The most important banking industry in Nigeria is the commercial banks. In order to make profit, commercial banks invest customer’s deposits in various short term and long term investment outlets,; however, core of such deposits are used for loans. Hence, the more loans and advances they extend to borrowers, the more the profit they make (Solomon, 2012). Prior to 1986 direct monetary instruments such as selective credit controls,administered interest and exchange rates, credit ceilings, cash reserve requirements and special deposits to regulate the banking system were employed.
The fixing of interest rates at relatively low levels was done mainly to promote investment and growth. Occasionally, special deposits were imposed to reduce the amount of excess reserves and credit creating capacity of the banks. In the words of Ologunde, Elumilade, and Asaolu (2006), interest rate along with monetary aggregates formed targets of monetary policy in Nigeria. Using the direct monetary policy measures, the monetary authorities directly influence items of the balance sheet of commercial banks. In such a system, interest rates are set and credits are allocated by monetary authorities in accordance with the government’s economic plan.
In recent times, Nigeria’s monetary policy has been based on a medium-term perspective framework. The shift was to free monetary policy implementation from the problem of time inconsistency and minimize over-reaction due to temporary shocks. Policies have ranged from targeting monetary aggregates to monitoring and manipulating policy rates to steer the interbank rates and by extension other market rates in the desired direction. As at date inflation targeting and interest rate control among other policies are yearning for adequate attention by CBN as ways to have a tighter grip on monetary policy implementation in Nigeria.
THE NIGERIAN ECONOMY
The Nigerian economy encountered a number of challenges in the review period. As at September, implementation of capital projects by Ministries, Departments and Agencies (MDAs) were scored between 35% and 40% by the House of Representatives. This is in addition to observed slow pace of reforms, particularly in the petroleum industry. The Petroleum Industry Bill which seeks reforms in both regulatory and fiscal aspects of the oil and gas industry is yet to be passed.
The country continued to witness sub-optimal performance in the upstream petroleum activities as multinationals divest from their oil fields even as oil bunkering activities lingered to the tune of 400,000 barrels a day. In the financial sector, the drive for financial inclusiveness is ongoing, albeit at a slow pace due to the commercial banks’ preference for investments in safer government bonds rather than riskier real sector financial requirements; although business confidence in the local economy improved to 19% in third quarter (Q3) 2013 from 15.10% in second quarter (Q2) 2013. According to Business Expectation Survey (BES), the third quarter’s 6.81% GDP growth as against 6.18% in second quarter (Q2 2013) remains largely non-inclusive with official unemployment rate as high as 24%.
In spite of the aforementioned challenges, there appears to be progress in a few other sectors. The ongoing reforms in the power sector which resulted in the sale of unbundled distribution and generation of assets culminated in the handover of assets to investors at the end of the third quarter.Also the agricultural sector is recording progress, as the agricultural transformational agenda of the federal government which seeks to create 20 million MT of food to domestic supply by 2015 and create 3.5 million jobs among others has been delivering results. This has been largely achieved by incenticizing agric business and facilitating procurement of farm inputs, among other things.
Such economic reforms gave some reassurance to investors particularly as Fitch affirmed Nigeria’s Long-term foreign and local currency Issuer Debt Ratings (IDR) and senior unsecured bond ratings at ‘BB-‘ and ‘BB’ respectively; while affirming the country’s Short-term foreign currency IDR at ‘B’ and country ceiling at ‘BB’.
The Consumer Price Index (CPI) which measures inflation currently stands at 8%, an improvement from the 11.9% of December 2012. Inflation continues to trail at a single digit range in line with trends exhibited in 2013. The exchange rate in the inter bank market closed at N159.98/US$1 in December 2013. With constant interventions of the Central Bank to defend the currency, the exchange rate in the inter- bank market is currently at N164.78/US$1 within a band of +/-3%.
CURRENT BANKING LANDSCAPE IN NIGERIA
Regulatory Updates
• At the last MPC meeting on March 24 – 25, MPR was retained at 12 %,cash reserve ratio (CRR) on private sector deposits was increased to 15 % and CRR on public sector deposits remained 75 %.
• The Central Bank of Nigeria (CBN) issued guidance on the Regulatory Capital Measurement and Management in the Nigerian Banking System in relation to implementation of Basel II & III
.
• Issuance of regulatory framework on the implementation of Agency Banking in Nigeria as a means of achieving its Financial Inclusion policy
.
• CBN introduced additional guidelines to the current Nigeria Bankers Clearing House rules
Outlook
• Following the on – going reforms in the power sector, there are significant opportunities for players in the upstream and downstream segments of the sector
• The new Automotive policy, when implemented, is expected to revitalize the industry and open investment opportunities
.
• Risk asset accretion in the banking sector is expected to be relatively conservative in the short term on the backdrop of tightened regulatory
policies
• With strengthened industry reforms and above average returns, banking sector stocks are still expected to be dominant in the Nigerian Stock Exchange (NSE) in spite of its recent price fluctuations
From the above analysis, we can deduce that the societal environment is stable due to the regulatory activities of the central bank of Nigeria on banking activities in Nigeria. Also the task environment can be deduced to be favorable due to the many business opportunities the environment brings as discussed under outlooks.
Leave a Reply