From Adanna Nnamani, Abuja
On September 23, 2023, Mr. Olayemi Cardoso was officially confirmed as the Governor, Central Bank of Nigeria (CBN), ushering a new era in the nation’s financial leadership.
His appointment followed the resignation of his predecessor, Mr. Godwin Emefiele, who stepped down amid a broader governmental restructuring tagged ‘house cleansing’ initiated by President Bola Tinubu, shortly after he assumed office.
Emefiele’s departure ushered in a new chapter for the CBN under Cardoso’s stewardship.
Cardoso, a seasoned financial expert with an amiable track record in economic management and banking, was welcomed by severe local and global volatilities, worsened by sudden monetary policy decisions which have destabilised the economy.
His principal, President Bola Tinubu stirred up the hornet’s nest in his inaugural address on May 29, 2023 by ditching the petrol subsidy regime (without accompanying palliatives), thus putting the CBN Governor in a tight corner and forcing him to play catch up.
Added to that was the naira float policy.
Since then, the naira has tumbled several times, hitting an all-time low at almost N2,000/$1 at the parallel market at some point.
Cost of foods and other goods have skyrocketed as the value of the naira gets terribly-eroded, leaving the masses to wallow in squalor with no respite in sight.
Words, terrorism and turf wars have resurfaced in higher intensity and food production has tanked.
But Cardoso did not foreclose hope. He said strategic plans, being fine-tuned with the fiscal policy wing, would lubricate the economy with sufficient foreign exchange and other incentives to engender growth.
He described the current tough economic situation as a mandatory but correctional surgical procedure that may be painful in the short term but definitely transformational in the long run.
Under Cardoso’s guidance, the CBN has introduced a suite of measures aimed at enhancing financial stability, market transparency, and investor confidence.
Bank licensing and expansion
The CBN granted new licenses and approvals, including one for a non-operating financial holding company, a transition of a merchant bank to a national commercial bank, and AIPs for regional commercial and non-interest banking licenses. The microfinance sector saw the introduction of 16 new banks, and 53 previously revoked banks were re-licensed, while five new finance companies received operational approvals.
Recapitalisation
In November 2023, the CBN announced new capital thresholds for banks to be met by March 31, 2026. Banks have the option to achieve these through equity issuance, mergers, or license adjustments, with implementation strategies due by April 30, 2024. Updated guidelines for Bureau de Change (BDC) operations were introduced, including new licensing requirements and capital standards to enhance foreign exchange distribution and oversight.
Consumer protection
A risk-based examination approach was implemented to identify policy gaps and improve conduct among financial institutions. The CBN resolved 76.58% of the 19,988 customer complaints received, facilitating refunds totaling approximately N7.05 billion and $714,569.03.
Comprehensive regulatory reviews and improved consumer service standards have been established to address emerging fintech risks.
Digitisation and financial inclusion
The Unified Complaints Tracking System (UCTS) and a new USSD verification system (*959#) were launched. The Women Entrepreneurs Finance Initiative (We-FI) Code was introduced to address the 9.0% gender gap in financial inclusion. The National Financial Literacy Framework was updated to align with global standards, and the Financial Education Curriculum in Nigerian schools was revised to promote financial literacy among youth.
Cybersecurity and anti-money laundering
On Cardoso’s watch, adoption of ISO 27001 standards and a new risk-based cybersecurity framework were implemented, alongside updated anti-money laundering (AML) measures to accommodate virtual assets and enhance resilience.
Financial system regulation
The CBN revised several regulatory frameworks, including the minimum Loan to Deposit Ratio (LDR) and the prohibition of foreign currency-denominated collaterals for local currency loans. These reforms aim to support monetary policy and stabilize the financial system.
Market conduct
To improve market resilience and transparency, the CBN prohibited banks from distributing unearned income, such as foreign currency revaluation gains, for the financial year ending December 31, 2023.
In the area of international compliance and economic stability, the CBN intensified efforts to expedite Nigeria’s delisting from the FATF Grey List. New guidelines for managing dormant accounts and unclaimed balances were issued to reinforce trust in the financial system. Processing fees on cash deposits exceeding N500,000 for individuals and N3,000,000 for corporates were suspended, alongside a three-month waiver for depositing lower denominations.
FX market
The CBN streamlined the FX market into a unified framework, cleared a $7 billion backlog of FX forwards, and reduced FX volatility. External reserves increased to $37.9 billion as of July 2024.
More so, in strengthening policy coordination, the Cardoso-led CBN embraced the development of the Fiscal and Monetary Policy Coordination Framework (FMPCF), which aims to enhance synergy between monetary and fiscal policies, ensuring better economic management.
Monetary policy
The CBN improved communication strategies through innovative channels, including podcasts and social media, to provide timely updates and engage with the public effectively.
Closely related to this is data-driven decision making and capacity building where the apex bank, through the utilisation of big data and Dynamic Integrated Analytic Modeling (DIAMoND) has enhanced forecast accuracy. Investment in staff training and mobile technology integration has bolstered capacity building.
Economic outlook
In May 2024, Fitch Ratings revised Nigeria’s economic outlook from stable to positive, reflecting improved financial stability and policy effectiveness.
More so, experts speak to restored confidence in the Nigerian economy, evidenced by positive endorsements from international agencies and financial institutions.
On Cardoso’s watch, Nigeria achieved a decline in inflation for the first time in 19 months, demonstrating effective monetary policy interventions.
While food inflation remains high, calls have reached a crescendo for the apex bank to steer the economy out of the tempest.
Experts’ views
Assessing Cardoso’s one year tenure, the Director General, Center for Promotion of Private Enterprise (CPPE) Dr, Muda Yusuf, said the CBN under Yemi Kadoso has witnessed a number of improvements in the last one year, especially in the area of corporate governance.
He also said Cardoso is working hard to restore the integrity and credibility of the Central Bank
“It’s also something that is very crucial, you know, to the independence of the Central Bank and the effectiveness of its regulatory function. So the corporate governance level has increased remarkably.
“So, the corporate governance level has increased remarkably. We have also seen an improvement in the transparency of key transactions, especially the foreign exchange transaction. The reform in the foreign exchange market has brought considerable transparency to the transactions in the foreign exchange market. That, for me, is something that we need to acknowledge. And that is also good, at least for investors’ confidence.
“It also shows that you don’t need to be looking for connections and things and contacts within the CBN or in the political environment for you to be able to access foreign exchange. So that transparency of the foreign exchange ecosystem. It’s a good thing.
“We have also seen a reduction in the ways that means financing of government. It has reduced drastically compared to what we used to have. And this for me is a major step to ensure that we bring some sanity into the way we resort to ways that means financing of the Central Bank because this was one of the problems of our macroeconomic environment”, Yusuf told Daily Sun.
Concerns
The CPPE boss, however, said that he was not too comfortable with the extreme approach to monetary policy.
“The tightening of monetary policy seems to have gone to an extreme which has been hurting growth and hurting investment. The tightening of the monetary policy was a bit extreme and that of course has created a major problem. It has created a major issue for financial intermidiation. It has created a major issue for funding, especially for the real sector of the economy. Because right now, we are talking about interest rates of between 28 to 35 per cent. That of course is not good for investment.
“The truth is that monetary policy alone cannot be used to tackle inflation. I think that the central bank needs to have that clear understanding that there is a limit to which monetary tightening can go to impact or to moderate inflation. The nature of the Nigerian inflation phenomenon shows that there is largely a cost push. Cost push by raising of the exchange rate depreciation and cost push by reason of high energy costs and cost of logistics.
“These are the critical factors driving inflation and of course the challenge of insecurity. So tightening monetary policy couldn’t have had that much impact on those key drivers of inflation.
“Then there are also some concerns about complete liberalization and flotation of the currency. For a developing economy, there’s a need for some controls. There’s a need for some capital controls. There’s a need to ensure that we reckon with the imperfections in the foreign exchange market, which make a complete flotation of the currency unsustainable.
“So, that understanding of the imperfections in the foreign exchange market, the understanding of the factor of money laundering in the exchange rates and in the foreign exchange ecosystem, those understandings and insights are very, very critical. So we are concerned that, the currency is completely floated, but we are comforted, however, that, lately, the CBN has been intervening in the market to ensure that, to reduce volatility in the foreign exchange market. And that is commendable.
“So such interventions, we hope will be more frequent, to ensure that there is a reduction of volatility in the foreign exchange market.
“But we also need to look more closely at issues of capital controls. We need to watch closely at the kind of demands that are being made for foreign exchange. Because there are so many factors that are outside the stream or the purview of policy. “There are other factors, especially relating to issues of corruption and money laundering. It has also been driving up the exchange rate, especially in the primary market. So we need to have a more rigorous view or surveillance about the kind of transactions that are taking place in the foreign exchange market that are possibly creating distortions in the foreign exchange market.
“So, it’s not just a market thing. We also need to look at other variables, which you can call extreme loss variables that are causing disruptions and putting pressure on the currency”, he explained.