The Governor of the Central Bank of Nigeria, Olayemi Cardoso, recently unveiled his manifesto to turnaround the nation’s economy while addressing his colleagues at the Bankers’ Dinner organised by the Chartered Institute of Bankers of Nigeria. FESTUS OKOROMADU writes on the prospect of the promises.
Barely two months after assuming office as the Governor of the Central Bank of Nigeria, Olayemi Cardoso, was privileged to address key stakeholders in the financial sector at the Chartered Institute of Bankers of Nigeria on November 24, 2023.
Delivering the keynote address at CIBN annual Bankers’ Dinner and Grand Finale of the Institute’s 60th Anniversary, Cardoso unveiled his agenda for the reform of the sector.
The CBN chief executive, rather than play politics with the economic situation of the country, affirmed that it faces significant macroeconomic and social challenges.
He hinted that these challenges stem from a variety of factors, including unfavourable domestic imbalances, structural rigidities, and the unintended consequences of certain corrective policy measures implemented to restore and realign the microeconomic landscape.
From the monetary perspectives, he listed the challenges as high and rising inflation, inadequate foreign exchange supply, depreciation of the exchange rate, limited external reserves, weakened output, and high unemployment.
“These challenges have led to increased interest rates, discouraging investments in productive activities,” he stated.
On the effects on the banking system, he said, “Within the banking system, high inflation has affected asset quality and solvency ratios.” He added that the persistent depreciation of the Naira poses a significant risk for domestic banks with foreign exchange exposures.
“Nigeria ought to have leveled up with the world standard especially in this 21st century. By now, we should have had a ready database that can enhance smooth and traceable financial transactions. This will not only curb fraud but facilitate other aspects of our lives”
While accepting the fact that the apex bank has been portrayed in bad light in recent times, Cardoso identified factors responsible for such to include, corporate governance failures, diminished institutional autonomy of the CBN, a deviation from the core mandate of the bank, unorthodox use of monetary tools, an inefficient and opaque foreign exchange market that hindered clear access, a foray into fiscal activities under the cover of development finance activities.
“There was also a lack of clarity in the relationship between fiscal and monetary policies, among other challenges,” he stated.
While affirming his commitment to reverse the ugly trend he said, “Central banks are known as banks of last resort because they underpin the financial system. To do so effectively will require rebuilding and restoring trust in the Central Bank of Nigeria. Let me assure you that I am irrevocably committed to that calling.
“In navigating these challenging economic times, the Central Bank of Nigeria is fully committed to ensuring price stability and financial system sustainability. We will stand by Nigeria and Nigerians. Our actions will be fully guided by the principles of transparency, responsibility, and a deep commitment to Nigeria’s progress.”
Enforcing know your customer rule
Last Friday, the CBN issued a statement warning bank account holders without a Bank Verification Number and National Identification Number that their accounts will be frozen.
The apex bank, in a circular said it has directed a “Post no Debit” restriction on all bank accounts without BVN and NIN effective April 2024.
“As part of its effort in promoting financial system stability, it becomes necessary to strengthen the Know Your Customer (KYC) procedures in financial institutions under the purview of the Central Bank of Nigeria (CBN).
“Accordingly, the CBN hereby issues an amendment to Section 1.5.3 of the Regulatory Framework for Bank Verification Number (BVN) Operations and Watch-list for the Nigerian Banking Industry (The Guidelines).
“In this regard, it is mandatory for ALL Tier-1 bank accounts and wallets for individuals to have BVN and/or NIN.
“It remains mandatory for Tiers 2 and 3 accounts and wallets for individuals to have BVN and NIN.
“The process for account opening shall commence by electronically retrieving BVN or NIN related information from the NIBSS’ BVN or NIMC’s NIN databases and for same to become the primary information for onboarding new customers, and
“All existing customers accounts/wallets for individuals with validated BVN shall be profiled in the NIBSS’ ICAD immediately and within 24hrs of opening accounts/wallets,” the circular read.
The CBN also ordered financial institutions to immediately stop opening new Tier 1 accounts and wallets without BVN or NIN.
It added that for all existing Tier-1 accounts or wallets without BVN or NIN effective immediately, any unfunded account or wallet shall be placed on “Post no Debit or Credit” until the new process is satisfied.
The circular stated that effective March 1, 2024, all funded accounts or wallets shall be placed on “Post no Debit or Credit” and no further transactions shall be permitted.
It also said that the BVN or NIN attached to and/or associated with all accounts/wallets must be electronically validated by January 31, 2024.
A Post-No-Debit alert is a directive that restricts a bank customer from withdrawing, transferring funds and even making any transactions on his or her bank account.
The circular jointly signed by Director, Payments System Management Department, Chibuzo Efobi and Director, Financial Policy and Regulation Department, Haruna Mustafa, charged compliance officers of banks to acquaint themselves with guidelines for a smooth execution of the policy.
It added that, “A comprehensive BVN and NIN audit shall be conducted shortly and where breaches are identified, appropriate sanctions shall be applied.”
The apex bank also charged all financial institutions under its regulation to apply strict compliance on restrictions on Tier 1 accounts/wallets in relation to limits on transaction values and cumulative balances.
Commenting on the announcement, a financial expert, Ayomide Adedayo commended the CBN for the development, while he expressed surprise that some bank accounts still operate accounts without BVN.
According to him, the announcement from the CBN is an indication to why financial crimes including money laundering have continued to occur in the country.
“This coming from the CBN means there is more work to be done in curbing financial crimes in the country.
“Nigeria ought to have leveled up with the world standard especially in this 21st century. By now, we should have had a ready database that can enhance smooth and traceable financial transactions. This will not only curb fraud but facilitate other aspects of our lives.
“By now we should be working towards a unified biometric database system. This saves us the stress of capturing for Drivers Licence, International Passport, BVN, NIN.
“We can’t keep wasting the resources and time of Nigerians,” he said.
A professor of Economics at the University of Nigeria, Nsukka, Enugu State, Cletus Agu, stated that Nigerians do not want to obey rules and regulations and should be ready to face the consequences of their actions.
He said, “It has been over two years that we have been asked to get our NIN and almost 10 years that the BVN has been introduced. Why are Nigerians not doing what they are supposed to do? Why must we wait until there’s a rush? Why must we wait until there’s a punishment coming? We have a civic duty to do. The government has done its part and people must also do theirs to have normalcy in the system.”
Agu noted that the deadline given by the CBN was not short and that if it was extended beyond that, some Nigerians would be found wanting.
“So, yes, this directive is right. When you are unable to withdraw your money, you will have no option but to go and do the needful,” he added.
Also commenting on the directive, a strategy and economics advisory associate at PricewaterhouseCoopers Nigeria, Olalekan Fadiya, noted that the citizens take many developments for granted.
He stated, “This directive is coming at an appropriate time. In this age, everything is digitized and the CBN needs to have adequate data on those that are banking in the country. We are in a country with ransoms being paid here and there; when the banks do not have the needed information, how will they be able to efficiently work to nab criminals?
“What about those who launder money? Nigerians should make good use of the time given and ensure that they are compliant with the directive.”
Human rights lawyer, Afam Osigwe, stated that the apex bank was in order, saying the directive would help to curb money laundering and other financial crimes.
He said, “Most countries are required to have laws that mandate banks and other financial institutions to know their customers, which simply means getting as much information as possible to have an idea of who operates bank accounts in Nigeria; this includes having a Bank Verification Number, National Identification Number, and others. This helps you to be able to fight money laundering, terrorism financing, and other financial and economic crimes.
“I think the CBN is in order because the notice has been given mandating everybody to get their BVN as far back as 2014 when this process started. It is expected that those who maintain bank accounts have had adequate time to obtain it.”
Human rights lawyer, Tolu Bableye, lauded the directive, saying it was in line with the constitution.
He, however, urged the CBN to give Nigerians who had not obtained their BVN to do so before the deadline.
He said, “In the world over now, this concept of knowing your customer is the norm. Some years ago, the Federal Government directed people to register for the BVN and link it to their accounts. The essence is to curb corruption, money laundering, and other financial crimes. So it is within the ambit of the law. It is commendable, but they should give Nigerians time to adjust and comply with the directive.”
The Executive Director, Civil Society Legislative Advocacy Centre, Auwal Rafsanjani, said it was only fair that the CBN gives sufficient notice to allow the citizens to do their verification.
Rafsanjani noted that it was important for Nigerians to go through the verification process as it would help the data system of the nation.
He added that it would also help the security agencies fish out illegal businesses and those involved in illegitimate dealings.
Perhaps, the move is better understood from the perspective of financial inclusion.
It is obvious that without accurate data which the BVN and NIN are supposed to provide it would be difficult to track access to financial services, including consumer credit, and ultimately, the ability to finance home ownership on a large scale.
However, the circular from CBN may not have come as a surprise to those who attended the CIBN event as the CBN Governor had hinted of the need for accurate data in the industry as one of his key focuses.
“By having accurate data on the human condition and implementing appropriate policies based on this data, we can expect inclusive economic growth that leads to tangible improvements in the lives of our citizens. It is crucial to give the same visibility to human condition data as we do to macroeconomic data to ensure that the expected economic progress benefits the masses and helps lift them out of their current dire conditions,” he stated.
Exchange rate stability
Another task the Cardoso-led CBN has set for itself is the stabilization of the exchange rate. He expressed concerns of the challenges faced by entrepreneurs in navigating the fluctuations in the exchange rate which often led to uncertainties and unexpected costs.
“The volatility in the foreign exchange market disrupted their planning and hindered their ability to make informed business decisions. It is imperative that we provide transparency and create a market environment that allows fair determination of exchange rates, ensuring stability for businesses and individuals alike,” he stated.
To address these challenges, the CBN Governor said he and his team are committed to achieving monetary and price stability, pointing out that doing so is not just a technical objective, but it has real-life implications for the wellbeing of our citizens.
“Through targeted policies, transparent market operations, and coordination between monetary and fiscal authorities, we can ensure a more stable exchange rate, control inflation, and create an enabling environment for businesses and individuals to thrive.
“This is what I, together with my team at the Central Bank, have been focused on doing in the past two months,” he said.
On work done so far, he said, “We have critically reviewed the effectiveness of the Central Bank’s monetary policy tools and have spent time fixing the transmission mechanism to ensure the decisions of MPC meetings actually result in desired objectives. For quite some time, there has been a dislocation of our monetary transmission mechanisms rendering the MPC meetings largely ineffective.”
The CBN boss submitted that his monetary policies will aim to achieve price stability, foster sustainable economic growth, stabilize the exchange rate of the naira, and reduce interest rates to facilitate borrowing and investments in the real sector.
“In order to ensure the proper functioning of domestic and foreign currency markets, clear, transparent and harmonized rules governing market operations are essential,” he noted.
To achieve these, he said, new foreign exchange guidelines and legislation will be developed, promising that extensive consultations will be conducted with banks and FX market operators before implementing any new requirements.
“I think the CBN is in order because the notice has been given mandating everybody to get their BVN as far back as 2014 when this process started. It is expected that those who maintain bank accounts have had adequate time to obtain it”
Empowering banks to do more
Meanwhile, the big elephant in the house as it concerns Cardoso’s CBN transformation agenda is how the country’s financial institutions can finance the $1 trillion GDP economy which is the target of the President Bola Tinubu administration.
While financial experts, including the President of CIBN, Ken Opara, agreed that there is need to increase the capital base of banks in the country and as well assured that Nigeria’s banks are ready and capable to shoulder the planned recapitalization, the question of the mode of execution remains unsolved.
Speaking of achieving a successful recapitalization, at the 22nd National Seminar on Banking and Allied Matters for Judges in Abuja recently, Opara said “It’s not a difficult thing to be bothered about funding $1 trillion; I think the major thing is that the industry is deep, they have deep pockets, and they have the financial strength.”
Targeting economic growth
Cardoso is equally eager that the CBN is repositioned to serve as a catalyst for economic stability and growth during his era. However, he is opting not to do direct intervention as was done during the reign of his immediate predecessor.
“We will collaborate with stakeholders and formulate policies that create an enabling environment for sustained economic growth and development.
“Our catalytic role will support increased investment and private sector participation in the economy, improve access to finance for MSMEs, and enhance financial services for the underbanked.
“This includes promoting specialized institutions and financial products to support emerging sectors, developing regulatory frameworks to unlock dormant capital in land and property holdings, facilitating accelerated access to consumer credit, and expanding financial inclusion to reach the masses.
“Furthermore, we will work with experts to develop derisking instruments that encourage private sector investment in key industry verticals such as housing, textiles and clothing, food supply chain, healthcare, and educational supplies, which have high potential for local inputs and value retention.
“The CBN will leverage its convening power to engage multilateral and international stakeholders in government and private sector initiatives,” he said.
Interestingly, while the CBN chief seems to have been able to convince his banking colleagues to buy into his mandate and work plan it is left for him to deliver results so as to convince Nigerians that he can do better than his predecessor.
