I’m building an efficient central bank — Cardoso
Amidst multiple points crises in the economy, the Governor of Central Bank of Nigeria (CBN), Mr Olayemi Cardoso, has said that he is committed to building a resilient apex bank that would address all the challenges successfully.
Speaking at the dinner of the just concluded 30th edition of the Nigeria Economic Summit, #NES30, Cardoso listed the several challenges he is facing and also the strategies he has deployed to addressing them.
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He also stressed that his team is determined to tame inflation, which he described as an objective that must be achieved.
Excerpts:
Taming inflation is critical
The monetary side is there to more or less create some stability, but it does not substitute for the fundamentals. It does not.
Now we have a situation where, from our perspective, taming inflation is key. And this is because if you do not tame inflation, it has such a major throwback. It can deter investment, it significantly reduces purchasing power, and for those who are in productive engagement, they find that the people that they expect to be buying their goods are not could not do so.
So it is very important for us to take inflation and keep it under control. This is critical.
Sometimes we expect that the trade-off between the real sector, high interest rates, and of course the whole issue of inflation could be a time issue, and ultimately we hope because that is what it is, as inflation begins to moderate, interest rates start to come down, and of course it’s a lot easier for the productive sector to operate.
That is maybe the hope, and that’s the trend that we expect we will get to in the next few years.”
How I confronted the challenges .
I came into Central Bank at a very challenging time. Yes at a very challenging time. People will recall that roughly a year ago, we had a situation where inflation was in the process of thickening. We also had a situation where there was a backlog in foreign currency, and the figure that was quoted at that time was, I think, in excess of $7 billion, which was a huge amount of money, and for that reason, a good number of the international companies were exiting because they were finding it very difficult to access foreign exchange.
We also had a situation where there were multiple exchange rates, and with multiple exchange rates, some were able to have access to foreign exchange and others were not.
Then, of course, we had a situation where many Nigerians had lost confidence in their own currency, which of course, helped to fuel and accelerate the process of the Naira losing its value.
So, with such a situation one came in, and of course, something that was also very important at that time, if I recall, was that the Central Bank was involved in a multiplicity of ventures beyond its core mandate of price stability and exchange management. And, really and truly, one had to make sure that we returned the Central Bank to its core mandates, to ensure that the Central Bank focused on what was important, which was price stability, managing inflation, very critical, because to our mind, once we got that right, other things would, as a matter of course, follow.
Positive ratings
Someone talked about ratings, let me first of all say sometimes when you are rating your own self you can argue that there could tend to be a bias in favor of yourself. However, if you look at the ratings of the rating agencies, you will find that over this period of time, they have changed the ratings of the country to positive. At least two out of three of them have done so.
And if you also follow the ratings of international banks and other international financial institutions, you will find that, by and large, they see the role and state of the Central Bank and the country as positive. And don’t forget that we are coming from a very difficult situation, where a lot of confidence had been eroded, and trust have been greatly lost.
So a year later, for institutions like that, who, dare I say, are not giving to emotions. They look at things for what they are. They come, they visit, they ask the right questions. They can see it. They have seen how these things played out in different countries.
They have seen difficulties in the multiplicity of different situations. And for them to feel that the Central Bank is heading in the right direction, I believe that says most of how one would evaluate the recent past.
I also am appreciative of the fact that things, no doubt, have been very challenging. The impact has also been quite challenging on many people. But it is a journey. And I believe that the progress that we have made as the Central Bank of Nigeria, and as the entity that is given the responsibility of managing monetary policy in the country today, is certainly one that has taken the country in the right direction. I believe there’s a lot more that needs to be done. There is an enormous amount that needs to be done.
FX backlog balance
We had a situation where there were pressing issues and pressing immediate demands. But I didn’t deny it. It was very clear to me that that was something that needed to be tackled immediately.
And when I say immediately, at least giving confidence to international investors and others that as a central bank, we would meet our obligations. But of course, when in the process of verifying the claims and as and when we began to have a better understanding of the claims and the appropriateness of the claims, I know that as of now, there are still some which have not been unverified, we are working on those .
We are at a particular stage now where we’ve gone through stage one and we’re about to go into stage two, verifying those claims as the case may be.”
We remain vigilant
And in fact, one cannot help but be very vigilant, because things are changing all the time. And we cannot afford to miss any piece, because it will have a major impact on the world. Our goal continues to be that of stabilizing our economy and stabilizing the macroeconomic fundamentals, that continues to be our goal.
And we will not relent in ensuring that we are able to appropriately manage inflation in a direction that certainly serves the well-being of everybody.
I take the example of the last monetary Policy Committee meeting, where the decision was made at the time to hike interest rates, much as it may have appeared that it was going to be on the positive side.
But if you see what has played out since then, it goes to give you an idea of the things that we see and we ensure that we are able to provide.
Interventions
Speaking of interventions: we have delibratly stayed away from interventions. The Central Bank is focused on the use of orthodox monetary tools to manage inflation. We are in a situation where excessive interventions have gone on for several years, and those contributed in no small measure to the situation that the economy found itself. Our view is basically focused on managing inflation and on stabilizing prices, focus on foreign exchange management, and leave interventions to the DFIs and indeed collaborate with those that we can collaborate with. So that certainly is not the function of the central bank.
FX backlog
The second thing with respect to the focus, you know, at the time I spoke about this, this was when I was going for my clearance at the Senate. I mentioned it first here before I mentioned it at the senate.
At the time I mentioned this, all I knew was that there was a huge backlog and there seemed to be a problem with the finances of the Central Bank. I knew that and I think that everybody else seems to know about that situation. And one could be forgiven at that time into thinking, well, let’s push this backwards and worry about it later.
Now again, what I said earlier pertains to that and that was part of it. But more importantly and very importantly, we had to ensure that we could walk the talk. Because that clearly and truly is the role of credibility.
No point in saying you will do one thing and not do it. You have to be transparent in the way you undertake your operations. And I must say, one of the things we have done to the MPC meetings is that after every MPC meeting, we have a question and answer session where members of the press are very free to ask questions. And they do. And some of those questions, difficult though they may be, we answer.
Because we think it’s important to get the word out there and to ensure that people can see that we are as open and transparent as possible. And that was something that we did during the course of the verification of the forms as well. We put out the information and we allowed people to have an idea of where we are now going and we expected to continue on that particular trajectory.
So that implicitly is something that we are ensuring as a central bank we are bringing out the activities more and more to people. Our website is about to be significantly overhauled. Very shortly, you will see a new website. And that’s all headed in the direction of transparency and innovation.
A lot of the journey so far, if you look at a lot of the policy reforms that are 8on the table, a lot of that comes from dialogue and listening to people, and understanding the problems. If you don’t understand the problems of the people you serve, then how can you take care of them? So just to say that we will not get tired from having the dialogues that we are having and from understanding the problems that people face and seeing how we can work hard to ensure that we take away all the different impediments. I can give you another example.
IMTOs
The IMTOs, we had decided that this was a sector we needed to focus on. There have been limitations from other sources of foreign exchange. We took it upon ourselves to engage with the IMTOs. When I was in Washington for the Spring Meetings, I called the different IMTOs and many of them showed up. And we engaged them extensively and understood what their problems were and what they are relying on to do the things we wanted to do. When I came back, we significantly overhauled that operation to make it a lot easier for them to get their licenses, to be able to operate.
$600m remittances
And happily, we have seen the results of that effort. I would say that when we started, the volume that was going through the remittances from overseas was in the region of maybe about $200 million. And as at the end of last month, we were almost at $600 million.
Fundamentals must be right
So before I go into that, let me just say that as far as I’m concerned, I see no substitute for the fundamentals of the economy. No substitute. So before we start talking about trade-offs we are making, I think we all have to agree that ultimately we have to get the fundamentals of the economy working.
That is just a fact. We have got to ensure that the engines and the levers are running efficiently and effectively. We have got to ensure that the institutions are being built.
I think that’s part of the discussions that no doubt has been taking place here over the course of the past day or so. We have got to ensure that we are able to balance out between demand and supply. These are very critical, basic issues that need to be addressed before we even get to the point of trade-offs.
And as far as I can see, that is work in progress, and it’s something that definitely needs to be given all the attention that is required. We do need to go back to addressing the fundamentals of the economy. We’ve been a monolithic economy for so long.
We must diversify
The opportunity to diversify the economy continues to be there, and I believe there are certain things that are happening in the economy, and perhaps we need to give it more of a reality. The example I gave you of increasing the remittance flows is a classic example of using being persistent in wanting to succeed in a particular effort. What I say is I’m not just talking about the central bank, and that goes for all national banks.
We need to diversify the economy, and different stakeholders need to be resolute in ensuring that that happens.
I “ll advance course of women
Let me first and foremost say that when I went for my senate screening, i actually made a commitment to advancing the roles of the female gender.
And the reason I did this was because of my previous experiences. I had done a number of things which significantly empowered women in the board room in particular, and in other spheres of life. So that is something.
I believe women provide a very, major and significant portion of the workforce, and indeed capacity and indeed what we see, not just in Nigeria, but in many parts of Africa, is the role that women have played, quietly, but effectively, is something that certainly needs to be encouraged and resources put into. So that, and I think in the central bank, they listened and took that on board and the expectations is there.
In terms of policies to the outside, we are committed to ensuring that we encourage the banking industry and I cannot say that banks at different stages of managing their own internal processes towards think the awareness is there and it’s going to be a commitment towards driving in that direction, it won’t happen over night .
Alot of these comes from leadership and I think that you can rest assured that under my watch, I will do what is necessary to ensure that we can give the necessary impetus to women entrepreneurs, for example. And I must tell you that a week or so ago the Central Bank of Nigeria signed a code for Women Entrepreneurs Financing and we are going to implement a framework that will hopefully lead to greater financial inclusion for women within the country. We partnered with Development Bank of Nigeria and the Bank of Industry.
So between the three of us, we are committed to advancing women businesses financing rest assured that you have reliable partners and stakeholders. So that’s exactly the reason we are making sure that women are encouraged to be entrepreneurs.
Some elements of interventions would need to be completed , so that will require resources and time so the pool of intervention money is not influence to the extent that it’s already some work in progress and that work in progress needs to be run off before you can begin anything else .
That now gives time to help some of the development banks to come onboard and create the capacity that we are talking about.
So we don’t expect to see some of these changes over night. It’s unfortunate that as I said the quanton is so large that a certain level of orderliness needs to be reined in there and of course we need to get back some of the intervention funds that are out there and need to be gotten back .
But we are committed to having conversations on investment with BOI like the partnership for women entrepreneurs recently, so definitely it’s something we are good in doing and with time we will fine the appropriate model that will ensure we do this in a reasonable manner that will not get us into trouble.
Recapitalization in banks’ interest.
When I announced the capitalization at the Chartered Institutes of Banker event, in actual fact, I spoke about it loosely before, but let’s listen from there. I signaled to the banks that this is very important. I didn’t give a figure, but I felt it was important to let them know that we consider it necessary to go in that direction.
And I recall that at that time, a lot of banks felt that they didn’t need that much capital. However, between that time, October, November of the previous year, and about April of the following year, devaluation have hit more than half of banking services and I don’t think anybody anticipated that it will go so quickly in that direction.
And so when I now finally gave the figure, I think it became abundantly clear to the banks that there was need to actually increase their capital , to create buffers and ensure that they have a strong resilient banking system that will take us to the $1 trillion economy as projected by the president .
Now it’s important to state here because hopefully this will give you flavour as to the way we’ve been interacting with the banks , that we have given enough time from the time that we announced it , as I said even before then, as far back as five to six months and from the time we announced it, we gave them another two years .
And in addition to that, we have given the banks the option to choose a category of licences that they want to stay with. We are convinced that it’s important to work with the banks to understand their issues and problems to be able to solve them.
And, from what I have seen so far, the road towards recapitalisation seems to be going in the proper direction. There are those who still out there raising money, so far so good we know that it will work out well.
Importantly we’ve given the options.
We also understand and appreciate that our role as regulator , it is important for us to be ahead of the game and it is for that reason that we are putting awful amount of effort into strengthening our capacity through our banking supervision capabilities to ensure that as the banks themselves are navigating through the challenging terrain we are there to ensure that things are done in the rightful manner. And that banks according to the phrase I used earlier, ‘the constituencies that we serve are served rightly’ .
Over a period of time of course, where certain aspects and policies need to be revamped, they will be revamped . As a matter of fact, they happen and I believe the banking industry is strong and resilient and able to withstand any potential shocks
You don’t need to know people in CBN to get things done
Something that is very important to me , I think that the central bank needs to evolve as an institution that works efficiently. I believe we have to build capacity within the bank, give responsibility within the bank and be able to ensure that they are the best people, train them to be ahead of anybody else. We need to ensure that the central bank is one that will be the envy of the industry, not only the banking industry but central banks around the world.
And I must tell you that over the recent months, I have been very previllaged to interact with alot of central bankers all over the world. We want a system that ensures that our constituents do not need to come in and know people, you do not need to know the central bank governor or deputy governor to get things done .
So that it operates in a way that is open and transparent. So that at the end you get what you came for. The idea is to transform the central bank into the ideal model. And certainly at my level I will commit to getting less and less involved in the routine issues but devote more time to policy development. But we want to ensure that it gets entrenched in the bank that the bank understands that and the outside purview understands that the interface if the central bank is one where it is open and transparent you don’t have to know anybody .
We must help the youth or ….
One thing that we all have got to be very conscious of these days is that Nigerians and Africans in general have a youth surge and we have e got to be ready for youths because if we are not, then we have ourselves to blame .
And what this means is that we have alot of youths who are coming out into the job market, going to the university and looking for opportunities to take .
I believe that youths have tremendous capacity and we can see from what have been done from the Nollywood for example, the music industry, those of us who are much older, at some point in time will never hear a Nigerian song on the street of European counties or America. But today it is different.
The Nigerian youth have tremendous potential, it’s for us even bearing in mind that we are trying to create a future to ensure that we give them the tools and make our environment more engaging.
I know that in recent past and the crisis we are in now, the crisis that Nigeria is in is not peculiar to Nigeria but you know sometimes we tend to feel like it’s just us but it isn’t, it’s a global thing .
I just want to encourage the youths, to take what we have done and I will continue to refer to this, the whole issue of IMTOs , it almost seemed like an impossibility a year ago but because through determination we got to a state where we got up to $600 million from that sector . So these things can be done .
With the strength of character that we Nigerians are believed to have and with the support of we the old people , people to have access to support the structures of these institutions, we must ensure they achieve their goal.
NESG great work
I really want to congratulate the NESG for such a major milestone, and I’m particularly pleased and impressed that some of the founding members will certainly be consistently identified in NESG are here today. And I think it is just, it speaks volumes as to the dedication that many of our people have, both in the private sector and other sectors of our economy, so I think it is a very good job.
And it is not my pleasure to call them out, they know themselves and and to also say that I believe that the work of the NESG is required now more than any other time in the history of society.
Multi-stakeholder engagement is so critical. Sitting in one corner and feeling that I’m alright, that this doesn’t concern me is not going to get us anywhere.
So I think this is a great opportunity, and dare I say that this should not be a supply driven interaction. In other words, those in government who eventually use a lot of the outcomes from interactions like this should be demand driven , they should actually ask for these things. And I challenge the NESG to continue to push and continue to ensure that the ideals for which you all stand so firm and have been so resolute about all these years are accomplished.
We should not out-service these events, of course, we have a lot of experience in the room, we have a lot of access to best practices, we should use them, we should hold people to account, and we should work collaboratively to ensure that eventually we get to where we really believe we should get to. And again, to commend the NESG for the work so far, I have had the privilege in the past year of interacting with the NESG, and as I said, I commend them for the work so far, and I challenge them to just continue in that regards.
