THE comment made by the National Security Adviser (NSA), General Aliyu Mohammed Gusau against activities of Central Bank of Nigeria (CBN) and the Economic and Financial Crime Commission (EFCC) is coming at a time when Nigerians are wondering if the government is not in touch with the business community and the economic reality of our time. The CBN reforms no matter how well intentioned has dealt a serious blow on the economy.
In the first instance the confidence that banking requires was destroyed when Sanusi openly pronounced that Nigerian banks are unhealthy. Secondly, the CBN and EFCC criminalised borrowing and made the lender as well as the borrower of funds criminals.
Reforms all over the world are meant to improve on existing situations, protect jobs and lay a solid foundation. As it turned out the CBN reforms has brought the banking industry to its knees. No bank operating in the country today has not laid off over 1000 of its work force. Many banks have stopped taking deposit thus discouraging banking saving culture that Nigeria needs so badly to mobilise investable funds. Worse is that most investors have moved out their funds and many industries have relocated into the neighbouring countries.
It is a matter of regret that though the international community is hailing the reforms in the open, secretly they know that the right thing has not been done. Some Nigerian businessmen have learnt the hard way when they approached foreign banks for loans only to be told that Nigerians are known not to be good borrowers. The long term effect of the reforms is that credit lines have dried up, local banks no longer give loans as testified by the CBN, deposit rates have crashed and the interbank lending rates remained flat and failed to react to the Central Bankâ€™s decision to retain its benchmark rate at 6 per cent.
The CBN itself has expressed concern at the lack of credit flowing in the banking sector of the economy and has in panic set up a N200 billion Small and Medium Scale Enterprise Guarantee scheme. The secured Open Buy Back remains at low 1.10 per cent, 10 basis points above the CBNâ€™s Standing Deposit Facility rate. Overnight placement is trading flat at 1.20 per cent, while call maintained the same level of 2 per cent. The financial sector has cash surplus of about N354 billion naira.
What is more worrisome is that Nigerians are withdrawing their money from banks. For instance currency in circulation for the month of January 2010 stood at N 1.072 trillion. Out of this amountÂ N 581.727 billion are in the banking system while N 824.456 billion is out side the banking system.
For the month of February the total money in circulation amounted to N 1.053 trillion, of this amount N 689.895 billion is within the banking system while N 814.539 billion is outside the banks. This is alarming. Deposit in the period stood at N 3.766 trillion for January and N 3.912 trillion for the month of February.
While the Central Bank has kept the MPR at about 6 per cent since last July, there has been an evident shift to loose monetary policies to revive lending_related activities, especially as the standing deposit facility was cut to as low as 1 per cent. This, coupled with fiscal expansionary policies, the depletion of the excess crude account and the injection of several billions of naira into the banking system, has boosted systemic liquidity, fuelling the rapid drop in interbank lending rates.
Still, these measures have yet to result in a turnaround in credit to the private sector; indeed the annual rate of growth of credit to the private sector retreated in January to 17.7 per cent year on year, the lowest level since March 2006. It is worthy of note that the growth rate projected by the CBN continues to be well above the consensus view.â€ As of today the CBN is pushing hard to persuade risk_averse banks to expand their loan books and would not want to tighten monetary policy. In any event the disconnect between the policy rate and banksâ€™ lending rates remains. This is a creation of the CBN which it has no answer for.
The apex bank in an overall effort to get credit to the real economy flowing again conveyed a special monetary policy meeting, especially at a time when most commercial banks are reluctant to lend. A healthy banking sector is one of the keys to unlocking Nigeriaâ€™s full growth potential. The CBN management is bent on reversing every policy it met on ground. Very soon it will come up with a modified universal banking which by the look of it is taking the nation back to the era of mushroom banks. The CBN leadership certainly needs help, the humble thing to do is to accept that it has made serious mistakes and failed to deliver sound monetary policy. Then corrections can be made.