Banks brace for new monetary policy conduct, regulation

Beyond his public address at the Bankers’ Night in Lagos at the weekend, Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, has kick-started a new era of banking supervision and the conduct of monetary policy in earnest, The Guardian has been involved.

Already, bank chiefs who are in the queue to curry the favour of the governor are said to have received a “prepare for a new era of banking supervision” message from Cardoso, who is said to have spent much of his time studying the operational processes of the apex bank in the past two months and consulting key stakeholders on issues of concerns.

Multiple sources disclosed last week that some bank chiefs have complained of the governor, who is said to have turned down requests for meetings, of not being accessible and deliberately avoiding them.

A reliable source, who is privy to the experiences of some bank executives and had the opportunity to interact with Cardoso, told The Guardian that the CBN boss, who he described as level-headed, calm in his approach to official issues but resolutely focused, deliberately avoids “making friends that will compromise and distract him”.

“The most important thing is that he listens and seeks clarification. The few times I interacted with him, I saw an individual who places value on knowledge and approaches issues with an open mind. He also understands that he is behind time. So, if he does not entertain unnecessary and frivolous requests, it is understandable,” the source said.

The governor’s resolve to stay the course in restoring uncompromising banking supervision is said to have rattled the industry mafias, who have to the trenches. Regulator-operator relationship, according to sources, has been much more formal than it was previously while responses to queries have been timely.

Yet, Dr Chiwuike Uba, a development economist, said: “It is evident that capital base of most banks is already eroded as a result of currency depreciation occasioned by forex crisis. When the CBN raised the banks minimum capital base to N25 billion, that was equivalent of over $187 million, which is about N187 billion as at today. Even at that, if you factor the effect of inflation on the capital base, it then means that every bank may need a minimum capital base of almost N240 billion. How many of the existing banks’ minimum capital base is up to N240 billion as at date.

“Secondly, raising the minimum capital base may facilitate foreign investments, which will, in turn, lead to foreign capital inflow. This ultimately will cushion the current forex crisis to a reasonable extent.”

A chief executive of a tier-one bank is said to have written to executive directors, heads of departments and other senior executives on the need to step up compliance level to prevent possible sanctions.

Whereas some said the governor is apprehensive and would not want to make a grievous mistake, a banker who claimed to have known Cardoso long enough said “he is strict and holds ethical standards in high esteem” – values that may put him against a generation of crooked bankers.

The CBN offices are also anxious about how the governor policy onboarding plays and what dislocation could result from the processing.The Guardian also gathered at the weekend that the governor has commenced the process of overhauling what insider sources described as the “human aspect of reforms”.

As part of the process, the apex bank is said to have commenced a broad-based human-capacity audit to upskill and redeploy some of the employees for a new central banking era.

Whereas the shortcoming of the monetary policy is what is more in the face of the public, the new leadership, according to sources, has identified gaps in the banking supervision and other critical departments that must be plugged for effective operation.

A reliable source said the ongoing audit “goes beyond the routines” and seeks to correct fundamental operational flaws that were hitherto ignored.

“The scale of the exercise is evolving. But it is different from the usual process. The governor came into the system at the toughest time in the history of the bank. So, it is not expected that he would continue business as usual,” a source said.

The governor, according to information, alongside the Jim Obazee team, special investigators set up to probe the banks and associated business entities, is said to have kept a tab on a pending issue that borders on morality and ethics. Hence, the possibility of dismissal is not foreclosed but those indicted could tarry a little while as the CBN’s dismissal process is tedious and laborious.

“Even while you are found wanting with all evidence required to sanction you, the process of dismissing an erring employee follows about seven steps. So, you are likely going to have people relieved of sensitive positions and redeployed while they continue to attend to their queries,” a source informed.

Also getting prominent attention in the scope of restructuring, a word officials of the bank would avoid using to avoid sending an untoward signal, is the internal control system, which the external special investigators have faulted. The governor, alongside the board of directors, is said to have adopted a process that would tighten the internal control mechanism of the system to make collusion in financial misconduct difficult.

Whether the ongoing process at the CBN is labelled restructuring or not, what obtains is not remarkably different. Staff audit is ongoing; reporting and supervisory software are being updated to make the bank fit for modern regulation just as internal processes are also tweaked.

An insider drew an allusion between the system audit and President Ahmed Tinubu’s promised “housecleaning”, saying: “The Governor appears to have taken full ownership and he is running with it.” Cardoso hinted at the need for a change during his speech at the Annual Bankers’ Dinners at the weekend.

“The CBN is taking steps to enhance its in-house capacity so that it can assist other banks that still have progress to make in implementing their sustainability principles,” he said in a strict follow-up to the proposed comprehensive review of the licensing framework for payment services and developing a new regulatory and compliance framework for the technology-driven payment services sector.

Meanwhile, most operators may be ahead of the apex bank’s plan to raise the current capital requirements of the industry. Already, many banks are thousands of miles ahead of the current capital requirement and their assets are over the N1-trillion mark.

Today, Zenith Bank has a total net asset of N1.9 trillion; UBA’s net asset is about N1.7 trillion while FBN Holdings nets about N1.3 trillion. Even tier-two banks have built enormous financial war chests over the years; hence they would not need additional capital to meet new requirements even if the current bar is doubled.

This raises questions on what could have informed the CBN’s resolve to up the capital base requirements of banks. Speaking yesterday, an investment banker and economist, David Adonri, warned against burdening banks with the risk of long-term funding, which is better-taken care of by the capital market.

“The banks are adequately capitalised. Any bank that wants to increase its operations can individually take measures to scale up its capital base. However, if long-term economic development is the Federal Government’s objective, bank credit is not suitable for that purpose. Banks should not assume the risk for long-term capital formation, which the capital market is established for. Well-developed money markets and capital markets are the best sources to finance economic development sustainably,” he stressed.

He said raising the banks’ capital base as hinted by the governor may not facilitate the growth of the economy to $1 trillion in seven years as projected by the President.

Since the supply gap is the bane of the economy, policy should target the flow of long-term capital directly to the productive economy through the capital market, he advised, recalling that the country has gone the route before, which turned out disastrously.

But Victor Ogiemwonyi, another investment banker and ex-member of the Council of the Nigerian Stock Exchange (now NGX Group), insisted “there is the need to prepare for the future N1 trillion economy by getting our banks prepared and by raising new capital.”

The Guardian had reported that naira depreciation had eroded the real value of the capital base of Nigerian banks, a situation exacerbated by the compliance with the Basel Framework, which some experts have dismissed as only nice to have and not necessarily a yardstick for measuring the health of the banking industry of any country.

The latest of the framework, Basel 3, which built on the provision of Basel 2, set capital requirements of banks at seven per cent of the bank’s risk-weighted assets. However, there are other requirements, including the liquidity ratio requirement.