Wednesday, May 20, 2009

50 years of CBN

Anniversaries provide a unique opportunity for self-appraisal. They call for indepth assessment of things achieved and those that never came through as planned. Perhaps more profound is the fact that an anniversary, especially that of a monetary institution on which the economy of that country depends for policy and fiscal direction, must be worth-while if it provides a roadmap for a better, predictable future performance.

It is in this regard that the 50th anniversary of the Central Bank of Nigeria (CBN) calls for more than clinking of glasses. It is so because confidence is the life-blood of the financial system. The Central Bank of any country is the vault that stores that confidence.

When the idea of CBN came up in the aftermath of the giddy days of bank failures of the 1950s, one of the lessons learnt was the need for a Federal Government-owned bank that would be genuinely committed to economic development. By sheer happenstance, the 50th anniversary of CBN has come at a time of enormous global financial challenges that requires all hands on deck.

According to the CBN Act, the institution’s mandates include: ensuring monetary and price stability, issuance of legal tender, building of external reserves to safeguard the international value of the naira. Other statutory functions include: promotion of a sound financial system and to act as the economic and financial advisor to the Federal Government. Taken together, in retrospect, the activities of the CBN, measured squarely against its mandates, have proved fruitful for Nigeria.

Some may, however, disagree, especially in the way CBN managed the Structural Adjustment Programme of the 1990s that saw a big depreciation of the naira against other major currencies in the world. But indisputably, the CBN has done well through the stabilization of the fiscal and policy regimes, particularly the inflation rate, to its present single digit level.

Perhaps, the most profound feat of the CBN in its 50 years of official existence, and which will continue to elicit public excitement and applause is the banking recapitalization exercise. From a modest N2 billion, the CBN raised the capital base of banks to N25 billion in 2005. This brought the number of banks down to 24. Initially opposed by some bank chiefs who saw it as provocative and crazy, in retrospect, and in view of the present economic meltdown, the consolidation exercise has proved to be a well thought-out fiscal measure.

This is also the case with the insurance sub-sector. It was a revolutionary reform policy reputed to be a world record in terms of cost to Nigeria’s Gross Domestic Product (GDP).
As it turns 50, we advise the leadership of CBN to pursue vigorously the two remaining phases of the recapitalization reform plan. But this must be done with circumspection and clarity of purpose. The present global financial crunch is enough guide to chart a new policy thrust that will engender more confidence in our financial system. It should be in line with Nigeria’s peculiar circumstances and not neglect external variables vital to our nation.

In spite of some of these capstone achievements recorded over 50 years, the apex bank must, of necessity, engender more confidence in the banking sector currently beset by a combination of declining ethics, weak corporate governance, huge non-performing loans and over-dependence on public sector deposits. These problems, if unattended to, can vitiate the gains already made.

Looking forward, it is our view that a more proactive CBN is needed for the years ahead. This must be done with the strengthening of both the fiscal and monetary policy instruments. One area it must pay close attention to, is the continued depreciation of our currency, the naira. A weak currency cannot bring about the much-needed economic growth. There is also need to close the gap between the parallel market and the official market. The disparity defeats any genuine policy objective.
In these times of economic uncertainties, we urge the CBN to work closely and in harmony with the Ministry of Finance.

All said, while commending the apex bank for its achievements in 50 years, the CBN should be conscious of the fact that its mandate is so crucial, and indeed, can be likened to the role of oxygen in a living organization. We wish it greater strides in the years ahead.