Other decisions taken by the MPC, according to Sanusi, were the removal of all restrictions imposed recently on the foreign exchange market. He said, “The inter-bank foreign exchange will be liberalized with immediate effect and wDAS replaces rDAS. All other restrictions imposed recently are removed and the net open position limit for banks is increased to five percent of bank’s capital market.”
Soludo in February replaced the Retail Dutch Auction System (RDAS) with the Wholesale Dutch Auction System (WDAS) in response to the depreciation of Naira.
Sanusi also said, “All Class ‘B’ Bureaux-de-Change may now participate directly in the CBN window. Only those with valid licenses are eligible. However, they will make a caution deposit of $20,000 each.
“Class ‘A’ BDCs’ capital requirement is hereby reduced from N500 million to N250 million. Allocation of foreign exchange will differ in magnitude between Class ‘A’ and ‘B’ BDCs, given the different levels of capitalization.”
Sanusi also announced a guarantee on all inter-bank placements from July this year to March 2010, saying the guarantee is extended to placements with banks by pension funds. He said CBN had rounded up the auditing of the first set of five banks in Nigeria and the outcome would be announced at the appropriate time.
“The CBN expects to conclude its work on diagnosis, resolution and disclosure policy in the banking system latest by March 31, 2010,” he stressed.
Speaking on the lending rate, Sanusi said the transmission mechanism between the MPR and lending rate was very weak. “A lot of what we are going to do in the next two years is to try to build that mechanism,” he said.
However, there have been mixed reactions among finance experts as well as bureau-de-change operators. While some experts backed the recent reduction of interest rates by 200 basis points, others reject in totality the reduction in the requirement for Class “A” BDC, saying the capital requirement was still on the high side.
Speaking to Sunday Trust on phone, the Chief Executive Officer, Fresh Field Asset management Limited, Abuja and former Spring, Bank Regional Director North Abdulrasheed Abubakar said the policy would impact positively on the real sector.
He noted that the pronouncement was the harbinger to a radical approach that might soon envelop the financial sector in the bid to building the productive base of Nigeria’s economy.
“Fundamentally, this is a clear signal to the banks indicating the direction of the new CBN. And any smart banker or CEO of a bank should align his or her bank’s assets and liabilities, with the new CBN direction,” he said.
He noted, “Banks should therefore, find ways of reducing lending rates and liabilities” thus “the banks should also realise that CBN wants them to de-emphasise lending to importers and contractors who were comfortable with the high interest rates and start lending to the real sector – the sector that holds the key to our development.
“What that means is that henceforth, we would be tempering profit objectives with business objectives, hence the bias towards small businesses in CBN policies,” he said, adding that “it is in the interest of the real sector that interest rates are low and Nigeria should support and encourage the new policy.”
Speaking in similar tone, the Registrar Chartered Institute of Bankers, Uju M. Ogubunka, said, “If you recall, people have been saying interest rates should come down and with the reduction, 200 basis point (2 percent) in the interest rates by the CBN, it is good for us and it is good for those in the productive sector.”
He told Sunday Trust that, “The reduction of the interest rate by two percent is not small, looking at where we are coming from,” adding that, “it should continue to come down until we get to the desired level. It is good for the economy and good for manufacturers – and the production sector generally.”
But Chief Onyuisi Maduka, Chairman, Peace Microfinance Bank, is not confident that the CBN would execute the policy.
He told our correspondent on phone that, “The policy is good but it is one thing to make pronouncements and another to execute it. In the microfinance sector, for instance, several policies have been made but the implementation is poor.” He noted, “Don’t be surprised if this one also is not implemented.”
Similarly, Mr Bimbo Asiru, the spokesman for Stanbic IBTC Bank said, even if the interest rates reduction was implemented, it would not have much impact on the economy.
Also, the treasurer, Association of Bureau-de-Change Operators of Nigeria (ABCON), Shittu Olajide said the reduction in capital requirement for Class ‘A’ BDCs from N500 million to N250 million was still not acceptable to operators in the market.
“The reduction will not bring any significant effect on the exchange rate. From all indications, putting such condition before us is to create monopoly in the market and we believe that the reduction is part of Soludo’s agenda.”
What remains to be seen is the effect the new policy would have on the economy.
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