CBN Highlights Banking Reforms impact in Economy

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Nigerian banks are now ranked amongst key players in the global financial landscape with some of them featuring amongst the First 20 banks in Africa and among Top 1000 banks globally.

 

Godwin Emefiele, Governor of Central Bank of Nigeria (CBN) in his keynote address delivered at the 2018 Financial Markets Dealers Association (FMDA) Conference on the theme “The Nigerian Financial Market-A Catalyst for Sustainable Economic Growth” to operators and stakeholders in the nation’s financial market.

 

Emefiele who was represented at the event by Mrs. Olatoun Akinola, Executive, Financial Markets Department of CBN at the maiden FMDA edition conference, held in Lagos, said To put this keynote address in proper perspective, the CBN governor said, I will briefly review recent reforms in the Nigerian financial market, the financial market-sustainable economic growth nexus and the current challenges. Thereafter, I will proceed to consider how the market can be repositioned to play its catalytic role in sustainable economic growth.

Recent Financial Sector Reforms Impacting the Nigerian Financial Market

Emefiele recall an episodic overview of CBN’s role in financial market development in Nigeria. During the 1958-1969 periods, we established the local money and capital markets which was aimed at discouraging the outflow of surplus funds from Nigeria into instruments in the London money market. As may be expected, this facilitated the emergence and use of financial market instruments such as: treasury bills (1960), call money scheme (1962), and treasury certificates (1968). In order to boost activities in the capital market, we supervised the issue of the first development loan stock in 1959 and also contributed significantly to the establishment of the Nigeria Stock Exchange in 1961. Furthermore, the Bank played a dominant role in the establishment of the Nigeria Industrial Development Bank (NIDB) in 1964 to provide medium and long term finance to key sectors of the economy.

In the 1970-1986 period, I wish to recall that considering the paucity of domestic savings to financed medium and long term investment, the Bank supported the establishment of Nigeria Bank for Commerce and Industry (NBCI) in 1973 and the Nigerian Agricultural and Co-operative Bank (NACB) in 1973. To further strengthen institutional capacity to provide long-term capital in the Nigerian economy, NBCI, NIDB and the National Economic Reconstruction Fund (NERFUND), created in 1988, were later merged to form the Bank of Industry (BOI) in 2001.The CBN supported the establishment of Securities and Exchange Commission (SEC) in 1978/1979   to regulate and promote the development of capital market in Nigeria. A notable development in 1985 was the establishment of the Second-tier Securities Market (SSM) of the Nigerian Stock Exchange to meet the needs of small and medium enterprises (SMEs).

Distinguished participants, you will recall that the 1986-2004 era represented a watershed in the annals of financial market development, especially money market, in Nigeria as the introduction of SAP in 1986 led to a regime of indirect monetary control and extensive financial liberalization through the implementation of market-oriented policies. Further institutional developments led to the establishment of Nigeria Deposit Insurance Corporation, (1988) to stabilize the banking system by instilling confidence in the sector and the creation of discount houses to intermediate in the money market through transactions in short-term securities such as treasury bills, treasury certificates, and commercial bills.

Banks are the major players in money market in Nigeria. To foster competition and enhance their efficiency while leveraging on the SAP framework, the Bank promoted the policy of liberal licensing of banks and this resulted in a steep rise in the number of commercial and merchant banks from less than 40 before 1986 to 120 in 1992. Following global best practice, there was a policy induced bank consolidation exercise which commenced in 2004 to strengthen the banking system and the ensuing Initial Public Offers (IPOs) significantly boosted the equity market in Nigeria.

According to him: I would want to emphasize that beyond the need to recapitalize the banks, notable developments in the 2005-2008 period that impacted on the efficiency of the financial market revolves around regulatory reforms.

Some examples of these reforms include: adoption of risk-focused and rule-based regulatory framework; adoption of zero tolerance in regulatory framework for data/information rendition/reporting and infractions; strict enforcement of corporate governance principles in banking; expeditious process for rendition of returns by banks and other financial institutions through e-FASS application software; revision and updating of relevant laws for effective corporate governance; and ensuring greater transparency and accountability in the implementation of banking laws and regulation; and strict enforcement of the contingency planning framework for systematic banking distress.

He said some key developments that contributed to the strengthening of the financial market to moderate illiquidity after the global financial crisis include the establishment of a resolution vehicle (Asset Management Corporation of Nigeria) in 2010, to soak the toxic assets of Deposit Money Banks (DMBs).Also, let me mention the “Alpha Project Initiative” which brought about the “new banking model” structure that replaced the hitherto one-size-fits-all model of banking. This new model resulted in the establishment of international banks, national banks, regional banks and specialized banks.

He said that Nigerian banks are now ranked amongst key players in the global financial landscape with some of them featuring amongst the First 20 banks in Africa and among Top 1000 banks globally.

I want to say that the Nigerian capital market is not left out in terms of reforms to enhance market performance. Take for instance, since the aftermath of the effect of the global financial crisis on the capital market, the apex regulator in the capital market has stepped-up its surveillance activities and initiated different programmes .

 


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