By Chinwendu Obienyi
In its bid to help the Federal Government achieve its Gross Domestic Product (GDP) of $1.0 trillion over the next seven years, the Central Bank of Nigeria on Friday, stated that it would direct the Deposit Money Banks (DMBs) to increase their capital adequacy ratios.
This was even as the apex bank revealed that strict monitoring of tranche payments made to 31 banks to clear the backlog of FX forward obligations is being done. The CBN expressed satisfaction with the improvements in FX market liquidity in recent weeks.
Governor of the Central Bank, Dr Olayemi Cardoso, said that with continued tightening of measures over the next two quarters, the apex bank would be able to effectively manage inflation.
Cardoso disclosed this while delivering his keynote economic roadmap at the at the annual Bankers’ Dinner of the Chartered Institute of Bankers of Nigeria (CIBN) tagged, “The Governors’ Day” in Lagos.
He said that attaining the substantial target of $1.0 trillion over the next seven years necessitates sustainable and inclusive economic growth at a significantly higher pace than current levels. Whilst the administration has already commenced this journey through fiscal reforms, including the removal of petrol subsidy and the unification of the foreign exchange market rate, he noted it was imperative to evaluate the adequacy of the country’s banking industry to serve the envisioned larger economy.
“It is not just about the stability of the financial system in the present moment, as we have already established that the current assessment shows stability. However, we need to ask ourselves: will Nigerian banks have sufficient capital relative to the financial system’s needs in servicing a $1.0 trillion economy in the near future? In my opinion, the answer is “No!” unless we take action. Therefore, we must make difficult decisions regarding capital adequacy. As a first step, we will be directing banks to increase their capital,” Cardoso said.
Expressing the bank’s excitement at the positive response from the market to the tranche payments made to 31 banks to clear the backlog of FX forward obligations, Cardoso noted that FX market liquidity has improved in recent weeks, adding that the CBN has been subjecting these payments to detailed verification to ensure that only valid transactions are honoured.
He stated that while macroeconomic indicators are valuable in assessing performance, the CBN is equally concerned about the well-being of the average citizen and understands that there is a need to develop stronger frameworks for measuring the human condition and ensure that policymakers and business leaders pay as much attention to these measures as they do to macroeconomic indicators.
“This means tracking indicators such as access to food, shelter, and healthcare, as well as education and skills training opportunities,” Cardoso said.
Acknowledging the plight of small business owners grappling with the effect of inflation on their operations and planning, the CBN Governor stated that the apex bank has taken steps to address the excess liquidity, stabilize the exchange rate and introduce initiatives to improve the effectiveness of monetary policy tools and transmission mechanisms.
“These measures have already started to yield results, as excess liquidity in the banking system has significantly reduced and the Overnight Bank Borrowing (OBB) rate has increased to a level consistent with the monetary policy program. Month-on-month inflation has also begun to decline, with a growth rate of 0.67 per cent in October compared to 0.97 per cent previously.
While absolute inflation is still rising, the declining rate of growth indicates progress. The CBN is confident that with continued tightening measures for the next two quarters, we will be able to effectively manage inflation,” Cardoso said.