By Babajide Komolafe

Banking and finance in 2014 were defined by efforts of industry players and regulators to enhance the quality of banking services as well as increase access to finance for critical sectors of the economy. Amidst these efforts, the industry experienced two major reality checks, which impacted regulation and monetary policy in the second part of the year. Presented below is a brief account of these developments.

Suspension of Sanusi

The suspension of Mallam Lamido Sanusi on February 20th was an unprecedented development in the history of the country. The suspension was the outcome of Sanusi’s outcry over missing crude oil revenue. Sanusi’s suspension triggered fear and apprehension in the industry especially among foreign investors, who feared that Sanusi’s tight monetary policy vis-a-vis stable naira exchange rate may not be maintained. The investors decided to divest from Nigeria and this triggered increased demand for dollars, resulting to suspension of the interbank foreign exchange market, and money market on February 20th.

To allay the fears of investors, the CBN increased sale of foreign exchange to meet demand, leading to 9.4 percent increase in foreign exchange sales at RDAS in February, and 13.23 percent decline in external reserves. Reflecting the impact of Sanusi’s suspension on Nigeria’s reputation in the international economy, Standard and Poor Credit rating agency downgraded Nigeria credit rating to “negative outlook”

Appointment of Emefiele

Mr. Godwin Emefiele’s appointment as Governor of Central Bank of Nigeria (CBN) was least expected by industry observers.

He was not one of the personalities touted to be in contention for the plum job. But since his assumption of office on June 4th 2014, Emefiele has taken decisions with far reaching impact on the industry. He has maintained the various measures to improve quality of banking and access to finance for economic development. He has also maintained the tight monetary policy obsession of the Sanusi led CBN.

Furthermore, he has shown leadership in the response of the CBN to the impact of the declining crude oil price on the economy. In addition to devaluing the naira, the CBN under Emefiele has introduced measures to curb speculation and slow down decline in external reserve, leading to further increase in interest rates, and freezing of interbank foreign exchange market.

Monetary Policy

Monetary Policy was tightened in 2014. In March the CBN raised Cash Reserve Requirement (CRR) for banks on private sector deposit to 15 percent from 12 percent. This was further increased to 20 percent in November. These increases led to the withdrawal of almost N1 trillion from banks and thus reduced their ability to extend credit to the economy. The withdrawal also prompted increase in lending rates of banks, as well as increased mobilisation and competition for low cost funds. In addition to raising CRR on private sector deposit, CBN also introduced measures to address excess cash (liquidity) in the banking system. In October, it limited interest payment on its Standing Deposit Facility (through which banks place idle cash with the CBN) to N7.5 billion. It also banned banks from accessing its discount window (to exchange treasury bills for cash) while participating in its foreign exchange auction.

In addition to tightening liquidity, Monetary Policy also battled to save the naira from the impact of falling crude oil prices. Measures were introduced to curb speculation in the foreign exchange market. On October 28, in addition to the 10 kobo margin limit imposed on intervention dollars, the CBN banned banks from selling the dollars to BDCs.

Furthermore, on November 6th, the CBN excluded importation of six items from official foreign exchange, saying it would no longer sell official foreign exchange for the importation of the items. The items included electronics, finished products, information technology, generators, telecommunication equipment and invisible transactions. According to the apex bank, the items would henceforth be funded from the interbank foreign exchange market only.

Further, the apex bank reduced the Net Open Position of banks to zero percent of shareholders’ funds, thus banning them from holding dollar assets for trading in the interbank market. In addition, the CBN imposed a 48 hours limitation on utilisation of dollars purchased from the interbank market.

Review of BDC Guidelines

On June 24, the CBN introduced new guidelines for bureaus de change (BDCs), raising the minimum capital base to N35 million from N10 million, and the mandatory caution deposit to N35 million from $20,000. The initial deadline of July 15th was extended to July 31st , while the CBN agreed to pay interest on the mandatory caution deposit.

However, despite the general belief that the measures would lead to reduction in the number of BDCs, the more than 3000 licensed BDCs were able to meet the new requirements, and thus retained their operating license. In addition to the new guidelines, the CBN reduced weekly sale of dollars to each BDC from $50,000 to $15,000. This combined with the ban on sale of CBN intervention dollars to BDCs restricted dollar supplies to the parallel market, leading to further depreciation of the naira in the parallel market.

Cashless Policy and E-payment reforms

The Cashless policy was extended to the remaining 30 states in the country on July 1st as scheduled though charges for cashless limit were suspended to allow for awareness.

In addition to this were several initiatives to boost adoption of electronic payments in the country. These include commencement of epayment of salaries, pensions and taxes; Introduction of E-Referencing; Introduction of Limits on Electronic payment instant transfers; Electronic payment incentives scheme; and reintroduction of charges for using the ATM of other banks (Remote-On-Us)

Reflecting the impact of these initiatives on electronic payments in the country, average monthly epayment transactions rose by 24 percent from 8.1 million in 2013 to 10 million as at July 2014. Also transactions through Point of Sale (PoS) terminals grew by 191.24 percent to 15.17million (N241.51billion) in 2014 from the 5.21million (N95.29billion) in 2013.

Biometric Verification Number

In order to improve on the Know Your Customer (KYC) requirement, and enhance security of transaction, the CBN and banks introduced the Biometric Verification Number (BVN). Based on biometric identity of the customers, the BVN was launched February 14 this year, with a pilot phase involving banks’ staff in 48 branches across the country, followed by enrolment of   customers in 1000 bank branches in Lagos.

In other to fast-track implementation of the BVN, the CBN in October issued a circular, wherein it mandated that banks must enrol 70 percent of their customers for BVN by March 2015. In addition, it made the BVN a condition for accessing bank loans in the country. “All new loans must have the BVN as a condition precedent to drawdown , with effect from November 3rd 2014”, the CBN said in a circular signed by Mr. Dipo Fatokun, Director, Banking and Payment System Department.

International Outbound Money Transfer service

In 2014, banks commenced Outbound Money Transfer services to ease the stress of sending money from Nigeria to individuals outside the country. This followed the introduction of the revised guidelines for   International Money Transfer Services by the Central Bank of Nigeria (CBN), which allowed provision of   Outbound Money Transfer services in the country.

In August, the CBN, Western Union and FirstBank launched the first Outbound Money Transfer services. Speaking at the launching ceremony, CBN Governor, Mr. Godwin Emefiele said the service is targeted at remittances by individuals to dependants, including children, leaving abroad and for other person-to-person needs. He said that the system would also simplify money transfer process in Nigeria.

He said, “Today, outbound money services is being launched to provide an alternative channel of foreign exchange transfer to serve the needs of small foreign exchange end users.

“Simultaneously, it reduces the foreign exchange sourced from official foreign exchange window in Nigeria and to a large extent, helps to conserve our foreign exchange.

Ban on loan defaulters

Efforts to address the problem of non-performing loans in the banking industry received a boost in July when the CBN banned banned banks and development banks from lending to loan defaulters of over N500 million, without its prior approval. The ban was announced by the Director, Banking Supervision, CBN, Mrs Tokunbo Martins in a circular titled, “Prohibition of Loan Defaulters from Further Access to Credit Facilities in the Nigerian Banking Industry.”

This decision according to the CBN was occasioned by, “the level of impunity with which some borrowers default on their loans in some institutions and yet are availed further credit facilities by other institutions under the same or sometimes different identity.

But following request from banks, the apex bank technically lifted the ban, by allowing banks to lend to defaulters subject to certain conditions.

Funding of Power Sector and MSMEs

The CBN further demonstrated its commitment to enhancing access to credit for critical sectors of the economy with the launch of the N220 billion Micro Small and Medium Enterprises (MSMEs) Development Fund and the N213 billion Power Sector intervention fund.

Launched in August, the MSME Fund provides loans at nine percent interest rate to MSME operators. According to the guidelines, 60 percent of the Fund is to provide financial services to women.

Also the Fund is to be shared between micro enterprises and SMEs at a 50:50 ratio. The Fund can only be accessed to fund Agricultural value chain activities, Services (hotels, schools), Artisans, cottage industry, and trade and general commerce.

In November the CBN introduced the N213 billion Nigeria Electricity Market Stabilsation Facilities designed to address obstacles to power generation. According to the CBN, the Facility is aimed at settling certain outstanding debts in the Nigerian Electricity Supply Industry (NESI) amounting to 213 billion and guarantees the take-off of the Transitional Electricity Market (“TEM”).

In specific terms, the proposed facility will cover legacy gas debts and the shortfall in revenue during the Interim Rule period (IRP). The facility will be administered through deposit money banks. The Facility will be disbursed at the rate of 10 percent per anum.

The tenor shall not be more than 10 years. A Special Purpose Vehicle (SPV) that complies with section 31 of CBN Act 2007 will serve as an intermediary between the banks and the Electricity market players. Nigeria Electricity Regulatory Commission (NERC) shall reset the Multi Year Tariff Order (MYTO) to ensure that it provides for the loan repayment including the costs of setting up and operating the NEMSF.

Sale of Enterprise Bank and Mainstreet Bank

The number of banks in the country further reduced in 2014 with the sale of Enterprise Bank and Mainstreet Bank. The two banks were among the three nationalised banks sold to Asset Management Corporation (AMCON) due to failure of the legacy banks to meet the recapitalisation deadline of the CBN.

The banks are Keystone bank (formerly Bank PHB), Mainstreet Bank (formerly Afribank) and Enterprise Bank (Formerly Spring Bank).

On September 11th, AMCON had announced HBCL Investment Services Limited (HISL), promoted by Heritage Bank as the preferred bidder for Enterprise Bank, ahead of Fidelity Bank, which emerged as the reserved bidder).

Upon the announcement HISL, made the first payment of 20 percent as stipulated in the share purchase agreement (SPA). The sale was completed on October 16th when the company successfully completed the payment for the transaction.

Also on October 5th, AMCON announced Skye Bank Plc as the preferred bidder for Mainstreet Bank, ahead of Cedar One Investment Partners Limited and Fidelity bank as 1st and 2nd reserve bidders.

Consequently, on October 8, Skye Bank signed the Share Purchase Agreement form and paid the mandatory 20 percent deposit. The Bank concluded payment for the transaction on October 31st ahead of the November 3rd deadline.