Transcript Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July

By
Sanusi Lamido Sanusi
Governor
Central Bank of Nigeria
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
Introduction
 The Banking Sector Reforms
 Immediate Impact of the Reforms
 Outlook for the Economy
 Key Challenges
 Concluding Remarks

Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
The mandate of the Central Bank of Nigeria is to:

Ensure monetary and price stability

Issue legal tender currency in Nigeria

Maintain external reserves to safeguard the international value of the legal
tender currency

Promote a sound financial system in Nigeria; and

Act as banker and provide economic and financial advice to the Federal
Government.
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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
Having a sound financial system in any country is very critical
to economic growth

Theoretical and empirical evidences confirm that Financial
Sector development is growth enhancing

In recent years, the banking sector has witnessed series of
reforms aimed at enhancing the banking system’s effectiveness
and efficiency as well as positioning the banks to be more
involved in promoting economic growth and development

The current reform is designed to build on the successes of
earlier reforms with the overriding objective of fostering
financial stability.
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
 After
the consolidation, eight major interdependent factors led to an
extremely fragile financial system that was tipped into crisis by the global
financial crisis and recession
Factors affecting the banking sector since consolidation
Macro-economic
instability caused by
large capital inflows
Major weaknesses
in the business
environment
1
Banking
Consolidation
●
When: 2005
●
89 to 25 banks
●
Minimum capital
requirement
increased to
N25bn
Major failures
in corporate
governance at banks
Lack of investor
and consumer
sophistication
8
2
7
3
6
4
Inadequate
disclosure and
transparency
Unstructured
governance &
management
processes at the
CBN
Global
Financial
Crisis
Financial crisis
in Nigeria
Asset bubble
Uneven supervision
and enforcement
●
Liquidity injection
by CBN of N620bn
in 2009
●
Stock market
collapse of 70% in
2008 to 2009
●
ED’s for 8 banks
replaced by CBN
5
Critical gaps in
regulatory
framework and
regulations
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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
The reports of the special examination team carried out by CBN/NDIC revealed that
nine out of the 24 banks were in grave situation, prompting immediate intervention by
CBN

Non-performing loans in the ten banks totaled N1, 696 billion, representing 44.38% of
total loans.

Aggregate provisioning required in the ten banks amounted to N1,221.52 billion

Capital Adequacy Ratio in the ten banks ranged between (1.01) and 7.41%, which were
below the minimum ratio of 10%

The additional capital injection required by the banks was N495.83 billion

One key aspect of earlier reforms was Universal Banking which allowed banks to
venture into different business which posed a serious challenge to the regulators
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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When the nine banks were identified to be in a grave situation, the CBN took
proactive steps to prevent further deterioration, instead of suspending / revoking
licenses or handing the banks over to the NDIC
 The CBN’s initiatives to date include:
 injecting N620 billion into the nine banks
 replacing the chief executives/executive directors of eight of the banks with
competent managers with experience and integrity
 reaffirming guarantee of the local interbank market to ensure continued
liquidity for all banks
 guaranteeing foreign creditors and correspondent banks’ credit lines to
ensure confidence and maintain important correspondent banking
relationships
 The capital injection enabled the nine banks to continue normal business
operations and prevented a run on the banks
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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
The current banking reform is meant to
encapsulate a holistic set of strategies and
initiatives designed to stabilize the banking
sector and promote long term sustainable
growth of the sector and the economy as a
whole.

The reform is based on four pillars.
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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Enhance the quality of
banks
• Regulatory framework
reform
• Risk based supervision
• Consumer protection
• Corporate governance
• Disclosure and
Transparency
Establish financial stability
• Financial stability
committee
• Macro prudential
issues
• Capital market
development (as
alternative to bank
funding)
• Counter-cyclical fiscal
policies
Enable healthy financial
sector evolution
• Competitive banking
industry structure
• Improved cost structure
of banks through cost
control and business
process outsourcing
• Reliable and secure
payment systems
• Greater financial
inclusion
• Improving Financial
infrastructure: credit
bureaus and registrars
Ensure the financial sector
contributes to the real
economy
• Improving Effectiveness
of existing development
finance institutions
• Examination of critical
issues for economic
development (e.g.
power, port, railways)
• Leveraging on CBN’s
role as an adviser to the
Government on
economic matters
• Greater engagement
with the Banking
Industry
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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
Setting up an appropriate institutional framework

Strengthening the institutions




AMCON

CBN restructuring
Improving disclosure and transparency

Risk Based Supervision

IFRS

Full disclosure / Common year end
Developing and Improving new regulation that takes on board lessons from the recent crisis

Review of Universal Banking

Margin lending

Prudential guidelines

Corporate Bonds
Enhancing the Developmental role of CBN

SME Interventions (Credit Guarantee Scheme)

Power/Manufacturing Intervention (N500bn)
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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 Asset management companies have been used in various countries around
the world with considerable success
 The Asset Management Corporation of Nigeria (“AMCON”) has been
conceptualised as a resolution mechanism
 AMCON is designed to stimulate the recovery of the financial system by:
 acquiring NPL’s from the banks
 assisting banks in improving their capital and liquidity positions
 Banks transfer their bad loans into AMCON in exchange for bonds issued
by AMCON and guaranteed by the Federal Ministry of Finance
 AMCON is an integral part of the recapitalisation process
 The AMCON bill is currently being considered by the National Assembly
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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Strong Corporate Governance in banks
Effective competition in the Industry
Efficient Financial Intermediation
Provision of diverse financial products to cater for
segmented markets
Improved financial flow to real sector
Strong and sustained customer confidence in the
system
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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Gross FDI Flows
into Nigeria (N’bn)
Q4 2009 Gross FDI
Inflow of
N102.42billion
Gross inflows of FDI
likely to Improve in
2010 as Q1 inflows
stood at N84.78
billion
Inflows is toward
share equities,
banking, telecom,
manufacturing and
oil and gas sectors.
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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External Exposure to Nigerian banks
40000
CBN
Intervention
35000
Ex-Im Bank
exposure to
Nigerian banks
increased from $403
million to $1billoin
US Dollars(m)
30000
IFC is increasing its
position in Nigerian
banks
25000
20000
15000
10000
5000
0
Mar.2008
Loans
35773
Jun.2008
37451
Sep.2008
36638
Dec.2008
21858
Mar.2009
20059
Jun.2009
19076
Sep.2009
19680
Dec.2009
23012
European Investment
Bank increases its
exposure to
Nigerian banks by
an additional $150
million
Source: BIS
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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 Inter-bank rate and other key money market rates moderated significantly in recent times

Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
Weighted
average interbank rate and
other key
money market
rates fallen to
below endDecember 2008
level by endAugust 2009
after the sharp
increase
between January
and July 2009
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Capital Market Developments
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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14.00
Intervention
Days
12.00
Q 1, 2010
Q2, 2010
10.00
8.00
6.00
4.00
TMC
BSC
JUNE'30
JUNE'18
JUNE'04
MAY'21
MAY'07
APR'23
APR'09
MAR'26
MAR'12
FEB'26
FEB'12
JAN'29
JAN'15
DEC'31
DEC'18
DEC' 04
NOV'20
NOV'06
OCT'23
OCT'05
SEPT'04
21-Aug
14-Aug
Jun-09
Apr-09
Feb-09
Dec-08
Oct-08
Aug-08
Jun-08
-
Apr-08
2.00
Feb-08
Market Capitalization (Naira Million)
TOTAL MARKET CAPITALIZATION (TMC), BANKING SECTOR CAPITALIZATION (BSC) AND
NON BANKING SECTORS CAPITALIZATION (NBSC)
(FEB. 28, 2008 - JUNE 30, 2010)
NBSC
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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REBASED ALL SHARE INDEX (RASI), BANKING SECTOR REBASED INDEX (BSRI), NON-BANKING REBASED INDEX
(NBSRI) AND INTERVENED BANKS REBASED INDEX (IBRI)
(FEB. 28, 2008 - JUNE 30, 2010)
Re-based Index
75.00
This showed the
effects of the
leverage offered to
the banks through
the EDW. This
boosted the liquidity
in the system, hence
the reaction on the
stock market.
Intervention
Days
100.00
Q2, 2010
Q 1, 2010
75.00
50.00
50.00
25.00
25.00
Re-based Index
100.00
Suspension Days
0.00
0.00
RASI
NBSRI
IBRI
BSRI
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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 Monetary and credit aggregates underperformed

Monetary
and
credit aggregates
underperformed

This
is
not
peculiar
to
Nigeria as other
countries faced
similar outcomes
due to the global
financial crisis
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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 Steady decline in various measures of inflation


Headline inflation
declined steadily
from 15.1% end2008 to 11.0%
end-May 2010
Food inflation fell
gradually from
18.0% end-2008 to
12.3% end-May
2010, while nonfood (core)
inflation followed
the same
downward trend
except in March
2009
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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02/01/09
15/01/09
28/01/09
10/02/09
23/02/09
06/03/09
19/03/09
01/04/09
14/04/09
27/04/09
11/05/09
22/05/09
05/06/09
18/06/09
01/07/09
14/07/09
27/07/09
07/08/09
20/08/09
02/09/09
15/09/09
28/09/09
09/10/09
22/10/09
04/11/09
17/11/09
30/11/09
11/12/09
28/12/09
11/01/10
22/01/10
04/02/10
17/02/10
03/03/10
16/03/10
29/03/10
13/04/10
26/04/10
10/05/10
21/05/10
04/06/10
17/06/10
30/06/10
Naira
 Stabilizing exchange rate
Foreign Exchange Market Rates Naira/ US Dollar (January 2009 - June 2010)
190.0000
180.0000
170.0000
160.0000
150.0000
140.0000
130.0000
120.0000
INTERBANK
BDC
W/RDAS (incl. 1% comm.)
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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 Increased new credit
April '10
No.
May '10
N' Million
No.
N' Million
Non-intervened banks
7,682
127,270
10,069
145,885
Intervened banks
1,947
18,189
2,272
27,922
145,459 12,341
173,807
9,629
Total
May
April
0
20,000
40,000
60,000
Intervened banks (N'Million)
80,000
100,000
120,000
140,000
160,000
Non-intervened banks (N' Million)
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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 New credits by banks along economic sectors May, 2010
BUSINESS LINES
1 Oil & Gas
2 Manufacturing
3 Transportation & Storage
4 General
5 General Commerce
6 Government
7 Construction
8 Real Estate Activities
9 Professional, Scientific & Technical Activities
10 Agriculture, Forestry & Fishing
11 Finance & Insurance
12 Information & Communication
13 Education
14 Human Health & Social Work Activities
15 Activities of Extraterrirorial Organisations & Bodies
16 Capital Market
17 Administration & Support Service Activities
18 Arts, Entertainment & Recreation
19 Power & Energy
20 Public Utilities
21 Water Supply, Sewerage, Waste Mgt, etc
Total
N' M
57,420.28
40,640.39
30,184.06
21,771.28
17,804.97
6,367.37
5,699.94
4,379.41
2,874.93
2,597.98
1,177.01
725.30
613.42
554.11
303.20
116.71
56.75
4.00
173,777.73
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
% of Total
33.04
23.39
17.37
12.53
10.25
3.66
3.28
2.52
1.65
1.50
0.68
0.42
0.35
0.32
0.17
0.07
0.03
0.00
0.00
0.00
0.00
100.00
25
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
 Overall
output in 2010 expected to be
higher than 2009







Q1 ’09 – 4.50%
Q2 ’09 – 7.22%
Q3 ’09 – 7.07%
Q4 ’09 – 7.44%
2009 – 6.66%
Q1 ‘10 – 7.23%
2010 – 7.75% (NBS projection)
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.

Economic growth has been robust, however, major challenges
remain:
 Generation
of employment opportunities
 Weak link between the major growth drivers,
particularly agriculture, and manufacturing sector,
hence, the manufacturing sector remains an
insignificant contributor to growth

There is need to address the following binding
constraints to growth:
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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 Physical infrastructure constraints:
 Electricity and transport – there is need to deepen the
deregulation process to attract private investors
 Need to review allocation of responsibility for infrastructure
development among different levels of government
 Inadequate Access to finance:
 Regulatory interventions to develop all sectors of credit market, from
microfinance to larger corporations
 Acceleration of credit market reform such as dispute resolution mechanism,
credit bureau regulation, and leasing laws
 Development of the public-private partnership framework, legal framework
for rental markets, etc
 Reducing the high lending interest rate
 Efforts in all these areas are being fast tracked
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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Investment
Climate
 Simplification
of the approval process for new
business development
 Capacity building in various areas of the economy
 Provision of adequate security for lives and property
 Tackling the issue of corruption
Existence
of Skill Gap:
 Prioritizing
technical and vocation education training
 Equipping enterprise and industrial clusters to develop
capacities
High
Cost of Inputs
 Replacement
of import bans with tariffs
 Deepening the ports reforms
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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Growing
banking system liquidity is still
desirable
Thus:
 Fiscal
stimulus remains critical to support CBN
actions to fast-tracking recovery process
 Urgent need to inject fresh funds into the banks
affected by regulatory actions
 Ring-fencing/removal of ‘toxic assets’:
 Establishment of asset management company
(“AMC”)
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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 Realising
the limits of monetary policy
 There is need to strike an appropriate balance between
monetary and other policies
 There is a limit to what monetary policy can do to
deliver economic growth
 Other complimentary policies must be in place.
 Banking sector reform should not be an end in itself
 It is a necessary but not a sufficient condition for
economic growth and development
 complementary
reforms in other areas of the economy
is absolutely necessary
Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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Lecture to the Sylvester Monye Foundation , Asaba, Delta State, July 9, 2010.
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