The Centre for the Promotion of Private Enterprise (CPPE) has advised the newly appointed Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, to prioritise clearing the backlog of forex exchange obligations.
CPPE gave the advice in a press statement signed by the Managing Director, Muda Yusuf, and titled “Ten Point Agenda For The CBN Governor.”
“The clearance of the backlog of forex obligations should be accorded high priority to restore the confidence of domestic and foreign investors,” the statement read.
To further check the volatility of the naira against the dollar, the CPPE proposed to the new CBN management team to, in addition to the existing Investor and Exporter FX exchange window, “create an autonomous window in the banking system where the currency can trade freely without any encumbrances.”
According to the centre, this move would help reduce the sale of remittances in the black market.
The CPPE further tasked Cardoso to implement policies that’ll deepen stakeholder engagement and strengthen the efficiency of the financial system.
The centre also urged the CBN to return deposit money banks to their primary role in the economy, which is financial intermediation.
“This responsibility entails the mobilisation of financial resources from the surplus end of the economy to the deficit segment of the economy. Financial conditions remain very tight for the private sector amid challenges of access and cost of credit.
“Banking system credit to the private sector in Nigeria, as of 2022, was a mere 20.6 percent of the nation’s GDP, as sub-Saharan average of 28 percent and global average of 145 percent.
“Besides, small businesses, which account for an estimated 50 percent of the GDP, have access to just about one percent of the credit in the banking system. The implication is that the banking system is still largely disconnected from the investing community, especially the small businesses in the economy.
“The financing gap in the small business space has been estimated at over N600 billion. This anomaly needs to be corrected. All these underscores the need to deepen synergy and complementarity between the banking system and the economic players, especially the MSMEs,” the statement read.
It further called on the CBN to address the efficiency of the financial system, particularly the high spread between deposit and lending rates in the Nigerian banking system, which is over 20 per cent, one of the highest globally, and which indicates significant efficiency problems.
Yusuf further called for the new CBN governor to ensure the recapitalisation of banks.
“During the banking consolidation exercise of 2004, the minimum capital requirements for banks were raised from N2 billion to N25 billion. The revised capital requirement was an equivalent of $187 million.
“Today, the same N25 billion is equivalent to just $32.5 million. This is a clear indication of the phenomenal erosion of the capital base of the banks.
“Recapitalisation of the banks has therefore become imperative. It is important to ensure that the capital base of banks can support their current exposures in the interest of the financial system’s stability.”
On ways and means of financing the fiscal deficit, he advised the new CBN to keep it “within statutory limits to avoid the damaging impacts of high-powered money on the macroeconomic environment. The experience of the last few years must not be allowed to repeat itself.”
On the naira redesign policy, he said the policy must be suspended indefinitely and as of now shouldn’t be a priority.