The implications are that the business would return to the control of big dealers and force many of the smaller organisations out of business.
The lawmakers are currently looking into the matter. The chairman, senate committee on finance, Senator Ahmed Makarfi, has described the policy as unfair.
He said: “The CBN should make it an option, pay the minimum capital base if you want to buy forex from CBN; or ignore the directive if you have alternative way of sourcing forex. CBN should guarantee selling at the minimum rate of exchange. I think it is not just, it is not fair, it is not equitable.”
This may well prove to be the first hurdle for Emefiele as he embarks on his transformation agenda for the central bank. It will test his ability to navigate the murky political waters without stepping on toes. His predecessor, Sanusi, often openly engaged lawmakers in fiery debates over his perceived controversial policies.
The new central bank governor also announced a new policy on borrowing. He warned deposit money banks (DMB) not to grant facilities to potential borrowers that are in default of any existing facilities to the tune of N500m ($2.9m) and above, without prior approval of the central bank.
The central bank said it decided to wield the big stick due to the ‘level of impunity’ with which some borrowers, who default on their loans in some banks, get facilities in other institutions using the same, or sometimes disguised, identity.
The new Central bank governor warned deposit money banks (DMB) not to grant facilities to potential borrowers that are in default of any existing facilities to the tune of N500m ($2.9m) above, without prior approval of the central bank
It warned that this practice, if left unchecked, could eventually give rise to non-performing loans that could have a negative impact on financial sector liquidity. However, the central bank said the prohibition threshold may be reviewed periodically with the aim of inculcating responsible and appropriate credit culture in borrowers.
It said: “Any institution that contravenes the above directive shall be required to make immediate 150% provision of the facility in addition to other existing regulatory sanctions that the CBN may apply.”
Peering into the future
The new central bank chief seems to have started off on a good note, according to some observers. He has announced that the central bank would serve as a financial catalyst by targeting sectors with high potential for job creation with the aim of significantly reducing the high level of imports into the country.
Emefiele has also pledged that the central bank, under his watch, will not devalue the nation’s currency in the near future, as Nigeria is still largely an import-dependent economy. In addition, he said he would seek a reduction in overall lending rates (currently hovering around 12%), to manufacturers, to make it cheaper to invest in the country. Manufacturers have been groaning under the burden of double-digit interest rates, which makes it difficult for them to break even.
He also unveiled his policy for other sectors of the economy such as power, agriculture, micro, small and medium enterprises (MSMEs), oil and gas and health.
For the power sector, which is key to Nigeria’s quest for industrialisation, Emefiele pledged that the central bank would support the government to ensure the success of the current reforms. “We will encourage investment in the gas to power infrastructure to improve the reliability of supply of gas to the existing and new power plants. We will also support investments in renewable energy in rural areas through matching funds schemes,” he said.
From his pronouncements so far, it is evident that the former CEO of Zenith Bank is determined to transform the central bank into a model financial institution. Like a new broom that sweeps clean, he has started to sanitise the financial services system to making it stronger and more responsive to the aspirations of the ordinary Nigerian. He has left no one in doubt that he is fully in charge. It is perhaps a taste of things to come.