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CBN’s Communique and Report for July ‘08

The Central Bank of Nigeria released a communique on September 18th listing steps that were taken to shield the economy from the impact of the US credit crunch. The major decisions were:

1. To reduce the MPR from 10.25 per cent to 9.75 per cent;
2. To reduce CRR from 4 per cent to 2 per cent with immediate
   effect;
3. To reduce the liquidity ratio from 40 per cent to 30 per cent;
4. To allow repo transactions against eligible securities for 90 days,
   180 days and 360 days; and
5. To the CBN will now buy and sell securities through the twoway
   quotes.

You can read the full details here:CBN - Monetary Policy Communique - Sept ‘08 (24)

Also find attached the CBN’s report for July 2008 as well as the slides from the CBN Governor’s speech on the interest rate levels in Nigeria:

CBN - Economic Report for July ‘08 (22)
CBN - Presentation On Issues On The Interest Rates In Nigeria by Soludo (18)

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CBN May Adopt New Supervision Model

Financial Nigeria is reporting that the CBN may adopt a new supervision model for banks in Nigeria.  Here is the report:

The Central Bank of Nigeria (CBN) may have begun moves to develop a home grown supervisory model that takes into account international  requirements and standards in banking supervision.

Indications to this effect emerged from a presentation that a Special Assistant to the Governor of the CBN on Banking Supervision made to the Bankers’ Committee during recent meeting of the body.

Coming from a close aide of the governor, some industry analysts see the development as a prelude to the unfolding of a supervisory approach that tries to harness the current consolidated supervisory approach and a home grown approach.

Last year, the apex bank rolled out a consolidated supervisory approach, which ensures that banks and their subsidiaries are treated as a group for effective supervision. Besides, it ensures that credit processes are consolidated so that warning signals can be sent out on time.

THISDAY gathered that the CBN governor’s aide canvassed the view that both the regulator and the operators should have the same expectations on supervisory activities. He also stressed the need for the Banking Supervision department, the CBN and the operators to work together to ensure a safe and sound financial system for Nigeria.

His presentation, which dwelt on Basel 2 and consolidated supervision, covered several areas, noting that the initial perceptions being that there was huge growth in the industry and the attendant high level of shareholders’ expectations. The other major issues he addressed were risk management, corporate governance, overheated real estate values, among others.

He said the success of supervision depends on the quality of the exercise. To ensure that supervision achieves the objectives it is meant to achieve, the CBN official suggested building of institutional capacity in the Banking Supervision of CBN, redefining the role of supervision, employing risk based supervision and consolidated supervision.

Besides, he called for the strengthening of corporate governance and risk management systems in banks, as well as an enabling legal framework that will facilitate supervision. Following the conclusion of the reforms of the banking sector and the emergence of mega banks, the calls for a new supervisory approach have become more strident. The calls are based on the fact that banks need to be more closely monitored now to prevent the possibility of them going under to avoid loss of investment by shareholders and other stakeholders.

Source: Thisday

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The Fall Out of Soludomics of Dollarization

First, it was the news that the Naira will be revalued. It was then followed by the news that the Federal Government was not informed and that they were caught off-guard by Soludo’s announcements - that he did not inform or consult the President before making the pronouncement. Then the news that the CBN did not have the authority to make such a move. Then the news that Soludo was conspicuosly left off the Economics Team for the nation. All led to the pronouncement by the Justice Minister that the Naira Revaluation Policy had been suspended indefinitely.

I wonder how the FG can justify leaving the CBN head out of the Economics team. Does that make sense to anyone? I believe that there is something fishy about this story. CBN Officials claim that the President was made aware of the move. I will be extremely surprised if he did he made such a pronouncement without the president’s approval. Maybe he stepped on some toes with such a move. If you think of it, it wont pay foreigners. So there is a high likelihood that some people making money from the foreign exchange trading are/were against the move and therefore acted to kill the policy.

If I were Soludo, the honorable thing will be to resign. He does not have anything to prove again to anyone and he is surely guaranteed of some plum job in the World Bank or at the IMF or one of these financial institutions. My fear is that some anti-progress forces will continue to act as obstacles of progress.

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New Naira Policy

The CBN head has announced a new Naira policy - the Naira will be redominized. The new plan essentially calls for the chopping off of 2 zeros from the currency. It is to go in to effect August 2008. The N100, N200, N500, and N1000 notes will be scrapped. N20 will now be the highest denomination. And the exchange rate will be adjusted so that N1.25 will now exchange for $1.
He explains that,

“According to him, they are designed to better anchor inflationary expectations, strengthen public confidence in the naira, make for easier conversion to other currencies, reverse tendency for currency substitution, eliminate lower value, reduce cost of production, among others.

Soludo said as necessary complements to the currency redenomination, the apex bank would embark on adoption of inflation targeting framework for the conduct of monetary policy and liberalised current account.”

I just hope that this is totally thought through before implemented. The debate over this new policy will be very interesting.

Here is a copy of Strategic Agenda for the Naira, the speech by Charles Soludo.

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