X-raying recent developments at CBN, market sentiments

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President Bola Tinubu suspended Godwin Emefiele and appointed Mr. Folashodun Adebisi Shonubi as the acting Governor of the Central Bank of Nigeria (CBN). CHIMA NWOKOJI in this report, examines market reactions and sentiments around change of leadership in the apex bank.

President Bola Tinubu recently appointed Mr Folashodun Adebisi Shonubi as the acting Governor of the Central Bank of Nigeria (CBN). Shonubi’s appointment followed the suspension of Godwin Emefiele, the erstwhile CBN Governor, on Friday. Until his appointment, Shonubi was the Deputy Governor, Operations Directorate,

The central bank has four deputy governors but Shonubi was considered above Aishah Ahmed, Edward Adamu, and Kingsley Obiora. Pending the appointment of a new CBN governor or the unlikely recall of Emefiele, Shonubi is now the chief central banker of Africa’s biggest economy and his appointment is welcomed by various stakeholders in the financial system.

The Centre for the Promotion of Private Enterprise (CPPE) believes that the immediate step taken by CBN is in the right direction. Unification of the naira exchange rate according to the CPPE director/CEO, Dr Muda Yusuf, would boost government revenue by a minimum of N4 trillion.

Dr. Yusuf stated this while reacting to the step taken by the new administration to unify the exchange rate. Yusuf said the revenue would be achieved through additional remittance of exchange rate surplus to the federation account by the Central Bank of Nigeria.

The CBN gave commercial banks and dealers in the forex market the green light to sell forex freely, which is at a market-determined rate.

This is in line with the promise of President Bola Tinubu to unify the multiple exchange rates in the market.

Yusuf added that the liberalization of the foreign exchange market would unlock the huge potential for investment, jobs, and capital flows and that investors’ confidence would be positively impacted.

According to him, a unified exchange rate regime offers the following benefits for the economy: “It enhances liquidity in the foreign exchange market. It reduces uncertainty in the foreign exchange market and therefore enhances the confidence of investors.

“It is more transparent as a mechanism for forex allocation. It minimizes discretion in the allocation of forex and reduces corruption vulnerabilities. It reduces opportunities for round-tripping and other sharp practices. It would increase disclosures concerning export proceeds and compliance with non-oil export declarations, especially the non-oil export documentation [NXP] among others.

“It would boost government revenue by a minimum of N4 trillion through additional remittance of exchange rate surplus to the federation account by the CBN.”

Who is Shonubi?

With the suspension of the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, President Bola Tinubu has tasked the Deputy Governor, Operations Directorate, Mr. Folashodun Adebisi Shonubi, with leading the country’s apex financial institution in an acting capacity.

Having served in the deputy governor role since October 2018, Shonubi has represented the CBN governor on the board of the Federal Inland Revenue (FIRS) since December 9, 2019.

Born on March 7, 1962, he attended the University of Lagos from 1978 to 1983 and obtained a Bachelor of Science in Mechanical Engineering. He further obtained a Master of Science in Mechanical Engineering in 1985 with particular interest in Production Engineering from the same university.

From 1988 to 1989, he began his study in Finance and obtained a Masters’ in Business Administration specialising in Finance.

Shonubi began his working experience as a Consultant Engineer at Mek-ind Associates and worked from 1984 to 1989. From 1989 to 1990, he was a Marketing Executive at Inlaks Computers Limited.

He moved to Citibank Nigeria Limited as Head, Treasury Operations from 1990 to 1993. He joined Agusto & Co. Ltd as a Supervising Consultant from 1993 to 1996 from where he moved to MBC International Limited as Deputy General Manager, Banking Operations and Information Technology from 1999.

In 1999, he joined First City Monument Bank (FCMB) Limited as Vice-President, Operations and Information Technology and was there till 2002.

In 2003, he moved from FCMB to Ecobank Nigeria Plc as an Executive Director, Operations and Information Technology and, in 2007, he became the Director, Information Technology and Corporate Services, Renaissance Securities Nigeria Limited.

He was recruited by Union Bank of Nigeria Limited as an Executive Director, Operations, Technology and Services, from September 2009 to April 2012.

He then became the Managing Director/CEO, Nigeria Inter-Bank Settlement System Plc from May 2012 to October 2018, after which he became CBN deputy governor.

Market reactions

The stock market is often a sentiment indicator that can impact gross domestic product (GDP) either negatively or positively. In a bull market—stock prices are rising—consumers and companies have more wealth and confidence—leading to more spending and higher GDP.

By the close of business last Friday, June 17, 2023, the bullish momentum on the Nigerian Exchange persisted during the week by 5.45 percent week on week (w/w) as the All Share Index (ASI) traded at a 15-year historical high above the 59,000-index point for the first time since 2008 to close at 59,000.96 points, and driven by the central bank’s implementation of a unified exchange rate, which aligned with President Bola Tinubu’s policy statement in his inaugural speech. This move was in line with market expectations and bolstered investor sentiment and confidence with over N1.67 trillion profits in 2 of 4 sessions as the market cap advanced by 5.49 percent w/w to N32.13 trillion.

Earlier, the Nigerian stock market rose to its highest level since July 2008 last Tuesday, the first day of trading after the suspension of Godwin Emefiele.

According to a report by Bloomberg, investors are betting on a currency devaluation and this move takes the country’s stocks’ year-to-date gains above 11.8 percent, almost double the six percent return on the MSCI index.

It noted that the rally, which followed increased gains on Nigerian dollar bonds on Monday, reflected optimism over the policy signals from the newly elected president, Bola Tinubu. FGN Eurobonds traded on the international market appreciated across most maturities, supported by a positive macroeconomic outlook for Nigeria, amid the removal of fuel subsidy payments and the free float of the Naira at the I&EX window

Recent initiatives

For context, the apex bank articulated new guidelines in a move targeted at restoring sanity in the Nigerian FX market.

Notable changes contained in the “Operational Changes to the Foreign Exchange Market (OCFEM) include : the collapse of all FX windows into the Investors & Exporters (I&E) window; the re-introduction of the “willing buyer, willing seller” model at the I&E window for all eligible transactions; pegging of all government-related FX transactions to the weighted average rate of the preceding day executed transactions at the I&E window; proscription of trading limits on oversold FX positions with permission to hedge short term positions in OTC futures, (v) re-introduction of order-based two-way quotes with a bid-ask spread of ¦ 1.00, and the cessation of all cash-tied rebate schemes of the CBN effective 30th June 2023.

CBN delivering on mandates

Despite the changes taking place in the apex bank and the Nigerian economy, the CBN is still pursuing its mandate as a responsible government agency. Some of these are explained below.

Foreign Exchange management involves the acquisition and deployment of foreign exchange resources in order to reduce the destabilizing effects of short-term capital flows in the economy. The CBN monitors the use of scarce foreign exchange resources to ensure that foreign exchange disbursements and utilization are in line with economic priorities and within the annual foreign exchange budget in order to ensure available balance of payments position as well as the stability of the Naira.

In order to safeguard the international value of the legal tender currency, the CBN is actively involved in the management of the country’s debt and foreign exchange.

In addition to its function of mobilising funds for the Federal Government, the bank advises the Federal Government as to the timing and size of new debt instruments, advertises for public subscription to new issues, redeems matured stocks, pays interest and principal as and when due, collects proceeds of issues for and on behalf of the Federal Government, and sensitises the Government on the implications of the size of debt and budget deficit, among others.

The effectiveness of any central bank in executing its functions hinges crucially on its ability to promote monetary stability. Price stability is indispensable for money to perform its role of medium exchange, store of value, standard of deferred payments and unit of account. Attainment of monetary stability rests on a central bank’s ability to evolve effective monetary policy and to implement it effectively.

Periodically, the CBN determines target growth rates of money supply, which are compatible with overall policy goals. It also seeks to align commercial and merchant banking activities with the overall target. The CBN through its surveillance activities over banks and non-bank financial institutions seeks to promote a sound and efficient financial system in Nigeria.

The CBN as banker to the Federal Government undertakes most of Federal Government banking businesses within and outside the country. The Bank also provides banking services to the state and local governments and may act as banker to institutions, funds or corporation set up by the Federal, State and Local Governments.

It also finances government in period of temporary budget shortfalls through Ways and Means Advances subject to limits imposed by law. As financial adviser to the Federal Government, the Bank advises on the nature and size of government debt instruments to be issued, while it acts as the issuing house on behalf of government for the short, medium and long-term debt instruments.

The Bank coordinates the financial needs of government in collaboration with the treasury to determine appropriately the term, timing of issue and volume of instruments to raise funds for government financing.

It still maintains current account for deposit money banks. It also provides clearing house facilities through which instruments from the banks are processed and settled.

Similarly, it undertakes trade finance functions on behalf of banks’ customers. Finally, it provides temporary accommodation to banks in the performance of its functions as lender of last resort.

Expectations

A Financial Expert, Babatunde Salami wants the acting Governor of the Central Bank of Nigeria (CBN), Folashodun Adebisi Shonubi, to prioritise price stabilisation and management of foreign exchange in the operation of the apex bank.

He also urged the CBN boss to harmonise monetary policies with fiscal policies so as to strengthen the nation’s currency on the global stage.

Voice of Nigeria quoted Salami as having called on the apex financial institution not to dabble into activities that are not within the confines of its core mandate.

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