The CBN has just introduced a 50 per cent Cash Reserves Requirement on public sector deposits. Why was this introduced and what was is it meant to achieve?
First of all, you’ve got liquidity in the banking industry. As I speak to you, we’ve got over N1.3tn or so sitting in the banks belonging to government agencies. This is at zero per cent interest and the banks are lending about N2tn to the government and charging 14 per cent. Now, that’s a very good model, isn’t it? Give me your money for free and I lend it to you at 14 per cent. So, why would I go and lend to anyone?
Now, if you want to discourage such perverse behaviour, the first thing is to take away that money and the reserved requirement is to make sure that the excess liquidity in the bank’s balance sheet (is taken away). It is just about six or seven banks that really account for the bulk of this and we are not going to put them in distress.
Secondly, this is just the beginning. If there continues to be spending, and we are concerned about liquidity conditions, we foresee in the future a continued increase in the Cash Reserves Ratio as we continue to maintain tight liquidity conditions.
Election year is everywhere not just only in Nigeria but everywhere in the world. And in every election year, politicians spend money and spending money means pressure on exchange rate and pressure on inflation.
So the next 12 months would be difficult, we would have to respond at every stage and make sure that no matter what happens, we do not have stability pressures. So, this is a first step in addressing one major chunk. We have done it on the public sector deposits and then probably if the government, for instance, decides that the public sector account should come back to the central bank, then the CRR will be reviewed on that. But if it is out there, then CRR is 50 per cent. It is a form of tightening as it would help the exchange rate and hopefully, it is also an appropriate monetary condition when you have a rise in fiscal spending. We have done that without increasing the MPR and it’s also a cost effective way of managing money for us. It’s time for us to begin to share the cost of monetary management.
During the last MPC, you expressed concern about the credit growth to the public sector while that of the private sector was declining, thus crowding out the private sector. Has the CBN been able to do something about this?
As far as the credit growth is concerned, it is not a unique Nigerian problem. The United States, Europe and everyone is contending with credit growth. It is usually what happens after a crisis; you repair the balance sheet of banks and put the money in the balance sheet of banks and it takes time for banks to begin to lend. And the growth in credit would have to be accompanied by the progress on the structural side and the progress on the fiscal side. There has to be government spending in the right areas and the right policies to attract investment and create viable private sector counterparties.
So, there have been growth but it is not anywhere near where we want it to be. We will continue to encourage the banks to lend and we will continue to take measures that will reduce the perverted incentives that lead to crowding out. This is because if banks can get cheap money from the government and turn round and lend it to the government at high rate of interest, the incentives for them to either halt private sector deposit or lend to private sector are not there.
You recently appeared before the National Assembly over issues of illegal charges by some banks and you told them you were not aware of some of these charges. Did you discover anything during your investigations?
On the National Assembly, I don’t think they were talking about illegal charges but the N100 maintenance fee and I wouldn’t call it illegal at all. We do have guide-to-bank charges and there is an agreement that any bank that wants to charge anything outside the charges must have the approval of the central bank. We did say we were not aware because no bank has approached us. The particular banks that were mentioned in the resolution were there and made a presentation where they said they were not charging.
Now that inflation is down and there is macro-economic stability, when should the people expect a reduction in the Monetary Policy Rate?
You know this question of reducing MPR is not just about where inflation is but where we think it’s going to be. There are two major concerns before us now. The fiscal position of government is a big problem. The deficit in the first half of this year is over N400bn compared to just over N200bn last year. We have drawn over N700bn from the Excess Crude Account in the federation and at a time when the government is borrowing more and saving less, you don’t expect the monetary authority to lower the interest rates.
The second thing is that we’ve got fragile financial markets with a lot of money in the portfolios, which means that at the first sign of shock in April, May and June, you begin to have outflows that will put pressure on reserves and currency.
For this reason, we think we’ve got elections coming up and a lot of government spending in an election year. So, the outlook for us suggest we should hold on for now. I had said this before that there was a likelihood of rates going up than rates coming down in the immediate future.
Can you explain the submission of the CBN accounts to the Financial Reporting Council?
The central banks had been pushing for banks to move to IFRS and we are also aware of the dearth of skills around the IFRS accounting. We encouraged the banks to make contributions to the academy. These contributions were given to the FRC and to the best of my knowledge, the money is still there and it is going to be used for the purpose of that academy.
We strongly support the IFRS academy and we strongly support building capacity in the industry for compliance.
On our accounts, the FRC does not approve our accounts. The board of the central bank had approved our account. The FRC is there to set accounting standards and to make sure they are improved upon to meet international best practices. We published the accounts and the FRC had comments on those accounts. They will take those comments and we will take on board anything because they are the regulator as far as preparing financial statements is concerned. And just like banks respect our own regulatory arena, we respect the FRC in its own regulatory arena.
So, there is no question at all about the non-approval and I am not even aware of any issues that have been raised. I will like to put an end to all that speculation. There is nothing like FRC not approving our account. There is nothing like a query on our account and there is nothing like complaints about IFRS academy. The FRC did not force the banks but we are the ones that encouraged the banks to make contributions to the academy.
How does fake naira note get to the ATM machines?
The fake naira note on ATM machines is really an operational issue. Banks are supposed to process the currency before they put it into the ATM machines. And if they process, their machines should identify fake notes. So, if you find a fake note in an ATM machine, somebody in the bank didn’t do what he was supposed to do and they just put in notes that were not processed. There is also the possibility that you go to an ATM machine that receives and pays and maybe the sensors are not working. So, the machine should reject fake notes that are fed in from outside. These are purely operational issues and the deputy governor, operations is working with the banks to make sure the problem is addressed.
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