6 June 2014

Nigeria: CBN to Blacklist Fraudulent Bank Debtors, Says Emefiele

The Central Bank of Nigeria, CBN, Governor, Mr. Godwin Emefiele, yesterday, unveiled his agenda, vowing to blacklist all fraudulent bank debtors and block them from obtaining further access to bank loans.

He also directed banks to stop, with immediate effect, all cash deposit charges and maintained that CBN would work towards bringing down interest rate with a view to enabling the real sector access credit to grow the economy.

Emefiele said the apex bank would incorporate job creation in its monetary policy formulation to open up employment opportunities for the nation's teaming youthful population.

Addressing a crowded world press conference in Abuja, he said he would be apolitical and remain professional in piloting a central bank that is people-oriented and that will support efforts of the Federal Government in creating jobs, and ensuring economic growth and national development, stating that monetary and fiscal policies have to work together to grow the nation's economy.

Managing threats

Mr. Emefiele told reporters, "we hope to sustain the effective management of potential threats and avoid systemic crisis.

"The core of my vision is to effectively manage potential threats to financial stability and create a strong governance regime that is conducive for financial intermediation, innovative finance and inclusiveness.

"In this regard, we hope to anchor on two main pillars: managing factors that create liquidity shocks and zero tolerance on practices that undermine the health of financial institutions.

New CBN Governor-- From left, new CBN Governor, Mr Godwin Emefiele, his deputies, Sarah Alade and Adebayo Adelabu during a World Press Conference in Abuja, yesterday. Photo: Gbemiga Olamikan. See story on Page 8

"In order to achieve these goals, we would work with the relevant stakeholders to aggressively shore up reserves. We hope to engage the fiscal and political authorities, as well as other stakeholders to improve our policy buffers, which will further create space for the bank to implement monetary policy, using its limited instruments.

"We will enhance the bank's supervisory purview over the banking system and strengthen macro-prudential regulation by improving supervisory diligence, ethical standards as well as highest level of professionalism in carrying out on and off-site supervision activities;

"Strengthen risk-based supervision mechanism of Nigerian banks to ensure overall health and banking system stability. To that end, banks shall be enjoined to proffer remedial actions where weaknesses are observed in RBS examination reports so as to avoid further build-up of NPLs.

"Where banks proffer inadequate remedies, the CBN shall advance its own solutions and insist on compliance. In the light of the size of the economy, following the rebased GDP, the trigger thresholds from a macro-prudential perspective are no longer adequate.

"In due course, the CBN would consider and announce measures to effectively address this anomaly.

On bad debtors, credits

"We would pursue a zero-tolerance policy on fraudulent borrowers. We will collaborate with commercial banks to significantly improve the credit culture in the Nigerian banking system.

"The CBN's focus would be directed at serial debtors who access loans from different banks and default on all of them even when they have the means to pay.

"Going forward, the CBN will work towards reducing the effect of information asymmetry in the credit market. In this regard, we shall establish secured transaction and national collateral registry, strengthen the sanction system to include blacklisting of companies/individuals that have been found to be serial loan defaulters.

"Indeed, these names would be circulated in the banking system to guide banks in identifying bad borrowers and denying them access to credits in the banking system. We shall implement stringent loan provisions and penalties for banks that lends to blacklisted persons and companies.

Cashless policy, charges

"We hope to better align the cashless policy. This policy was introduced in 2012 with pilots now completed in Lagos, Kano, Anambra, Abia, Rivers, and the FCT.

"The policy is now expected to go nationwide on July 1. Over the course of the pilot, we have become aware of complaints by customers, particularly regarding the charges being imposed for cash deposits.

"This has resulted in customers devising various means to avoid the charges through opening of multiplicity of accounts and other disingenuous behaviour all aimed at undermining the objective of this policy.

"Given these outcomes and to better reflect our goal of having more cash under our control, all charges on deposits are hereby stopped with immediate effect. Charges on withdrawals, in view of their eventual elimination, remain sustained at the current three percent for individual transactions exceeding N500,000 and five percent for corporate transactions exceeding N3 million.

Currently, these fees go entirely to the commercial banks. However, going forward, the Central Bank shall determine what percentage of these fees on excess drawings that will be redeemed by the bank, while the rest shall be remitted to the CBN.

Economic Devt

"For quite some time, the dominant school of thought regarding central banking was that focusing on low inflation will eventually lead to greater growth, increase in employment generating activities, and poverty reduction.

"However, early and recent evidence of central banking in places such as the United States, England, Japan, and France indicate that supporting selected economic sectors using 'direct methods' of intervention have been essential tasks of their central banks.

"As Epstein (2005) encapsulates, 'virtually all central banks, including the Bank of England, BOE, and the U.S. Federal Reserve, have used direct means to support economic sectors.

"In particular, a crucial role for the BOE and the US Fed have been to promote the financial sectors of their economies, and especially, to support the international role of their financial services industries.

"They have done this by using subsidised interest rates, legal restrictions, directed credit and moral suasion to promote particular markets and institutions."

Upstream, professionalism

"To reduce the losses (theft and leakages) in the amount of produced crude that is officially sold, we will support initiatives to meter at ports and secure pipelines.

"Working with the lead ministry, we will look at investment incentives that encourage local Niger Delta based small and medium scales enterprises to play an active role in metering services and pipeline protection technologies."

Mr. Emefiele promised to run a CBN "that is professional, people oriented, a central bank that dissipates its energy on building a resilient financial system that can serve the growth and development needs of our beloved country.

"We will not go into politics. What we will do is to focus on our banking business and use our skills to support the efforts of government in creating jobs for people.

On interest rate

"The study that we conducted shows that when you compare with other frontier markets, our interest rates are very high. We are discussing with the Committee of Governors and will come out with policies that will bring down our interest rates.

"We shall pursue a gradual reduction in interest rates. A comparison of selected macroeconomic aggregates from some emerging market countries including South Africa, Brazil, India, China, Turkey, and Malaysia indicate that Nigeria has one of the highest T-bill rates.

"Such high rates create a perverse incentive for commercial banks to simply buy virtually risk-free government bonds rather than lend to the real sector.

"While a reduction in deposit rates would encourage investment attitudes in savers, a reduction in lending rates would make credit cheaper for potential investors."

On devaluation

On the fears that the forthcoming election could trigger high inflation rate on account of the expected elections expenditures, Mr. Emefiele said he would adopt a tight monetary policy that would address the expected excess liquidity.

He said: "In the interim, we would continue to maintain a monetary policy stance, reflecting the liquidity conditions in the economy and the potential fiscal expansion in the run-up to the 2015 general elections.

Asked if he would devalue the Naira, Mr. Emefiele said that as an import-dependent economy, devaluation of the nation's currency was not an option.

He said: "Nigeria is a predominately import-dependent economy, where we import practically everything.

"We need to begin to look at how we can start produce some of these goods we are importing.

"When we are able to do that and we see a situation where we have transformed ourselves from being an import-dependent economy to an export-oriented one, then we can begin to look at what are the advantages of depreciating our currency.

"At this time it is not an option. But we will continue to see what we can do in the short run to use short-term tools to hold on strong to our exchange rate."

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