New CBN Governor Unfolds His Agenda,Scraps Charges On Cash Deposits

The new Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele, on Thursday scrapped charges on cash deposits, just as he promised a gradual reduction in the interest rates on lending.

He said a zero charge on deposits would encourage investment attitudes among the savers, while a reduction in the lending rates would make credit cheaper for potential investors.

Emefiele, while unveiling his blueprint for the banking sector and the economy, said his vision for the country was to create a central bank that would be professional, apolitical and people-focused.

He spoke to journalists at the CBN head office in Abuja and noted that the two initiatives of achieving a reduced interest rate and deposit charges were part of his 10-point agenda for the central bank.

The CBN boss said, “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 indicates that Nigeria has one of the highest Treasury 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.”

He noted that while the task of reducing the interest rate and maintaining the exchange rate were very daunting twin goals, the CBN would work assiduously with all stakeholders to device countervailing measures that would ensure that the goals were mutually achieved.

“To enhance financial access and reduced borrower cost of credit, we would pursue policies targeted at making Nigeria’s treasury bill rates more comparable with other emerging markets and by extension, pursue a reduction in both deposit and lending rates,” said the CBN governor.

Speaking on the country’s payment system, Emefiele said his vision was to align with the policy of his predecessor on the cash-less policy, noting that the policy would go nationwide on July 1 this year as earlier scheduled.

He, however, regretted that during the course of the pilot scheme, a lot of complaints were made by customers, particularly regarding the charges being imposed for cash deposits.

This, according to him, has resulted in customers devicing various means to avoid the charges such as opening of multiple accounts and other disingenuous behaviours with the aim of undermining the objectives of the policy.

Given these outcomes and in order to better reflect his goal of having more cash under the control of the CBN, Emefiele said, “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 per cent for individual transactions exceeding N500,000 and five per cent for corporate transactions exceeding N3m.

“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.”

On the exchange rate policy, the CBN boss said his vision for the economy was to maintain its stability, adding that there were no immediate plans to devalue the naira.

He argued that in view of the high import-dependent nature of the economy, a systematic depreciation of the naira would literarily translate to considerable inflationary pressure with attendant effect on macroeconomic stability.

As a result of this, he said, “Under my leadership, the bank will continue to focus on maintaining exchange rate stability and preserve the value of the domestic currency.

“We will sustain the managed float regime in the management of the exchange rate, as this will allow the bank to intervene when necessary to offset pressures on the exchange rate. To support this strategy, we will strive to build-up and maintain a healthy external reserves position and ensure external balance.”

Emefiele also said he would include unemployment rate in the CBN’s monetary policy decisions; maintain exchange rate stability and aggressively shore up foreign exchange reserves; and strengthen risk-based supervision mechanism of Nigerian banks to ensure overall health and banking stability.

He said, “The bank would begin to include the unemployment rate as one of the key variables considered for its Monetary Policy decisions.

“In the interim, we would continue to maintain a monetary policy stance, reflecting the liquidity conditions in the economy as well as the potential fiscal expansion in the run-up to the 2015 general elections.”

According to him, others programmes are to build up sector-specific expertise in banking supervision to reflect loan concentration of the banking industry; to consider and announce measures to effectively address the anomaly in macro-prudential space; abolish fees associated with limits on deposits and reconsider ongoing practice in which fees associated with limits on withdrawals accrue to banks alone.

The CBN governor also announced plans to introduce a broad spectrum of financial instruments to boost specific enterprise areas in agriculture, manufacturing, health and oil and gas.

He said the central bank would establish Secured Transaction and National Collateral Registry to improve access to information on borrowers and assist lenders to make good credit decisions; build resilient financial infrastructure that would serve the need of the lower end of the market, especially those without collateral.

On financial system stability, Emefiele said his administration would sustain the effective management of potential threats and avoid systemic crisis.

“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,” he said.

Emefiele also said the Apex bank would enhance its supervisory purview over the banking system as well as 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.

To achieve this, he said, “Banks shall be enjoined to proffer remedial actions where weaknesses are observed in Risk-Based Supervision examination reports so as to avoid further build-up of non-performing loans.

“Where banks proffer inadequate remedies, the CBN shall advance its own solutions and insist on compliance.”

He also emphasised the need to pursue a zero-tolerance policy on fraudulent borrowers, noting that the bank would collaborate with commercial banks to significantly improve the credit culture in the banking system.