New CBN Governor, Emefiele, Scraps Charges On Bank Deposits

"The new Governor of the Central Bank of Nigeria,
Mr. Godwin Emefiele, on Thursday scrapped
charges on cash deposits, just as he promised a
gradual reduction in the interest rates on lending.
He said a zero charge on deposits would
encourage investment attitudes among the
savers, while a reduction in the lending rates
would make credit cheaper for potential investors.
Emefiele, while unveiling his blueprint for the
banking sector and the economy, said his vision
for the country was to create a central bank that
would be professional, apolitical and people-
focused.
He spoke to journalists at the CBN head office in
Abuja and noted that the two initiatives of
achieving a reduced interest rate and deposit
charges were part of his 10-point agenda for the
central bank.
The CBN boss said, “We shall pursue a gradual
reduction in interest rates. A comparison of
selected macroeconomic aggregates from some
emerging market countries including South Africa,
Brazil, India, China, Turkey, and Malaysia
indicates that Nigeria has one of the highest
Treasury bill rates.
“Such high rates create a perverse incentive for
commercial banks to simply buy virtually risk-free
government bonds rather than lend to the real
sector.”
He noted that while the task of reducing the
interest rate and maintaining the exchange rate
were very daunting twin goals, the CBN would
work assiduously with all stakeholders to device
countervailing measures that would ensure that
the goals were mutually achieved.
“To enhance financial access and reduced
borrower cost of credit, we would pursue policies
targeted at making Nigeria’s treasury bill rates
more comparable with other emerging markets
and by extension, pursue a reduction in both
deposit and lending rates,” said the CBN
governor.
Speaking on the country’s payment system,
Emefiele said his vision was to align with the
policy of his predecessor on the cash-less policy,
noting that the policy would go nationwide on
July 1 this year as earlier scheduled.
He, however, regretted that during the course of
the pilot scheme, a lot of complaints were made
by customers, particularly regarding the charges
being imposed for cash deposits.
This, according to him, has resulted in customers
devicing various means to avoid the charges such
as opening of multiple accounts and other
disingenuous behaviours with the aim of
undermining the objectives of the policy.
Given these outcomes and in order to better
reflect his goal of having more cash under the
control of the CBN, Emefiele said, “All charges on
deposits are hereby stopped with immediate
effect. Charges on withdrawals, in view of their
eventual elimination, remain sustained at the
current three per cent for individual transactions
exceeding N500,000 and five per cent for
corporate transactions exceeding N3m.
“Currently, these fees go entirely to the
commercial banks. However, going forward, the
central bank shall determine what percentage of
these fees on excess drawings that will be
redeemed by the bank while the rest shall be
remitted to the CBN.”
On the exchange rate policy, the CBN boss said
his vision for the economy was to maintain its
stability, adding that there were no immediate
plans to devalue the naira.
He argued that in view of the high import-
dependent nature of the economy, a systematic
depreciation of the naira would literarily translate
to considerable inflationary pressure with
attendant effect on macroeconomic stability.
As a result of this, he said, “Under my leadership,
the bank will continue to focus on maintaining
exchange rate stability and preserve the value of
the domestic currency.
“We will sustain the managed float regime in the
management of the exchange rate, as this will
allow the bank to intervene when necessary to
offset pressures on the exchange rate. To support
this strategy, we will strive to build-up and
maintain a healthy external reserves position and
ensure external balance.”
Emefiele also said he would include
unemployment rate in the CBN’s monetary policy
decisions; maintain exchange rate stability and
aggressively shore up foreign exchange reserves;
and strengthen risk-based supervision mechanism
of Nigerian banks to ensure overall health and
banking stability.
He said, “The bank would begin to include the
unemployment rate as one of the key variables
considered for its Monetary Policy decisions.
“In the interim, we would continue to maintain a
monetary policy stance, reflecting the liquidity
conditions in the economy as well as the potential
fiscal expansion in the run-up to the 2015 general
elections.”
According to him, others programmes are to build
up sector-specific expertise in banking supervision
to reflect loan concentration of the banking
industry; to consider and announce measures to
effectively address the anomaly in macro-
prudential space; abolish fees associated with
limits on deposits and reconsider ongoing practice
in which fees associated with limits on
withdrawals accrue to banks alone.
The CBN governor also announced plans to
introduce a broad spectrum of financial
instruments to boost specific enterprise areas in
agriculture, manufacturing, health and oil and
gas.
He said the central bank would establish Secured
Transaction and National Collateral Registry to
improve access to information on borrowers and
assist lenders to make good credit decisions;
build resilient financial infrastructure that would
serve the need of the lower end of the market,
especially those without collateral.
On financial system stability, Emefiele said his
administration would sustain the effective
management of potential threats and avoid
systemic crisis.
“We hope to engage the fiscal and political
authorities, as well as other stakeholders to
improve our policy buffers, which will further
create space for the bank to implement monetary
policy using its limited instruments,” he said.
Emefiele also said the Apex bank would enhance
its supervisory purview over the banking system
as well as strengthen macro-prudential regulation
by improving supervisory diligence, ethical
standards as well as highest level of
professionalism in carrying out on and off-site
supervision activities.
To achieve this, he said, “Banks shall be enjoined
to proffer remedial actions where weaknesses are
observed in Risk-Based Supervision examination
reports so as to avoid further build-up of non-
performing loans.
“Where banks proffer inadequate remedies, the
CBN shall advance its own solutions and insist on
compliance.”
He also emphasised the need to pursue a zero-
tolerance policy on fraudulent borrowers, noting
that the bank would collaborate with commercial
banks to significantly improve the credit culture in
the banking system."