As the new acting Governor of the Central Bank of Nigeria (CBN), Dr Yemi Cardoso awaits the confirmation of his appointment by the senate, analysts have urged him to focus on restoring confidence in the Nigerian monetary system whilst deepening the financial sector.
Analysts who spoke with LEADERSHIP said, the first point of call for the new helmsman at the apex bank will be to resort investor confidence in the financial system of the country, prove the independence of the CBN from political interference whist reforming the foreign exchange sector.
Head of Banking at Agusto&Co,, Ayokunle Olubunmi, while stating that foreign investors’ confidence in the country has dipped at a time the country desperately needs foreign exchange inflow, said the new governor who assumed office last week Friday, will need to work on restoring confidence in the country.
He said restoring investor confidence in the Nigerian financial system will increase the already dwindling foreign exchange inflow into the country.
On his part, the founder and Chief Executive of the Center for the Promotion of Private Enterprise (CPPE) Dr Muda Yusuf noted that, there is a serious confidence crisis in the foreign exchange market fueling an unprecedented speculative onslaught on the naira.
“The economy is grappling with severe adverse effects of depreciating exchange rate, soaring energy costs, ravaging inflationary pressures, huge backlog of foreign exchange obligations that needs to be cleared and debt service obligations that need to be redeemed. Sadly, these outcomes are manifesting at a time when the country’s foreign reserves have been substantially encumbered,” he pointed out.
Yusuf stated that, the CBN must ensure strategic and transparent intervention in the forex market to minimise volatility, as far as the reserves can support. He noted that, in addition to the investors and exporters window, it has become necessary to create an autonomous window in the banking system where the currency can trade freely without any encumbrances.
“This is necessary to avert the diversion of remittances to other jurisdictions or the black market. We cannot afford to live in denial at this time. The clearance of the backlog of forex obligations should be accorded high priority to restore the confidence of domestic and foreign investors,” he stressed.
Asides this, he said, it has become imperative for the apex bank to deepen the financial intermediation role of the deposit money banks, which is their primary role in an economy.
“This responsibility entails the mobilization of financial resources from the surplus end of the economy, to the deficit segment of the economy.
“Financial conditions remain very tight for the private sector amid challenges of access and cost of credit. Banking system credit to the private sector in Nigeria, as at 2022, was a mere 20.6 per cent of the nation’s GDP, as sub-Saharan average of 28 per cent and global average of 145 per cent. Besides, small businesses which account for an estimated 50 per cent of the GDP, have access to just about one percent of the credit in the banking system.
“The implication is that the banking system is still largely disconnected from the investing community, especially the small businesses in the economy. Financing gap in the small business space has been estimated at over N600 billion.
“This anomaly needs to be corrected. All these underscores the need to deepen synergy and complementarity between the banking system and the economic players, especially the MSMEs. There is need to reduce the ratio of non-interest income as a percentage of income of banks. The ratio was 42.5 per cent two years ago and would have gone up by now given the numerous headwinds confronting investors in the economy,” he stated.
The CPPE CEO also called for the review of the capital requirement of banks in the country saying “the minimum capital requirements of the banking industry need to be reviewed in the light of the considerable loss of value amid depreciating domestic currency.
To him, “During the banking consolidation exercise of 2004, the minimum capital requirements for banks was raised from N2 billion to N25 billion. The revised capital requirement was an equivalent of $187 million. Today the same N25 billion is an equivalent of just $32.5 million. This is a clear indication of the phenomenal erosion of the capital base of the banks.
“Recapitalisation of the banks has therefore become imperative. It is important to ensure that the capital base of banks can support their current exposures in the interest of the stability of the financial system.”