- Olayemi Cardoso recently marked one year of being the CBN governor
- The one-year period is characterised by five major policies
- TheRadar highlights these policies which include the bank recapitalisation exercise, clearing of forex backlog and lifting of forex restriction on 43 items
On September 22, 2023, President Bola Tinubu appointed Olayemi Cardoso as the governor of the Central Bank of Nigeria (CBN), making him Nigeria’s 11th substantive CBN governor.
After the confirmation of his appointment by the Senate on September 26, 2023, Cardoso promised to embark on policies that will develop the economy, promote transparency in the system, ensure zero tolerance of a breach of the CBN Act and work to offset Nigeria’s foreign exchange (forex) obligations.
One year into his five-year term, TheRadar highlights some policies and activities defining the Cardoso-led CBN.
1. Bank recapitalisation exercise
On March 28, the CBN stipulated a 24-month window, from April 1, 2024, to March 31, 2026, for commercial, merchant and non-interest banks to upwardly review their minimum capital base depending on their licence authorisation.
The exercise came 20 years after the last bank recapitalisation in 2004 under Professor Charles Soludo as governor.
A circular signed by the Director of the Financial Policy and Regulation Department, Mr Haruna Mustafa, said the exercise aims to strengthen banks’ capacity to support the economy's growth.
Though the CBN’s bank recapitalisation guideline was announced in March, the plan was first mooted in November 2023 by Cardoso during the 58th annual bankers’ dinner organised by the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos.
Cardoso said the recapitalisation plan was to enable banks to meet the demands of the economy, particularly in being able to provide support for manufacturers and industrialists given that President Bola Tinubu, in his Policy Advisory Council report on the national economy, set a target of achieving a N1 trillion Gross Domestic Product (GDP) by 2030.
The recapitalisation policy requires commercial banks with international authorisation to raise their capital base to a minimum of N500 billion from N50 billion previously, those with national authorisation will raise theirs to N200 billion from N25 billion while those with regional authorisation are required to reach N50 billion threshold from N10 billion.
Merchant banks with national authorisation will have to increase their capital base to N50 billion from N15 billion previously, non-interest banks with national authorisation are expected to increase theirs to N20 billion from N10 billion while non-interest banks with regional authorisation will raise their capital base to N10 billion from N5 billion.
The CBN also said to meet the minimum capital requirements, banks may decide to inject fresh equity capital through private placements, right issues, and/or offer for subscription, mergers and acquisitions, and/or upgrade or downgrade of licence authorisation.
So far, Nigerian banks have adopted some strategies to meet their recapitalisation requirement, including rights issues, public offers and mergers like that between Unity and Providus Banks.
2. Interest rate hikes
Another key highlight of Cardoso’s one year in the saddle is the apex bank’s stance on monetary tightening through interest rate hikes.
Cardoso has often said the Monetary Policy Committee (MPC) will continue its hawkish stance in efforts to rein in inflation. The inflation rate continued to soar, reaching a new 28-year all-time high of 34.19 per cent in June. It, however, tapered in July after 19 months, declining to 33.40 per cent. The rate declined further for the second consecutive month in August to 32.15 per cent.
Despite the slowdown in the inflation rate, the MPC still hiked the interest rate by 50 basis points (bps) to 27.25 per cent from 26.75 per cent in July at its 297th meeting held on Monday and Tuesday, September 23 and 24.
The committee also decided to retain the asymmetric corridor around the MPR at +500/-100 basis points, raised the Cash Reserve Ratio (CRR) of Deposit Money Banks by 500 basis points to 50.00 per cent from 45.00 per cent in July and that of Merchant Banks by 200 basis points to 16 per cent from 14 per cent, while retaining the Liquidity Ratio (LR) at 30.00 per cent.
Cardoso said the latest interest rate hike, which is the fifth for the year, is to consolidate on the gains recorded with previous rate hikes as core inflation has remained elevated, driven primarily by rising energy prices.
He said, “The committee noted the moderation in headline inflation year-on-year in July and August 2024. In addition, the MPC noted the relative stability and convergence in the exchange rate across the various market segments, resulting from the bank’s tight monetary policy stance. This is expected to improve confidence which will enable economic agents to plan in the medium to long term.
“The committee was, however, unanimous in recognising that a lot more is required to actualise the bank’s price stability mandate. The MPC noted that even though headline inflation trended downwards due to a moderation in food inflation, core inflation has remained elevated, driven primarily by rising energy prices. The uptrend poses severe concerns to members, as it clearly indicates the persistence of inflationary pressures.
“Members thus, reiterated the need to work in close collaboration with the fiscal authority to address the current upward pressure on energy prices. The MPC noted the continued growth in money supply, recognising the need to curtail excess liquidity in the system as well as address foreign exchange demand pressures.”
3. Granting IMTOs access to source naira from CBN
On Monday, June 24, the Cardoso-led CBN granted International Money Transfer Operators (IMTOs) access to directly source naira from the CBN window or through Authorised Dealer Banks (ADBs) to settle transactions for the sale of forex in the market.
According to the apex bank, the move is part of its commitment to enhancing local currency liquidity, ensuring the smooth functioning of the FX markets and improving formal remittance channels.
In a circular, CBN’s acting Director of Trade and Exchange Department, Dr W. J. Kanya, the CBN said, “The bank has implemented measures that will enable eligible International Money Transfer Operators (IMTOs) to access NGN liquidity at the CBN window.
“These measures are aimed at widening access to local currency liquidity for the settlement of diaspora remittances.”
Before the announcement, the CBN had told banks and IMTOs to halt dollar payments of inbound transfers to customers in Nigeria. In a revised guideline to IMTOs and banks on January 31, the CBN said all inbound money transfers to Nigeria will be paid only in naira through a bank account or in cash at the prevailing rate in the Nigerian FX market.
In May, the CBN granted an approval-in-principle (AIP) to 14 IMTOs to improve foreign currency remittance through formal channels, a target that Cardoso recently said is achievable within a year.
Allowing IMTOs to access naira through the official window and other policies aimed at bolstering Diaspora remittances may be paying off given the increase so far recorded. In the first quarter (Q1) of the year, total inflows stood at $1.07 billion, a 39 per cent increase from the $770.23 million recorded in Q1 2023.
This policy has also impacted Nigeria’s external reserves, which increased to $39.07 billion as of September 19, according to Cardoso.
At a press briefing at the end of the 297th MPC meeting in Abuja on September 24, Cardoso said, “The external reserve stood at $39.07 billion as of September 19, 2024, an increase of 17.4 per cent compared with $33.28 billion in the corresponding period of 2023. This represents eight months of import cover for goods and services and 13 months of imports of goods only.”
4. Offsetting forex backlog
The clearing of valid backlogs of forex transactions on March 20 to the tune of $7 billion is another defining activity championed by the CBN in the one year of Cardoso’s leadership.
The move, according to the CBN, is to ensure forex liquidity and stabilise the exchange rate, thereby curbing imported inflation and spurring confidence in the banking system and the economy.
Stressing the need to clear the backlog, Cardoso said: “We needed to go through an independent and credible process that would determine the authenticity of those obligations and, at this point, I can tell you that we have now cleared all genuine, verifiable transactions. This encumbrance to market confidence in the country’s ability to meet its obligations is now totally behind us.”
5. Lifting of FX restriction on 43 items
On October 12, 2023, the CBN lifted an eight-year restriction on accessing forex for the importation of 43 items including rice, vegetable oil, poultry products, etc, which was imposed in 2015 by former CBN governor, Godwin Emefiele.
While providing clarification on the lifting of the restriction in November 2023, Cardoso said the ban on the items led to an approximate revenue loss of $1.4 billion, or $275 million annually, between 2015 and 2019.
Also worthy of note under Cardoso’s one year in office is the continued naira depreciation.
The floating of the naira in June 2023 meant the CBN and the government no longer determined the exchange rate as the market was allowed to operate on a willing-buyer-willing-seller basis.
The decision significantly narrowed the margin between the exchange rate at the official and parallel windows of the forex market and eliminated speculative arbitrage but also led to the depreciation of the naira.
As of June 30, 2023, the naira traded at N769.25/$ at the Investors and Exporters (I&E) window. However, following the naira floating, the currency traded at N1,609.51/$ at the official window and at over N1,700/$ at the parallel market as of February 2024.
The month marked the peak of the forex crisis, necessitating the Office of the National Security Adviser (ONSA), the CBN and key law enforcement agencies to collaborate to clampdown on forex speculators in the country, leading to the arrest of two executives of a crypto exchange platform, Binance.
Other efforts of the CBN have led to relative stability in the forex market as the naira traded at N1,540.78/$ at the I&E window as of September 27, 2024.
“Cutting costs indeed”: Nigerians react as CBN governor, deputies allegedly get SUVs worth N10b
Meanwhile, TheRadar reported that many Nigerians have expressed outrage at the blatant show of extravagance of the governor of the Central Bank of Nigeria, Olayemi Cardoso, and his deputies, who allegedly purchased luxury vehicles worth N10 billion amid hardship and hunger among the masses.
It all started when the news broke out on social media that the CBN governor and his four deputies had allegedly acquired bulletproof Sports Utility Vehicles (SUVs) worth over N10 billion.
