Governor of Central Bank of Nigeria (CBN), Yemi Cardoso, on Tuesday, expressed optimism that the proposed banks’ recapitalization policy would support the country’s $1 trillion economy ambition by year 2030.
Cardoso who disclosed this during an interactive session with the House Committee on Banking Regulations, chaired by Hon. Mohammed el-Rufai, reeled out plans toward achieving the feat.
He said, “On banking supervision, the CBN has taken decisive actions to ensure the safety, soundness and resilience of the banking industry. One of the key measures includes the recapitalisation of the banking sector by raising the minimum capital base to support the $1 trillion economy envisioned by the Federal Government of Nigeria (FGN) by 2030.
“Banks are required to meet these new thresholds by March 31, 2026, with several options available for reaching these targets. These options include issuing new equities, engaging in mergers and acquisitions, or adjusting their operational licenses.
“The Bank also revoked the licence of Heritage Bank, facilitated the successful merger of Unity Bank and Providus Bank, revised Cybersecurity Rules for Banks and PSPs, suspension of processing fees on cash deposits, and enhanced AML/CFT supervision, amongst others.”
On the macroeconomic performance in 2024, the CBN Governor said projections indicate a growth rate of 3.2 per cent and 3.3 per cent for 2024 and 2025 respectively, adding that Nigeria is projected to maintain a more robust 4.3 percent growth rate.
Cardoso also disclosed that the non-oil sector maintained strong performance, by contributing 94.30 per cent to GDP with a steady 2.80 per cent growth rate; while the oil sector’s growth rate has almost doubled to 10.15 per cent in Q2, 2024 from 5.70 per cent in Q1, 2024, due mainly to improved security surveillance which resulted in increased production of crude oil and natural gas.
According to him, the services sector continues to be the primary economic driver, contributing 58.76 per cent to GDP with a robust growth rate of 3.79 per cent, while the Industrial sector has shown remarkable improvement, with its growth rate surging to 3.53 per cent from 0.31 per cent.
He pointed out that the contribution of agriculture to total GDP also increased, in addition to the growth rate of the sector rising from a negative territory of -0.90 per cent to 1.41 per cent, indicating a substantial turnaround in productivity.
He also said the foreign exchange reserves have grown significantly, with remittance flows currently representing 9.4 per cent of total external reserves.
He said the reserves rose by 12.74% to US$39.12 billion as of October 11, 2024, from US$34.70 billion at end-June 2024, driven largely by foreign capital inflows, receipts from crude oil related taxes and third-party.
“In Q2 2024, we maintained a current account surplus and saw remarkable improvements in our trade balance,” he said.
Cardoso said the current external reserve position can finance over 12 months of import of goods and services, or 15 months of goods only.
This is substantially higher than the prescribed international benchmark of 3.0 months, reflecting a robust buffer against external shocks, he said.
He said inflation trended upward, driven largely by high food prices, cost of energy and legacy infrastructural challenges, but it commenced deceleration from 34.19% in June 2024 and to 33.40% in July 2024.
He said the moderation in inflation became more pronounced in August 2024, as headline inflation further eased to 32.15%.
This, he said, was largely attributed to monetary policy measures taken by the Bank.
With aggressive monetary policy tightening coupled with robust monetary- fiscal policy coordination, inflation is expected to further trend downward in the near-to-medium term, Cardoso said.
To combat inflation, he said they had fully reverted to orthodox monetary policy approach and implemented a comprehensive set of monetary policy measures.
These include raising the policy rate by 850 basis points to 27.25%, increasing Cash Reserve Ratios and normalising Open Market Operations as our primary liquidity management tool.
“In addition, we have adopted an Inflation-Targeting (IT) monetary policy framework as part of the Bank’s Enterprise Strategy (2024 2028).
“The IT framework, widely adopted across various global economies, is renowned for its effectiveness in combating persistent inflation.
“These integrated measures are aimed at stabilizing prices, optimizing liquidity management, and engendering an effective monetary policy framework.
“Regarding the foreign exchange market, the Bank implemented various reforms including a unification strategy, which streamlined various exchange rate windows into a single model, adopting the ‘Willing Buyer, Willing Seller’ approach to enhance FX liquidity and financial market stability.
“This move was aimed at fostering transparency, reducing market distortions, and enhancing the efficiency of foreign exchange allocations.
“This consolidation involved the implementation of new operational guidelines, which included removing the International Money Transfer Operators (IMTOS) quote cap.
“Additionally, the Bank resumed the sales of FX at the NAFEM and Bureau De Change (BDC) segments, bolstered by an improved supply from Foreign Portfolio Investors (FPIs),” he said.
Cardoso said the Bank’s numerous policy initiatives are yielding significant results across various sectors of the economy.
“In the foreign exchange market, we have achieved increased transparency and improved overall supply. By allowing the foreign exchange rate to be determined by market demand and supply, the CBN has reduced arbitrage and speculative activities, and eliminated the front-loading of FX demand.
“These policy measures have effectively narrowed the exchange rate disparities between the NAFEM and BDC segments, which have largely led to the convergence of FX rates. Improved transparency in the market has restored market confidence leading to increased capital inflows which enabled the CBN to clear existing FX backlogs.
“The settlement of all legitimate backlogs of outstanding FX obligations by the Bank has significantly improved Nigeria’s credibility and ratings across the global financial market, helping to boost investor confidence, and enhanced liquidity in the foreign exchange market.
“With improved investor confidence, foreign investments have increased as evidenced by a significant rise in capital importation by 65.56% to $6.49 billion between January and July 2024, compared to US$3.92 billion in the corresponding period of 2023.
“Collectively, these actions have contributed significantly to the stability of the financial system. While inflation remains a major concern, we are not relenting in ensuring that requisite measures are taken.
“Headline inflation slightly increased from 32.15 percent in August to 32.70 percent in September 2024. The MPC further tightened the policy rate in its September meeting in anticipation of an uptick in inflation due to the upward adjustment of the petroleum pump price.
“On a positive note, there was a moderation in core inflation from 27.58 percent to 27.43 percent over the same period. We therefore expect the year to end with significant moderation in inflation, as our policy measures permeate the real economy,” he said.
On the outlook for the economy, the CBN Governor expressed optimism that the country expects continued positive growth, especially in the non-oil, oil and industrial sectors.
“However, we remain cautious about potential global economic disruptions and domestic challenges.
“We project the Services sector to remain the primary economic driver, while the Industrial sector is expected to continue its recovery.
“Agricultural growth is anticipated to improve, supported by the harvest season and government initiatives.
“The Oil sector is also expected to maintain positive growth, assuming no significant disruptions.
“Inflation remains a pressing concern, but there are reasons for optimistic outlook. Inflation has shown gradual moderation, indicating that the Bank’s monetary policy measures are becoming effective.
“We anticipate steady moderation of inflationary pressures in the last quarter of 2024, supported by our monetary policy measures and the Federal Government’s recent initiatives, such as tax incentives on businesses in the economy.
“The Naira exchange rate has shown some recent improvement as indicated by relative stability.
“We must acknowledge key risks, including global economic uncertainties, security challenges, potential oil price volatility, decline. With your support and the Central Bank’s steadfast dedication, I am confident we can pave the way for a more prosperous Nigeria,” he said.
On the macroeconomic performance in 2024, he said although positive, these estimates remain below historical averages, suggesting moderate rather than robust expansion.
“However, we must remain vigilant as the ongoing geopolitical tension such as the Russian-Ukrainian war and the Middle East crisis, lingering supply chain disruptions and inflationary pressures continue to pose significant risks.
“In the crude oil market, we have observed a decline in prices during the third quarter of 2024, primarily driven by increased supply and revised global demand projections.
“Turning to domestic developments, I am pleased to report that our economy has demonstrated remarkable resilience. In the second quarter of 2024, the economy grew by 3.19%, up from 2.51% in the corresponding period of last year, driven largely by the non-oil sector.
While reflecting on the fiscal policy , the CBN Boss disclosed that the “deficit-to-GDP ratio stood at 4.1 percent for the first half of 2024, while consolidated public debt was 51.2 percent at end-March 2024. Although total debt stock exceeds the self-imposed 40.0 percent national threshold, it remains well within the international benchmark, indicating that our debt levels remain within manageable limits, although requiring attention.
“In the foreign exchange market, we have adopted key policy measures leading to improved efficiency in the market. In particular, Diaspora remittances through International Money Transfer Operators (IMTOS) have risen considerably by 36.61 percent to US$552.94 million in July 2024, from US$404.75 million in May 2024,” he said.
He said they have embarked upon various initiatives to improve the remittance ecosystem.
Some of these initiatives include the Expansion of IMTOS, strengthening compliance and improving transparency in the sector, finalizing the modalities for non-resident accounts with fewer requirements, following successful models in countries like India and Pakistan, and automating the reporting process for IMTOS through the Financial Institutions Foreign Exchange Reporting System (FIFX) platform to foster transparency and efficiency.
He said these initiatives are part of a broader effort to enhance remittance inflows and strengthen the Nigerian economy.
“As a result, remittance inflows which averaged $285 million per month in 2023 improved significantly as we achieved an impressive $585 million by August 2024. This remarkable growth stands as a testament to the hard work and dedication of everyone involved. The Bank remains focused on policies that safeguard the value of the naira and foster price stability
“Thus, remittances have contributed to improving the country’s balance of payments, resolving debt issues, and fostering exchange rate stability. These inflows are expected to significantly improve by the end of the year given the positive trajectory.
“In addition, the spread between the Nigerian Foreign Exchange Market (NFEM) and Bureau de Change (BDC) rates has narrowed significantly from N317.91 in January 2024 to N93.47 in September 2024, reflecting fundamental price discovery, enhanced market efficiency, and reduced arbitrage opportunities,” he said.
The CBN helmsman said the banking industry comprised 26 commercial banks, four merchant banks, and four non-interest banks, and has remained safe, sound and resilient.
“Key indicators such as capital adequacy and liquidity ratios, total assets, and total credits showed impressive improvements, underscoring the sector’s contribution to economic growth.
“In the third quarter of 2024, the capital adequacy ratio remains robust at 12.8 percent while the industry liquidity ratio rose to 52.9 percent by end-August. well above the prudential minimum requirement. The non-performing loan ratio stood at 4.2 percent, well below the 5 percent regulatory benchmark. These indicators reflect increased liquidity and solvency.
“Similarly, the equity market has shown impressive performance, with the All-Share Index rising by 30.54 percent and market capitalization expanding by 37.08 percent from December 2023 to October 11, 2024, signaling growing investors’ confidence.
“While we are encouraged by these positive trends, the Bank remains vigilant and committed to implementing policies that ensures monetary and price stability towards supporting sustainable economic growth,” he said.
In his remarks, Chairman, House Committee on Banking Regulations, Hon. Mohammed el-Rufai who applauded the CBN Governor for his relentless efforts in implementing policies aimed at stabilizing the economy, acknowledged the daunting task of steering the nation’s monetary policy amidst a challenging economic landscape.
He said: “under your one-year stewardship, the CBN has implemented a series of ground- breaking measures aimed at enhancing market transparency, improving financial stability, fostering a more secure investment environment, and shifting towards a market-driven exchange rate regime, to restore confidence and stabilize the economy.
“On the exchange rate, I must commend the CBN on the unification of the foreign
exchange market, enhancing liquidity and reducing market distortions, dearing a $7 billion backlog of valid forex, reducing forex volatility, and increasing our external reserves significantly,” he said.
He urged stakeholders to engage constructively “as we seek solutions that will enhance our monetary policy framework and ultimately support sustainable growth in Nigeria.”
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