By OMOH GABRIEL Business Editor
THE orgainsed private sectorÂ weekend spoke of their expectation of the new CBN governor, Sanusi Lamido Sanusi. In a statement signed by its president, Asiwaju Solomon Kayode Onafowokan, the body of business men based in Lagos wanted the new CBN governor to pay particular attention to the following areas in the interest of rapid economic development, better synergy between the banking sector and the rest of the economy and a stable financial system.
Cost of funds: â€œWe demand that the governor should urgently and critically examine the problem of high cost of fund in the Nigerian economy.
It is one of the major disconnecting points between the banks and the real economy. In most advanced economies of the world, single digit interest rate is the rule. A situation in which investors in the Nigerian economy are borrowing at 25-35 per cent interest rate per annum is unbearable and not in the best interest of the Nigerian economy.
It does not help the competitiveness of the private sector and the advancement of the economy as a whole. The obvious inevitability of the forces of globalization is a major issue for domestic investors, especially those in the real sector of the economy.
SME credit: â€œThe cost and access to credit by the small businesses is a major problem in the economy.Â This group pays as high as 80 to 100 per cent interest rate per annum on loans.Â Most of the credit they get are from the micro-finance banks, finance companies or the informal financial markets.Â The rates in these outlets are often atrocious.
SME Credit Guarantee Scheme: â€œRelated to theÂ issue of access to credit is the imperative of credit guarantee scheme for the small businesses.Â The proposal for the introduction of the scheme was put forward about three years ago by the CBN.Â This is yet to be translated to policy. We request the governor to revisit the issue for the following reasons:
â€œProblem of access to credit by the SMEs is due partly to the risk associated with them. A credit guarantee scheme would mitigate the risk and improve their access to credit. A guarantee scheme for SMEs would have a moderating effect on the cost of funds to them as the risk premium component of the interest rate would be reduced considerably. Lending institutions would feel more comfortable lending to small business. Needles to say, the SMEs more than any other economic group, have the capacity to create more jobs, promote equitable income distribution and alleviate poverty.Â This is a core developmental objective for the CBN.
Tenure of funds in the financial system: â€œThe tenure of funds in the financial system cannot support the development of the real sector of the economy.Â Over 90 per cent of funds in the financial system are short term funds with tenure of less than one year.
This is not good for the development of the real economy since the banks are principally intermediation institutions.Â We appreciate the fact that the tenure of funds is a function of the totality of the macroeconomic environment and interplay of many variables in the economy. We hope that the CBN, working in concert with the fiscal authorities, would improve on the current tenure of funds in the financial system by enhancing the necessary macroeconomic fundamentals.Â This is critical for banks to be in a position to finance long tem projects, as against the current practice of concentrating on working capital and short term investments in the economy.
Exchange rate management: â€œThe recent global financial meltdown resulted in an unavoidable depreciation of the naira.Â But even then, the CBN has a duty to ensure that the volatility of the exchange rate is minimised if not completely avoided.
It should also refrain from actions or pronouncements which could fuel speculative activities in the foreign exchange market.Â Furthermore, the CBN should quickly work towards a convergence of the official and parallel market rates. The current premium is excessive and could encourage round tripping, which is very harmful to the economy. The interbank foreign exchange should be reintroduced and the bank open position reviewed to 10 per cent to create a market driven foreign exchange market.
Imperative of consolidated supervision: â€œThe universal banking regime and the rapid expansion of banks investment portfolio calls for a regime of consolidated supervision of the financial services sector.Â The major regulatory institutions in the industry need to coordinate their activities to ensure a sector-wide stability and sanity.
Many banks for instance have subsidiaries which are very active outside the core area of banking.Â Â Â The CBN, SEC, NAICOM and NDIC consequently need proper coordination of their actions and functions for a more effective sector-wide oversight.
CBN regulatory capacity: â€œThe banking industry has grown significantly over the past five years.Â The sophistication, diversity and complexity of their operations calls for a scaling up of the capacity of the apex bank to effectively regulate and supervise the sector.
We therefore call on the CBN governor to examine critically capacity issues in the apex bank.Â The following options may be explored: improvement of in house capacity through training and related programmes; recruitment of experienced hands from the industry; and engagement of consultants and outsourcing.
Creditor rights and access to collateral:
-â€œThe credit growth in the economy grew astronomically over the last 5 years.Â The growth of non performing loans had also grown proportionately.Â But the challenge is that the banks often have serious difficulties in accessing assets used as collaterals for most of the non performing loans.Â This problem has created serious risk management challenge for many banks.
The legal processes involved in debt recovery are cumbersome, awkward and frustrating.Â The new CBN leadership, in collaboration with the National Assembly, should put in place enabling legislation to protect creditors from debtors who deliberately want to avoid repayment of loans.Â The CBN should be part of the crusade for the creation of commercial courts that would deal swiftly with debt recovery issues, among other commercial disputes.
Risk management: â€œThe current global financial meltdown could largely be attributed to the failure of risk management in the banking industry in many economies.Â The huge exposure of Nigerian banks to the capital market and resultant adverse impact on asset quality was mainly a failure of risk management.Â The quality of other assets in the portfolio of some banks also reflects this short coming. We are pleased to note that risk management is an area of core competence of the new Governor and we expect him to bring this to bear on the quality and standards of risk management in the industry.
Compliance with the best practice standards outlined in the Basle II Accord should be rigorously enforced for operators in the industry.Â CBN should ensure full disclosure by banks with regard to their exposures and also ensure full provisioning. This will help preserve the stability of the financial system, protect the depositorsâ€™ funds and safeguard the investments of the shareholders.
Market driven consolidation: â€œThe pressure on the financial sector at times like this is quite high. The capital market window for the boosting of capital and liquidity is no longer as robust as it used to be. Investorsâ€™ confidence had dwindled considerably.
In the light of this, there is need to create a conducive environment for market driven consolidation to create accommodation for the weak banks.Â This would encourage voluntary mergers and acquisitions which would result in stronger banking institutions and a more stable financial system.
Asset management initiative: â€œOne of the major initiatives to lessen the impact of toxic assets on the financial system was the move to create Asset Management Company to manage toxic assets.
This has been in the drawing board for over 5 years.Â We appreciate that there should be an enabling legislation for this to happen.Â We urge the Governor to work closely and quickly with the national assembly to fast-track the process for the creation of the Asset Management Company to bring relief to banks which are burdened with bank loans.
Sustenance of expanded discount window: â€œIn the light of the weak asset quality of some of the banks and the growing liquidity challenges in the industry, we urge the CBN to sustain the expanded discount window.
The discount window has reduced pressure on the interbank market and also had a moderating impact on the interest rate. But the expanded discount window can only be a short term intervention which should not last more than one year.Â It is important that the true positions of the players in the financial industry are recognized and necessary adjustments made for sustainable stability and growth of the industry.
Financial Systems Strategy (FSS) 2020: â€œThis is a good vision for the financial sector in Nigerian which should be sustained.Â It aims at developing the Nigerian financial sector into an International Financial Community.Â The thrust of the vision is laudable and the chamber believes it would be in the interest of the financial sector and the economy to sustain the momentum for the realization of the vision.
Review of the CBN Act: â€œWe call for an urgent review of the CBN Act to make it compatible with current trends and global best practices in the financial industry.
Sectoral intervention: â€œThe market mechanism cannot deliver credit to some key sectors that are critical to economic growth and development.Â Such sectors include agriculture, manufacturing, mining and infrastructure such as power, railways and roads.Â The CBN as part of its developmental role should engage in sectoral intervention in these critical growth sectors. We note that some steps have been taken in this direction – the agricultural credit intervention fund, for example.Â But the implementation guidelines of the funds should be such that it is properly focused and targeted to achieve the desired objectives.
Rural banking: â€œThe deregulation of the financial sector has brought with it the gradually extinction of rural banking.Â Rural banks are evidently not as profitable as the urban based banks.Â We note the introduction of micro finance banks which was partly designed to serve the rural areas.Â But the reality is that most of the microfinance banks are also based in the cities.Â We therefore request for a deliberate policy of the CBN to encourage the creation and sustenance of rural branches of banks by giving special incentives for banks to open branches in the rural areas.
Zero tolerance for infractions in the rendition of reports: â€œWe would like to see a regime of zero tolerance for infractions on the integrity of reports filed by banks to the CBN.Â The level of disclosures and transparency should improve significantly.Â Banks should be encouraged to fully adopt the International Financial Reporting Standards (IFRS).Â The apex bank should be able to log on to banks database and access information.Â It is necessary to stress that transparency is crucial for the stability and credibility of the entire financial systemâ€.