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By Chinwendu Obienyi
The banking sector is a major segment of any nation’s economy that plays critical roles in socio- economic development.
The financial sector could be a catalyst of economic growth if it is adequately supervised, controlled and monitored. This is why despite the trend or evolution that characterised the global economy, the banking industry has grown faster than many sector, particularly in Nigeria (after the ICT sector).
Some of its milestone achievements include financial inclusion and payment system have become an integral part of electronic banking despite the current straits of the economy.
Since the Central Bank of Nigeria (CBN) was established in 1959, banking has gone through a number of restructuring and act amendments, to sail the banking sector to its current position.
New deposit-taking financial institutions became a norm as a result of financial sector reforms. There were numerous establishments of community banks, finance and short loan houses and In 1988, the government established Nigeria Deposit Insurance Corporation (NDIC) with the responsibility of carrying out some sort of financial reforms and assisting the Central Bank of Nigeria in formulation of policies. It was charged with the responsibility of ensuring safe and sound banking services and insuring bank deposits through effective supervision. It was the basis of its assistant supervisory role with the Central Bank that the NDIC Act was useful. Despite this, there was also too little oversight of bank executives which enabled both low management standards, financial misconduct and fraud.
The big turnaround in banking sector fortunes came when the former CBN Governor, Charles Soludo, raised the paid-up capital of banks to N25 billion and this led to the trimming down of the number of banks operating at the time to 25 banks from 89.
Since then a number of initiatives and policies have been introduced by the regulator that have strengthened the sector to contribute to the economic growth of the country. These amendments and many more, have helped to widen the number of commercial banks in the country, as well as other financial services firms such as Fintechs, Mortgage banks et al.
Firstly, in the wake of the 2008 global financial crash, the Asset Management Corporation of Nigeria (AMCON) was set up to buy the bad debts of commercial banks, using funding from both the CBN and commercial banks to finance its operations.
Secondly, the CBN set up its financial inclusion drive in its bid to capture every Nigerian in the “access to finance net”. Although its target of having at least 95 per cent by 2024 in the financial net has not been met, 64 per cent is surely not a bad result. A number of developments in the banking sector, helped by technology and facilitated by the regulatory authority, are worthy of note. These include agency banking, on-line transactions and other improvements in the payment system. All these have helped to improve the rate of financial inclusion in the country.
However, monetary policies over the years have failed, on the average, to achieve inflation, interest rates and exchange rates targets due to factors located in the structural bottlenecks in the economy including the huge infrastructure deficit and the country’s inability to diversify the export base away from crude oil. Added to these challenges, FX scarcity is prevalent in the economy. Hence, the recent appointment of Dr Olayemi Cardoso and deputy governors; Emem Usoro, Muhammad Abdullahi Dattijo, Philip Ikeazor and Bala Bello, signals a recognition of the gravity of the situation and the need for strategic leadership to navigate these challenges.
Another area requiring immediate intervention is Nigeria’s soaring sovereign debt currently estimated at N87 trillion (when the CBN’s Ways and Means advancement of about N27 trillion is factored in). The new CBN team will also be battling low exports, double-digit inflation, shrinking food production, sub-optimal crude oil production, N2.7 trillion currency in circulation, rising debt service payments, crude swap deals and depleted foreign reserves. Whilst monitoring a programme at the weekend, economic experts agreed that the banking industry has gone through a huge level of development since its independence. They also argued that even though more changes are expected to hit the industry, the FG together with the CBN management should urgently initiate far-reaching monetary policy objectives that will reduce headline inflation rate, currently at 25.08per cent as at August 2023.
Former Governor of Edo State, now a Senator, representing Edo North Senatorial zone, Adams Oshiomole, stated that to ensure the banking industry grows, the CBN needs to relate with the fiscal authorities as well as the Ministry of Trade and Commerce. He noted that the country has submitted to market forces and relied on the “invisible hands” of Adam Smith to regulate and determine the value of the Naira. According to him, market forces cannot stabilise the Naira and interest rates cannot be at 20 per cent as the manufacturing sector cannot grow under such levels.
“Yes I agree that the industry has grown exponentially, however, there is a need for complete thinking outside the box. When the West celebrates our free market, I am always suspicious. Less regulation at a time when we can even see that nation states are negotiating with other nation states to have specific trade relationships. We need this new team to completely think outside the box.
If we allow Nigerians to import everything without restriction and we have limited dollars available, the Naira will continue to suffer devaluation. The game of competition presupposes equality and a level playing field and so Nigeria needs specific tools to protect industries at home and not pretend that a man with one leg can compete in a race with two legs, a complete radical shift is needed if the banking industry and the economy has to improve”, Oshiomole said.
Also speaking, the Director General of CPPE, Dr Muda Yusuf, revealed that the most urgent task is restoring confidence in the foreign exchange market. Yusuf said, “The economy is grappling with severe adverse effects of depreciating exchange rate, soaring energy costs, ravaging inflationary pressures, huge backlog of foreign exchange obligations that need to be cleared and debt service obligations that need to be redeemed.
On ways and means of financing the fiscal deficit, he said it must be kept within statutory limits to avoid the damaging impacts of high-powered money on the macroeconomic environment. With regards to the naira redesign policy, Dr Yusuf said it should be suspended indefinitely. “It should not be a priority at this time. There was really no compelling argument to undertake the naira redesign in the first place.
However, the momentum for the cashless economy should be sustained without resorting to the crude methodology of cash confiscation adopted by the previous dispensation in the CBN. The approach was very disruptive and inflicted unbearable hardships on businesses and the citizens”.
