars and the managing directors were sacked. And now, AMCON a state owned and controlled entity was set up to buy back toxic debts from ten banks at the tune of $14.6 billion dollars. The steady and large inflow of funds will definitely ease the credit crunch but it will likely increase the inflation. Therefore it was anticipated that a bump up of the interest rate to at least 7 percent should counteract the anticipated inflationary trend and the control of cheap money. Inflation looms as more spending and investment increases the economic output.
The Monetary Policy Committee of CBN is cautious in not altering the interest rate for fear of spurring any changes in the economy. But their timidity is not justified because inflationary trend is rising and infusion of the funds is not going to slow it down. Therefore it is logical that Monetary Policy Rate (MPR) at 6.25 percent be increased not retained. Again Nigerian economy is expected to grow up to 10 percent in the preceding year and together with inflow of cheap money from both foreign and domestic investors may spur higher inflation.
The issue of the rising inflation is real; at the last quarter, inflationary rate was above 13 percent even with the promise made by Governor Sanusi Lamido Sanusi of Central Bank to keep inflation below 10 percent at the fourth quarter of 2009. The economy at fourth quarter of 2010 is expected to grow at 8.3 percent in December compares to 7.9 in September. The rapid and increasing growth is putting pressure on inflation. The application of the latent monetary policy appears to be the last resort of the apex bank and it should be boldly but vigilantly applied to stem down inflation.
Africa Political & Economic Strategic Center (AFRIPOL) is foremost a public policy center whose fundamental objective is to broaden the parameters of public policy debates in Africa. To advocate, promote and encourage free enterprise, democracy, sustainable green environment, human rights, conflict resolutions, transparency and probity in Africa.
Rules to strengthen Nigerian banking system
The apex bank of the land, The Central bank of Nigeria (CBN) is formulating a policy equipped with rules and regulations to prevent future banking crisis. The governor of central Bank of Nigeria Sanusi Lamido confirmed that as he addressed a forum of bank directors in Lagos. The CBN chief said the rules will be directed to the lenders and together with “international advisory panels” the banking crisis can be put to rest.
Nigerian banking crisis confronted the country's economy in the second quarter of 2009 and the banking integrity was badly threatened and damaged. The banking meltdown brought the marketers confidence on nadir level. There was a consequential liquidity problem and that slowed down the growing economy. Therefore it became logical that the Reserve Bank should come up with regulations to tighten and addressed the laxity in the system.
The CBN chieftain Sanusi confirmed that the new rules will “forestall the pitfalls of the past where corporate governance malpractices brought a number of banks to their knees" and the subsequent “bailout of some notable local banks in the second half of 2009 underscores the importance of sound corporate governance practices and professional ethics”.
At the time of the banking crisis, Sanusi’s Central Bank of Nigeria (CBN) announced the dismissal of managing directors of five banks in Nigeria - Intercontinental Bank PLC, Fin Bank, Union Bank, Oceanic Bank and Afribank. And on top of that many influential individuals and companies were fingered on not living up to agreements of the debts they own to those banks. The reason given by Sanusi Lamido’s CBN for letting them go is principally due to:
“Excessively high level of non-performing loans in the five banks which was attributable to poor corporate governance practices, lax credit administration processes and the absence or non-adherence to the bank’s credit risk management practices. Thus the percentage of non-performing loans to total loans ranged from 19 per cent to 48 per cent. The five banks will therefore need to make additional provision of N539.09 billion. The huge provisioning requirements, have led to significant capital impairment. Consequently, all the banks are undercapitalized for their current levels of operations and are required to increase their provisions for loan losses, which impacted negatively on their capital. Indeed one is technically insolvent with a Capital Adequacy Ratio of (1.01 per cent). Thus, a minimum capital injection of N204.94 billion will be required in the five banks to meet the minimum capital adequacy ratio of 10per cent.”
The failed banks were later recapitalized by CBN at the tune of 620 billion naira ($4.1 billion) and injection of such a large fund probably solved the problem of liquidity but the danger of increasing inflationary trends looms with such a large injection of the fund. Nigerian inflation stood above 10 percent since the injection of the funds. We are not suggesting with certainty that the enormous fund injected did trigger the rising inflation but no enlightened market observer will deny the correlation between excessive liquidity and inflation.
Prior to the proposals of new regulations, Emeka Chiakwelu the Principal Policy strategist at Afripol stressed that CBN must go further and come up with a doable comprehensive blueprint to reform the banking sector. To look into the rules and ordinances of the banking and readjust them where there are lax and weakness in the system. At this time of global economic meltdown, the last thing Nigeria needs is to be weakening further by problems of the banking sector. The ramification will be capital flight and restriction of flow of capital for wealth creation in Nigeria. Already the Standard and Poor’s lowered Nigeria credit rating from BB-minus to B- plus.
Central bank of Nigeria (CBN) was said to be carrying out a banking reform in early 2010. With this new incubating regulation it means that the core of the matter was not solved nor resolved in the initial banking reform in Nigeria. To make laws to avert profligacy is one thing, but to implement the laws in order to check excesses is where efficiency, discipline and call to duty are urgently needed.
Nigerian Banks must not abandon the serious job of tackling inflation and building a stronger currency to the central bank. They can be a partner to monetary and fiscal policies of the government by adhering to rules and regulations of banking sector and not trying to exploit the loopholes for short time gain and by so doing weaken the banking sector.
Central Bank of Nigeria (CBN) have infused the total sum of N600 billion naira ($3.96 billion) into the Nigerian banking sector to recapitalize the banks that have been plagued with liquidity crisis and credit crunch caused by excessive lending, profligacy and corruption.
The recent audits of the Nigerian banks by the Central Bank of Nigeria (CBN) have exposed the inefficiency of the banking sector. When the new governor of Central Bank came in he found out that some major banks were poorly managed and that corruption has eaten deep into the fabric of Nigerian banking system. Therefore the boss of CBN Mr. Sanusi Lamido Sanusi committed himself into cleaning the financial mess.
Mr. Sanusi Lamido Sanusi the newly appointed chieftain of CBN conducted initial audits of the some of the banks. "Those audits revealed that five banks holding 30% of Nigeria deposits – Afric Bank, Fin Bank, Intercontential Bank, Oceanic Bank and Union Bank were on the brink of collapse due to reckless lending." There was a lax in the system and it was revealed that many loans made to some of the banks’ customers were neither repaid nor serviced but were left dormant.
The CBN bailed out the five banks with 400 billion naira. The managers of the banks were sacked and those customers including many important business tycoons and respectful bureaucrats were compelled to pay back those bad loans.
The governor of Nigeria’s apex bank Mr. Sanusi Lamido Sanusi went further with comprehensive investigation and audits of the entire banking sector. The audit findings including: lax in regulation, credit strangulation and low holdings among many banks. Due to the plunge in the deposit holdings among many of these banks, there was credit crunch in the system. The business cannot raise adequate capital from the financial institutions due to paucity of liquidity in the system.
Again the Central Bank of Nigeria on October 2 recapitalized another four banks at the amount of 200 billion naira - "Bank PHB, Equatorial Trust Bank, Spring Bank and Wema Bank -- also judged to be facing a grave liquidity risk."
Replenishing the holdings of the banks was a great move by the CBN, for that will make credit available to the business community and consumers. But that will not be the panacea to the problems of the Nigerian banks, which compels a comprehensive and invasive restructure of the banking system.
Sansui‘s Central Bank must re-evaluate the rules and regulations and come with more stringent regulations that will close all the loopholes in the system. The regulations must be enforced aggressively with verifiable checks and balances. The frequency of the audits must be increased together with random audits can become a deterrent mechanism to inhibit the weakness in the system.
Re-capitalization and bail out of the banks with this large sum of money - N600 Billion naira -may loom inflation. At the moment in Nigeria the inflation is hovering around 10-10.4% and it’s expected to dip below 10% in the next quarter. Therefore the commercial banks must be instructed to be meticulous in their lending in order to avoid excessive money in the circulation that might trigger inflation. Subsequently undermining the value of naira and further depreciation of already weaken naira.
When CBN prints and borrow money to recapitalize the banks that may lower the Nigerian credit worthiness. And it may unleash higher inflation and the devaluation of naira. When CBN finances its recapitalization by withdrawing excessively from the foreign reserve, it poses a threat to value of naira and credit standing of the country.
Mr. Emeka Chiakwelu is the Principal policy strategist at Afripol Organization. Africa Political and Economic Strategic Center (Afripol) is foremost a public policy center whose fundamental objective is to broaden the parameters of public policy debates in Africa. To advocate, promote and encourage free enterprise, democracy, sustainable green environment, human rights, conflict resolutions, transparency and probity in Africa.