Emma Ujah
24 March 2009
IN a return to the regime of controls, the Central Bank (CBN) yesterday reacted to soaring interests rates in the banking industry by pegging deposit and lending rates to a maximum of 15 per cent and 22 per cent, respectively.
The apex bank also disclosed that the regime of consolidated supervision would begin this year - that is the joint examination of banks by other regulators like Securities and Exchange Commission, SEC, Nigerian Deposit Insurance Corporation, NDIC, National Insurance Commission, NAICOM, and the CBN itself.
Briefing newsmen in Abuja, CBN Governor, Professor Chukwuma Soludo, said the decision was an outcome of the meeting with banks' Managing Directors under the aegis of Bankers' Committee.
On the rationale for pegging interest rates, the CBN boss said "the market-based approach to interest rate determination as practised until now remains the best approach but given the unusual global crisis and the consequent impact on Nigeria, there is a need to moderate competition and lay greater emphasis on the safety and soundness of the system."
Speaking on decisions reached at the meeting, he stated:
"The Bankers Committee held an emergency meeting on Saturday, 21st March, 2009, and reviewed developments in both the international and the domestic economy with special focus on the banking sector.
"As part of the response to the global economic crisis, the Bankers Committee reached the following decisions:
"Interest Rates-· It was observed that interest rates have recently risen to levels considered to be intolerable and not supportive of the desired economic recovery. Accordingly, the bankers decided that they would not source deposits at rates above 15 per cent. They would also observe a lending rate which will be at most 7 per cent above the deposit rate. All other charges would be at most 2 per cent.
This implies that lending rates will not exceed 24 per cent at the maximum. This regime will be in place up to end December 2009 when a review will be undertaken.
"On the discount window, the Central Bank of Nigeria would lend to the banks at rates not more than 500 basis points above the monetary policy rate (MPR)
"Exchange Rates- The Bankers committee noted the salutary effects of the recent reforms in the
foreign exchange market with the appreciation of the Naira in the parallel market.
In order to sustain the momentum, the CBN intends to sell $100 million to the Bureaux de Change (BDCs) on a weekly basis to further dampen the rates in that segment of the foreign exchange market.
It should also be noted that the CBN will fund fully the demand in the RDAS representing all eligible transactions.
"Consolidated Supervision- The consolidated supervision scheme, that is, the joint examination of banks by the following regulators would begin this year - CBN, SEC, NAICOM and NDIC. These decisions have been taken in order to stimulate lending and get the economy back on track.
When the situation normalises the market will be allowed to play its role. The CBN will continue to monitor developments in the money market and stand ready to take appropriate actions to ensure liquidity and stability of the financial system."
He also announced the pegging of all other charges at a maximum of 2 per cent in order to contain what he described as "fierce competition for deposits which drive both deposit rates and lending rates to potentially systemically unsustainable levels."
He noted that deposit rates had reached as high as 21 per cent in some cases with lending rates hitting the roofs at a record 32 per cent.
The CBN governor explained that although the market-propelled rates were the best approach in the industry until now but that the stiff competition among operators had pushed rates to unacceptable levels.
"The market-based approach to interest rate determination as practised until now remains the best approach but given the unusual global crisis and the consequent impact on Nigeria, there is a need to moderate competition and lay greater emphasis on the safety and soundness of the system", the governor said.
On reports that certain people were plotting to take over the CBN and reverse the gains of the consolidation exercise, the Governor said he did not want to bother himself with the issue as he was concentrating on his job of ensuring a sound banking sector.
His words, "I don't know where the reports are coming from. I don't know. My bit is, I am focusing on keeping the banks stable and sound and to make sure that no Nigerian bank will fail under our watch and to be sure that our banks will be able to withstand the current global crisis and to continue to lubricate the economy.
"I don't pay much attention to the rumours and speculations that are going around. I have a job to do and I am focusing on that."
The Arewa Consultative Forum, at the weekend accused Prof Soludo of not telling Nigerians the whole truth about the health of Nigerian banks and insisted on more openness but the CBN boss insisted, yesterday, that all Nigerians banks were healthy but warned against actions or words that might precipitate crisis in the sector.
"All Nigerians banks are strong. They are standing and as we speak, may be we have to say this, I don't know how many times you want us to repeat this for it to possibly sink. Each day, you wake again and somebody is possibly passing one other message and so on.
"Post-consolidation, no bank has ever gone out of clearing.
And we have a mechanism in place no bank will, our banks are meeting their customers' needs.
Our banks are standing while others are falling and I believe if we all work together, including you the media, if we work together, and not stampede the system into a crisis, our banks will be able to weather through", he said.
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Is that suppose to be funny? I have a suggestion incase you run out of dough...:) Got money? Time you boys bring it back. Put it back into the system. Oh, wait a minute.. Europe might freefall. Hey get the people's money back, maybe thats the only solution. Told you Karma is a B.