Godwin Emefiele, CBN Governor
Godwin Emefiele, CBN Governor

  • Reiterates soundness of Nigerian Banks

Governor of the Central Bank of Nigeria, CBN, Godwin Emefiele has reiterated that Nigerian banks are sound and healthy.
Emefiele stated this yesterday during a press briefing after Monetary Policy Committee, MPC, meeting in reaction to questions from newsmen.
The CBN governor, who admitted that given the shocks in the economy currently, there is no doubt that the banking sector was facing its own share of the systemic stress, but argued that it did not translate to failure of any bank in the country.
According to him, “Concerning the banking sector, the system is strong. When economy faces stress, the banking sector equally faces its own share of the stress, but it has not gotten to a point where anybody should panic.” Since 2009, the CBN has come out to say that no Nigerian depositor will lose money. We monitor the activities of the bank directors and owners, whenever there is indication that any bank managers are doing anything that would undermined the growth of any bank we step in and take action to ensure that whatever they are doing does not lead to negative position of such bank.”
Speaking on the decision of the committee members, Emefiele stated that the monetary policy rate (MPR) was increased to 14 percent from the previous 12 percent, retained the cash reserve ratio (CRR) at 22.50 percent, and the Liquidity Ratio (LR) at 30percent.
MPR is the rate used by the central bank to implement or signal its monetary policy stance.
It signals the interest rate CBN charges commercial banks for short-term loans.
Lowering the rate is expansionary because the discount rate influences other interest rates. Lower rates encourage lending and spending by consumers and businesses. Likewise, raising the rate is contractionary because it influences by other interest rates.
Also, higher rates discourage lending and spending by consumers and businesses. On the other hand, the CRR implies the portions of deposits that banks must hold in cash, either in their vaults or on deposit at CBN. A decrease in reserve requirements is expansionary because it increases the funds available in the banking system to lend to consumers and businesses. An increase in reserve requirements is contractionary because it reduces the funds available in the banking system to lend to consumers and businesses.
Explaining further on how the committee hiked the stance, Emefiele said that since the current episode of inflation is largely non-monetary but structural, tightening at this point would only serve to worsen prospects for growth recovery as the bank had in June 2016 withdrawn substantial domestic liquidity through the foreign exchange market, upon introduction of the flexible foreign exchange regime.
The MPC also considered the high inflationary trend which has culminated into negative real interest rates in the economy, noting that this was discouraging to savings.
Members also noted that the negative real interest rates did not support the recent flexible foreign exchange market as foreign investors’ attitude had remained lukewarm, showing unwillingness in bringing in new capital under the circumstance.
Members further noted that there existed a substantial amount of international capital in negative yielding investments globally and Nigeria stood a chance of attracting such investments with sound macroeconomic policies.
Consequently, they were of the view that an upward adjustment in interest rates would strongly signal not only the bank’s commitment to price stability but also its desire to gradually achieve positive real interest rates.
“Such a decision, it was argued, gives impetus for improving the liquidity of the foreign exchange market and the urgent need to deepen the market to ensure self-sustainability. Members were of the opinion that this would boost manufacturing and industrial output, thereby stimulating growth which is desired at this time,” he stated.
The CBN governor noted that the MPC expressed strong support for the urgent diversification of the economy away from oil to manufacturing, agriculture and services, and called on all stakeholders to increase investment in growth stimulating and high employment elasticity sectors of the economy in order to lift the economy out of its current phase.
While he said that members called on the federal government to fast-track the implementation of the 2016 budget in order to stimulate economic activity to bridge the output gap and create employment, he added that concern was expressed over non-payment of salaries in some states and urged express action in that direction to help stimulate aggregate demand.

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