AS the nation grapples with the reality of the prevailing global financial meltdown, former Minister of Finance and a Managing Director of the World Bank, Dr. Ngozi Okonjo-Iweala, yesterday called for closer scrutiny of Nigerian banks and the entire financial services sector.

Dr. Okonjo-Iweala spoke on "Global Financial Crisis: Impact and Implications for Nigeria" at the African.

University of Science and Technology in Abuja, and said regulators could not afford to assume that banks were playing according to the rules if left to themselves.

"The conglomerate structure of Nigerian banks might have contributed to opacity. It is important that bank supervisors in Nigeria get a complete picture of the consolidated balance sheets and exposures of the banks. The idea of creating a new financial supervisory authority has been raised.

"Now that the banking system has undergone a consolidation process, it is important to identify systemically significant banks and financial institutions and subject these to special scrutiny.

"This is one of the lessons emerging from the sub-prime crisis in the United States. The Congressional Oversight Panel set up under the Emergency Economic Stabilisation Act of 2008 to provide guidance on regulatory reform as well as monitor the use of funds spent to shore up the financial system has recommended that systemically important institutions, namely, those deemed too big to fail when a crisis hits, be identified in advance and subjected to heightened regulatory requirements", she said.

There have been reports, recently, that some of the banks were merely window-dressing to create a public image of strong financial institutions, when, in fact, they were in deep trouble.

The World Bank chief also urged caution in view of calls by several stakeholders for the intervention of the Federal Government to bail out the Nigerian capital market.

Days of high oil prices gone

Okonjo-Iweala also warned Nigeria against expecting roof-top crude oil prices in the future, as, according to her, the alternative energy policy of the USA might permanently make such expectation a mere wishful thinking.

She therefore challenged Nigeria to genuinely work at expanding her foreign exchange earnings base in order to avoid being caught in the web of the current global crisis.

Her words: "Nigeria should simply not return to its pre-crisis growth path, which would hold it hostage to good luck in the shape of high oil prices. Indeed, with all the attention being paid to greener technologies, a greater focus on energy independence in the US via new kinds of renewable energy and the emergence of hybrids in the automotive sector, Nigeria may not be able to return to the status quo ante.

A strategy which sets targets for diversifying the export and tax bases would be highly desirable.

"The crisis is not merely a challenge but also an opportunity to diversify and reposition the economy for steadier long-run growth. This can be built into the fiscal stimulus from excess crude account withdrawals which will relax infrastructure and other constraints to non-oil growth.

"For Nigeria, the crisis is a huge challenge; but embedded in that challenge is an opportunity to reposition the economy in a way which would reduce its overwhelming dependence on oil and create a diversified springboard for steadier long-run growth and job creation once the crisis abates. This is the central message I want to leave with you."

With a reduction of oil production from the 2.2 million barrels per day assumed for the 2009 budget and a recent, IMF/ World Economic Outlook oil price forecast of just $44 per barrel, the challenges before the nation are enormous.

She pointed out that being accountable for 60 per cent of West Africa's GDP, much of the outcome of the current meltdown on the sub-region would depend on the actions and inactions of Nigeria, in the immediate, medium and long-term.

In tackling the financial crisis, the World Bank chief observed that the 2003-2006 fiscal reforms placed Nigeria on a good pedestal to response positively to the problems confronting the nation.

Forex restrictions to restore confidence - Mukhtar

And speaking at the G20 meeting of African leaders in London yesterday, the Minister of Finance, Mansur Mukhtar said the currency restrictions imposed last month by the Central Bank are designed to restore confidence, but there are risks to the economy from the oil price.

"We are looking to stabilise the situation and plug leakages and loopholes that have been exploited," Mansur Muhtar said.

"The Central Bank is trying to boost the level of confidence. Over time we would expect to see relaxation of these measures."

"We believe there have been aspects of distortions related to growing uncertainty and speculation," Muhtar said, explaining the need for the restrictions.

Banks embark on massive cost cutting

In apparent reaction to the liquidity crisis in the banking industry which intensified yesterday, banks have embarked on massive cost cutting measures.

Meanwhile the liquidity crisis experienced by the banks have started to manifest in some banks' branches in the rural areas, where customers are said to be having difficulties withdrawing their deposits.

Reflecting the increasing intensity of the liquidity crisis, cost of funds further rose in the interbank money market yesterday, as indicated by the Nigerian Interbank Offered Rate (NIBOR).

According to the NIBOR published by the Money Market Association of Nigeria (MMAN) yesterday, interest rate on call lending rose to 25.91 from 25.83 per cent. Similarly, interest rate on seven days rose from 24.9 to 25.83 per cent.

Money market operators confirmed to Vanguard that there is severe scarcity of funds in the market and it is not likely to get better due to the fact that the year end of some banks fall on the end of the month.

The severity of the liquidity problem is however manifesting in banks' branches. In the some banks' branches last week, depositors with cheque of N1 million and above were requested to come back for their money as the banks said they did not have money to honour their demand

Meanwhile banks have started cutting cost across the board. Vanguard reliable gathered that the decision to cost cut followed a concensus by the banks to trim their size in preparation for the impact of the global financial crisis. This, it was gathered prompted the wave of retrenchment in the banking industry in recent times, as well as drastic reduction in advertising and promotions by banks.