Lecture to the Sylvester Monye Foundation, Asaba, Delta State, July 9, 2010. By Sanusi Lamido Sanusi...
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Transcript of Lecture to the Sylvester Monye Foundation, Asaba, Delta State, July 9, 2010. By Sanusi Lamido Sanusi...
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
By
Sanusi Lamido Sanusi
GovernorCentral Bank of Nigeria
Prepared by the Research Department of the Central Bank of Nigeria
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
Introduction The Banking Sector Reforms Immediate Impact of the Reforms
Outlook for the Economy Key Challenges Concluding Remarks
2
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
The mandate of the Central Bank of Nigeria is to:
Ensure monetary and price stability
Issue legal tender currency in Nigeria
Maintain external reserves to safeguard the international
value of the legal tender currency
Promote a sound financial system in Nigeria; and
Act as banker and provide economic and financial advice to
the Federal Government.
4
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
Having a sound financial system in any country is very critical to economic growth
Theoretical and empirical evidences confirm that Financial Sector development is growth enhancing
In recent years, the banking sector has witnessed series of reforms aimed at enhancing the banking system’s effectiveness and efficiency as well as positioning the banks to be more involved in promoting economic growth and development
The current reform is designed to build on the
successes of earlier reforms with the overriding objective of fostering financial stability.
5
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
After the consolidation, eight major interdependent factors led to an extremely fragile financial system that was tipped into crisis by the global financial crisis and recession
| 7
Global Financial
Crisis
Financial crisis in Nigeria
Asset bubble Banking
Consolidation
● When: 2005
● 89 to 25 banks
● Minimum capital requirement increased to N25bn
● Liquidity injection by CBN of N620bn in 2009
● Stock market collapse of 70% in 2008 to 2009
● ED’s for 8
banks replaced by CBN
Factors affecting the banking sector since consolidation
Macro-economic instability
caused by large capital inflows
Major weaknesses
in the business environment
Inadequate disclosure and transparency
Lack of investor and consumer sophistication
Uneven supervision and
enforcement
Critical gaps in regulatory
framework and regulations
8
2
3
7
1
6
54
Major failures in corporate
governance at banks
Unstructured governance & management
processes at the CBN
7
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
The reports of the special examination team carried out by CBN/NDIC
revealed that nine out of the 24 banks were in grave situation, prompting
immediate intervention by CBN
Non-performing loans in the ten banks totaled N1, 696 billion,
representing 44.38% of total loans.
Aggregate provisioning required in the ten banks amounted to N1,221.52
billion
Capital Adequacy Ratio in the ten banks ranged between (1.01) and
7.41%, which were below the minimum ratio of 10%
The additional capital injection required by the banks was N495.83 billion
One key aspect of earlier reforms was Universal Banking which allowed
banks to venture into different business which posed a serious challenge
to the regulators
8
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.9
When the nine banks were identified to be in a grave situation, the CBN took proactive steps to prevent further deterioration, instead of suspending / revoking licenses or handing the banks over to the NDIC
The CBN’s initiatives to date include:
injecting N620 billion into the nine banks
replacing the chief executives/executive directors of eight of the banks with competent managers with experience and integrity
reaffirming guarantee of the local interbank market to ensure continued liquidity for all banks
guaranteeing foreign creditors and correspondent banks’ credit lines to ensure confidence and maintain important correspondent banking relationships
The capital injection enabled the nine banks to continue normal business operations and prevented a run on the banks
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
The current banking reform is meant to
encapsulate a holistic set of strategies
and initiatives designed to stabilize the
banking sector and promote long term
sustainable growth of the sector and
the economy as a whole.
The reform is based on four pillars. 10
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.11
Enhance the quality of banks
• Regulatory framework reform
• Risk based supervision• Consumer protection• Corporate governance• Disclosure and
Transparency
Establish financial stability
• Financial stability committee
• Macro prudential issues
• Capital market development (as alternative to bank funding)
• Counter-cyclical fiscal policies
Enable healthy financial sector evolution
• Competitive banking industry structure
• Improved cost structure of banks through cost control and business process outsourcing
• Reliable and secure payment systems
• Greater financial inclusion
• Improving Financial infrastructure: credit bureaus and registrars
Ensure the financial sector contributes to the real
economy
• Improving Effectiveness of existing development finance institutions
• Examination of critical issues for economic development (e.g. power, port, railways)
• Leveraging on CBN’s role as an adviser to the Government on economic matters
• Greater engagement with the Banking Industry
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.12
Setting up an appropriate institutional framework
Strengthening the institutions AMCON
CBN restructuring
Improving disclosure and transparency Risk Based Supervision
IFRS
Full disclosure / Common year end
Developing and Improving new regulation that takes on board lessons from the recent crisis
Review of Universal Banking
Margin lending
Prudential guidelines
Corporate Bonds
Enhancing the Developmental role of CBN SME Interventions (Credit Guarantee Scheme)
Power/Manufacturing Intervention (N500bn)
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
Asset management companies have been used in various countries around the world with considerable success
The Asset Management Corporation of Nigeria (“AMCON”) has been conceptualised as a resolution mechanism
AMCON is designed to stimulate the recovery of the financial system by:
acquiring NPL’s from the banks
assisting banks in improving their capital and liquidity positions
Banks transfer their bad loans into AMCON in exchange for bonds issued by AMCON and guaranteed by the Federal Ministry of Finance
AMCON is an integral part of the recapitalisation process
The AMCON bill is currently being considered by the National Assembly
13
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
Strong Corporate Governance in banks
Effective competition in the Industry
Efficient Financial Intermediation
Provision of diverse financial products to cater for segmented markets
Improved financial flow to real sector
Strong and sustained customer confidence in the system
14
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
Q4 2009 Gross FDI Inflow of N102.42billion
Gross inflows of FDI likely to Improve in 2010 as Q1 inflows stood at N84.78 billion
Inflows is toward share equities, banking, telecom, manufacturing and oil and gas sectors.
Gross FDI Flows into Nigeria (N’bn)
15
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
Ex-Im Bank exposure to Nigerian banks increased from $403 million to $1billoin
IFC is increasing its position in Nigerian banks
European Investment Bank increases its exposure to Nigerian banks by an additional $150 million
16
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
Weighted average inter-bank rate and other key money market rates fallen to below end-December 2008 level by end-August 2009 after the sharp increase between January and July 2009
Inter-bank rate and other key money market rates moderated significantly in recent times
17
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
Capital Market Developments
18
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.19
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.20
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
Monetary and credit aggregates underperformed
This is not peculiar to Nigeria as other countries faced similar outcomes due to the global financial crisis
Monetary and credit aggregates underperformed
21
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
Headline inflation declined steadily from 15.1% end-2008 to 11.0% end-May 2010
Food inflation fell gradually from 18.0% end-2008 to 12.3% end-May 2010, while non-food (core) inflation followed the same downward trend except in March 2009
Steady decline in various measures of inflation
22
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
120.0000
130.0000
140.0000
150.0000
160.0000
170.0000
180.0000
190.0000
02/0
1/0
915
/01/
0928
/01
/09
10/0
2/0
923
/02
/09
06/0
3/0
919
/03
/09
01/0
4/0
914
/04
/09
27/0
4/09
11/0
5/09
22/0
5/0
905
/06
/09
18/0
6/0
901
/07
/09
14/0
7/0
927
/07
/09
07/0
8/09
20/0
8/0
902
/09
/09
15/0
9/0
928
/09
/09
09/1
0/0
922
/10
/09
04/1
1/0
917
/11/
0930
/11/
0911
/12
/09
28/1
2/0
911
/01
/10
22/0
1/1
004
/02
/10
17/0
2/1
003
/03/
1016
/03
/10
29/0
3/1
013
/04
/10
26/0
4/1
010
/05
/10
21/0
5/1
004
/06
/10
17/0
6/10
30/0
6/10
Naira
Foreign Exchange Market Rates Naira/ US Dollar (January 2009 - June 2010)
INTERBANK BDC W/RDAS (incl. 1% comm.)
Stabilizing exchange rate
23
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
April '10 May '10
No. N' Million No. N' Million
Non-intervened banks 7,682 127,270 10,069 145,885
Intervened banks
1,947 18,189 2,272 27,922
Total 9,629 145,459 12,341 173,807
24
Increased new credit
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
BUSINESS LINES N' M % of Total
1Oil & Gas 57,420.28 33.04
2Manufacturing 40,640.39 23.39
3Transportation & Storage 30,184.06 17.37
4General 21,771.28 12.53
5General Commerce 17,804.97 10.25
6Government 6,367.37 3.66
7Construction 5,699.94 3.28
8Real Estate Activities 4,379.41 2.52
9Professional, Scientific & Technical Activities 2,874.93 1.6510Agriculture, Forestry & Fishing 2,597.98 1.50
11Finance & Insurance 1,177.01 0.68
12 Information & Communication 725.30 0.42
13Education 613.42 0.35
14Human Health & Social Work Activities 554.11 0.32
15Activities of Extraterrirorial Organisations & Bodies 303.20 0.17
16Capital Market 116.71 0.07
17Administration & Support Service Activities 56.75 0.03
18Arts, Entertainment & Recreation 4.00 0.00
19Power & Energy - 0.0020Public Utilities - 0.00
21Water Supply, Sewerage, Waste Mgt, etc - 0.00
Total 173,777.73 100.00
25
New credits by banks along economic sectors May, 2010
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
Overall output in 2010 expected to be higher than 2009 Q1 ’09 – 4.50% Q2 ’09 – 7.22% Q3 ’09 – 7.07% Q4 ’09 – 7.44% 2009 – 6.66% Q1 ‘10 – 7.23% 2010 – 7.75% (NBS projection)
27
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
Economic growth has been robust, however, major challenges remain: Generation of employment opportunities Weak link between the major growth
drivers, particularly agriculture, and manufacturing sector, hence, the manufacturing sector remains an insignificant contributor to growth
There is need to address the following binding constraints to growth:
29
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
Physical infrastructure constraints: Electricity and transport – there is need to
deepen the deregulation process to attract private investors
Need to review allocation of responsibility for infrastructure development among different levels of government
Inadequate Access to finance: Regulatory interventions to develop all sectors of credit
market, from microfinance to larger corporations Acceleration of credit market reform such as dispute
resolution mechanism, credit bureau regulation, and leasing laws
Development of the public-private partnership framework, legal framework for rental markets, etc
Reducing the high lending interest rate Efforts in all these areas are being fast tracked
30
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
Investment Climate Simplification of the approval process for
new business development Capacity building in various areas of the
economy Provision of adequate security for lives
and property Tackling the issue of corruption
Existence of Skill Gap: Prioritizing technical and vocation
education training Equipping enterprise and industrial clusters
to develop capacitiesHigh Cost of Inputs
Replacement of import bans with tariffs Deepening the ports reforms
31
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
Growing banking system liquidity is still desirable
Thus: Fiscal stimulus remains critical to support
CBN actions to fast-tracking recovery process
Urgent need to inject fresh funds into the banks affected by regulatory actions
Ring-fencing/removal of ‘toxic assets’:Establishment of asset management
company (“AMC”) 32
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
Realising the limits of monetary policy There is need to strike an appropriate balance
between monetary and other policies There is a limit to what monetary policy can
do to deliver economic growth Other complimentary policies must be in
place.Banking sector reform should not be an end in
itselfIt is a necessary but not a sufficient condition
for economic growth and developmentcomplementary reforms in other areas of the
economy is absolutely necessary33
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.34