The Centre for the Promotion of Private Enterprise has called on the newly appointed Governor of the Central Bank of Nigeria, Olayemi Cardoso, to prioritise clearing the backlog of forex exchange obligations.

This call was made in a press statement titled “Ten Point Agenda For The CBN Governor,” released on Sunday by the non-governmental organisation

The Managing Director of CPPE, Muda Yusuf who signed the statement said, “The clearance of the backlog of forex obligations should be accorded high priority to restore the confidence of domestic and foreign investors.”

He tasked Cardoso with the implementation of policies to deepen stakeholder engagement and strengthen the efficiency of the Financial system.

On Friday, the naira reached its lowest point at N995 against the U.S. dollar due to heightened demand and insufficient supply.

He suggested that the newly appointed CBN management team should, 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.”

This move would help diminish the inclination to sell remittances in the street FX market, commonly referred to as the black market, he said.

According to Yusuf, another issue before the new CBN leadership is deepening the financial intermediation role of the deposit money banks, which is their primary role in an economy.

“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 underscore the need to deepen synergy and complementarity between the banking system and the economic players, especially the MSMEs.”

Further, Yusuf proposed that the new CBN leadership should address the efficiency of the financial system, particularly the high spread between deposit and lending rates in the Nigerian banking system, which indicates significant efficiency problems.

“In Nigeria, the spread is over 20 percent, one of the highest globally. The average for sub-Saharan countries is 10 percent, and the global average is about 6.6 percent. The large spread is detrimental to investment growth and disincentive to savings.

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.

Yusuf noted that “There was no compelling argument to undertake the naira redesign in the first place. However, the momentum for the cashless economy should be sustained without resorting to the crude methodology of cash confiscation adopted by the previous dispensation in the CBN.”

However, urged the apex bank to continue to drive the momentum witnessed in the cashless economy’s growth.

On the tenure and cost of funds in the banking system, CPPE said that “there is a need to address the macroeconomic fundamentals to correct this maturity structure of funds in the banking system.

“The lending rate in the economy is very high and detrimental to investment and economic growth. SMEs pay as high as 30 per cent interest on loans.

“For non-bank financial institutions, the rates are even more atrocious. This is not conducive to investment growth and job creation. Bringing down the interest rate will require a mix of monetary and fiscal policies.”

On concentration risk in the banking sector, it was advised that “steps should be taken to reduce concentration risks in the banking system as a strategy to manage systemic threats to the bank system.”

He explained that a situation where the top ten banks in the country accounted for 80 per cent of bank assets, total loans, and deposit liabilities wasn’t only unhealthy but posed “systemic vulnerability risks” for the economy.

Yusuf posited that the CBN ensures a “better spread of assets and liabilities in the banking system is desirable.”

On stakeholder engagement, the new CBN was advised to relate well with stakeholders, both in the public and private sectors. It should remove the territorial mindset of the past and be ready to engage with other ministries and agencies whose activities impact the investment environment.

Finally, on corporate governance, Yusuf urged the CBN to “observe the high standards of corporate governance to preserve the credibility and integrity of the apex bank. There should be a level playing field for all operators in the financial sector. The regulatory process must be transparent, fair, equitable, and firm.

The CBN should be apolitical. Involvement of the CBN leadership, any of its officers, members of the MPC, and board members in partisan politics should be avoided.”