Expert condemns CBN participation in Forex trade

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…insists Sarah Alade not supposed to chair FMDQ’s board

By Freda Okhiria, Abuja

Dr. Owoh Godwin, Executive Chairman, Society for Analytical Eco-nomics, Nigeria has condemned the Central Bank of Nigeria for participation in Forex trade.

Dr (Mrs) Sarah Slade (OON) chairman, board of directors, FMDQ OTC securities Exchange, is the deputy governor, Economic policy directorate of the CBN, she represents the central bank of Nigeria on the board of FMDQ.

Dr Owoh argued that, the responsibility of the CBN is to regulate banks, drive business model not get involved in classified informations, he said, “Its the Central Bank that regulates the banks, so the CBN cannot be the chairman of the board of FMDQ if you are regulating them. How can you come back and develop a regulatory framework if you are part of it. As the chairman, you are going to drive their business model, you are going to get business for them and you privileged to have access to  classified information. The FDMQ  should be neutral and independent.”

Citing  example of sections 34 of the CBN act which limits the bank from doing business, he said, “there could be abused of market information and it causes lack of credibility. Section 34 of the CBN Act has limit to which they can do business, if you check quantitatively you will see that there is a level of leverage needed to invest in such things. As a manager of the national reserve,  if they take certain risk you will dip hand into our reserve which is the blood of this country.”

Dr Owoh, during Nigeria Deposit Insurance Corporation 2016 finance corespondent workshop stated this at his paper presentation  entitled, Economic Banks Assets quality in a period of economic recession.

Dr. Owoh defining recession said;  “1979 NewYork Times economic statistician Julius Shiskin suggested numerous rule of thumb definitions of a recession, two consecutive quarters decline of GDP, etc; 1.5 – 2 percent rise in unemployment within a period of 12 months, decline in economic activities, adverse demand and supply shocks. Rise in bankruptcies, unemploy-ment rate; fall in GDP investment spending capacity utilization, household income, business profits and inflation triggers: financial crisis, currency crisis, external trade shocks, bursting of an economic bubble.

US: business cycle dating committee of the National Bureau of Economic Research, NIBER, charged with dating US economic recession, says significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production and whole sale retail sales.”

Using these indicators to measure Nigeria’s current economic state Dr. Owoh said Nigeria has slipped from recession to depression.

Also describing the economic shape of Nigeria stated examplesDirector – V shaped/prolonged slump, 1974 -75 W- shaped, 1949, 1980 – 1982

Japan – U – shped (1993 – 1994), L- shaped, 8 or 9 quarters contraction, 1997 – 1999

Korea, Hong Kong, South- east Asia experienced U- shaped economy.

But Nigeria seems to have no shape.

The Director Special Insured Institutions Department (SIID), NDIC, J. J Etopidiok who also delivered a paper on Effects of falling oil prices on the banking sector performance in Nigerian (MFBs/PMBs perspective) highlighed the effects of falling oil prices on MFBs/PMBs which includes; rising NPLs (PAR), NPLs of PMBs and MFBs rising above the threshold of 30% and 5% respectively, slow growth of financial inclusion indicators, dwindling liquidity, decline solvency (Capital Adequacy ratio), the number of PMBs/MFBs achieving the prescribed CAR is sliding, declining profitability; rising NPLs ultimately results in low profits at time erosion of retained earning, reduction of loans and advances portfolio; PMBs/MFBs capacity to create the loans is dependent on availability of deposit and repayment of existing loans, Declininh volume of deposit liabilities; the biting inflation 18.3% affects the savings capacity of MFBs/PMBs customers, Job losses; as the operating fortunes of MFBs/PMBs continue to deteriorate in a typical business cases,  cost rationalization kicks in.

Also stating the efforts adopted by the monetary and fiscal authorities in addressing this issue he said, pursuing strong macroeconomic policies, implementing high impact and priority capital expenditure projects, containing fiscal deficits, improving tax collection and expanding the tax bases adopting safe a Net for Tue vulnerable, a more forward looking monetary policy strategy, enhanced vigilance of the financial services sector, reducing impediment to growth by building physical and social infrastructure, fiscal and technical support window provided by NDIC, the creation of Nigeria mortgage refinancing company, NMRC to provide a liquitity window for PMBs. To ease access to the liquity window, the PMBs, the PMBs are assigned composite Risk rating (low, moderate, above average and high) etc.