Economic Confidential, July 7, 2009

MONETARY

CBN Governor to Compel Banks on Appropriate Disclosure

...Cuts Interest Rate, Liberalises Foreign Exchange

In his first Press Conference as the Governor of the Central Bank of Nigeria (CBN), Sanusi Lamido Sanusi has reemphasised his desire to ensure that banks in the country give full and appropriate disclosures on their financial statements to guide the public.

The govenor also cut the benchmark interest rate to 6.0 percent from 8.0 percent and announced an immediate lifting of foreign exchange controls imposed earlier this year.

Speaking against the backdrop of the recent ratings of Nigerian banks by some foreign media, Sanusi said there is no cause for alarm in the Nigerian banking industry just as he disclosed that the CBN has taken move to ensure the stability of the banking industry with regular auditing of the banks.

Addressing the media after the Monetary Policy Committee [MPC] meeting in Abuja, the CBN governor, who read the communiqué from the meeting and also specially addressed the press on his assessment of the current development in Nigerian economy and CBN Policy action, disclosed that the result of the ratings done by the international medium was unfounded as the apex bank had embarked upon risk based supervision and consolidated supervision to boost confidence in the banking industry

Noting that the CBN had also reviewed the contingency planning framework for Systemic Distress in banks, Mr Sanusi said the introduction of credit bureau, deployment of resident examiners to banks since January 2009 and the stand by team of target examiners being deployed to banks were some of the measures put in place to ensure that no Nigerian bank fails.  He nevertheless said that to ensure a crisis free banking sector, the CBN will continue to ensure the maintenance of public confidence through appropriate disclosure and zero tolerance on all unprofessional and unethical conduct.

The apex bank boss who noted that there had been concerns in recent times about the ill health of banks occasioned largely by the system’s exposure to the capital market and the effects of the global financial crisis said the CBN would not allow any bank to go under

‘’While there is no doubt that the banks were challenged in the face of these developments, there is no evidence so far that our banking sector is facing a crisis as reported in some newspapers recently there were stress points in banks’ balance sheets[margin loans, ;proprietary positions, oil marketing names, unsecured large exposures, the apex bank boss said an appropriate resolution would be developed in consultation with reputable independent adviser to address these issues   

To ensure that banks have money to work with, Mr Sanusi said from now on till March 31, 2010, the apex bank would encourage inter  bank lending by providing a guarantee on all inter bank placements. The guarantee he said would be extended to placements with banks by pension funds.

Some of the major decision of the Monetary Policy Committee, which the new Governor of CBN read out from the communiqué included that:

Some of the major decision of the Monetary Policy Committee, which the new Governor of CBN read out from the communiqué included that: the inter-bank foreign exchange market to be liberalized completely with wDAS replacing the rDAS with a view to improving the supplies of foreign exchange in the economy; banks are expected to publish their accounts with sufficient disclosure to allow for risk assessment and analysis by creditors and investors by the end of March 2010; restoration of the monetary policy framework which has the corridor interest rate system as an important component and Monetary Policy Rate (MPR) to be reduced from 8.00 per cent to 6.00 per cent per annum;

Other decisions include; the corridor of interest rates to be +/- 200 basis points, with the rate on the standing lending facility at 8.00 per cent and the rate on the standing deposit facility at 4.00 per cent; the apex bank would impose a limit on the total volume of gross inter-bank loans extended to an individual institution while a guarantee fee will be charged if the guarantee crystallizes at 5 percentage points above the interest rate at which the loan was contracted.  And in order to ensure the inter-bank market is rendered efficient and to reduce counterparty credit risk, the CBN would provide a temporary guarantee from July 08 to March 31, 2010 and at the same time encourage banks to bring down the lending rates in line with the economic realities.

CBN Communiqué No 64 of the Monetary Policy Committee July 7, 2009

The Nigerian economy and CBN Policy Action- By Sanusi Lamido Sanusi