The First Vice President, the Chartered Institute of Bankers of Nigeria (CIBN) Deacon Segun Ajibola, speaks with KEMI OKUNADE on current macro economic challenges and the collaboration between banks and CIBN in fine-tuning the foreign exchange market.
How can Nigeria achieve a realistic exchange rate needed to drive the economy?
A realistic exchange rate is determined by the strength of the domestic economy and its vulnerability in the international business dynamics.
As at today, we know that crude oil accounts for a very sizeable percentage of foreign exchange and earnings in Nigeria.
The swings in the foreign exchange market in recent times happened because Nigeria as a nation continued to witness downturn in the global oil market and demand for foreign exchange is not abating, so the earlier we either stop buying dollar or seek an alternative remedy.
But the truth of the matter is that, speculative reactions to foreign exchange rate dynamics do not last, that is why we have seen dollar hovering between N300 and N400.
Speculation in the foreign exchange market is not sustainable and eventually, it will come down because President Muhammadu Buhari keeps assuring investors of no further devaluation of Naira.
Also, there has been assurance that there will be no more stoppage of certain essential goods which is good for our economy. The activities of the speculators in the foreign exchange market will be driven out. More importantly, diversification of foreign exchange earnings will help to boost the economy.
By the time we are able to earn foreign exchange from other sources rather than crude oil, we will be able to strengthen our foreign exchange reserves and, restore confidence to our international trading partners.
Also, by the time we have some attitudinal changes in terms of our consumption habit, remove impunity in terms of looking inwards for some of our basic needs, and restore confidence in our local economy, it will leverage on our national reserve.
Why is it that Nigerian banks suspended loans to fuel importers?
You should know that trading partners, correspondent banks depend on the strength of the economy before lending.
At the moment, that degree of reliance and confidence has reduced, they have become reluctant and introduced new terms and conditions
They have started introducing terms that are not common in the international trade, which is why when importers approach banks to open a letter of credit, banks find it difficult to oblige.
The issue is not with the bank but the correspondent bank that will serve as representative of the trading partner that will be the supplier of fuel being imported into the country.
So, if the confidence of parties in our domestic economy shakes, their own attitude to trading towards us will also change. That is what banks and oil importers are going through. It is when there is stability in oil price and banks recovered from reassessment of loans
FG is planning to review the loan on agriculture from 9% to 5 per cebt. Banks over the years have not been supporting that sector. In what way is CIBN working with banks to enhance the agriculture sector?
Banks consider the risk content in agriculture sector as high because they are not charitable institutions. Finance institutions are accountable to their depositors and shareholders.
They cannot afford to be charitable in the way they conduct business. Agriculture as we all know is a high risk sector and that is why CIBN and banks are interested in Fedeal government’s support.
For banks to perform optimally in the agriculture sector, government must provide polices and create enabling environment.
There was a time when Central Bank of Nigeria (CBN) introduced insurance scheme that covers failure in agriculture loan
That policy helped banks to regain some confidence to deal with certain things but today, that insurance scheme is not as effective as it used to be.
The CBN is considering incentives like that and working on how to help banks manage the risk that is associated with agriculture business such that if there is any problem, it will not affect banks’ loan portfolio.
On foreign exchange decline, there are indications that banks are working with BDCs to influence the price. What is your association doing to curb this trend?
I am not aware that banks are working with BDCs because Nigeria banks are highly regulated institutions that have regulators that visit them daily. So, we don’t expect banks to start influencing the price at the foreign exchange market.
For that reason banks have started publishing collected funds from CBN daily. Officially there are no banks that can go out of the rules and do what it likes.
As Oil and gas has recorded decline, in what area to you expect banks to diversify into and what is your organization doing in that regard?
Banks will be looking at other sectors like the manufacturing, textile industry and total packaging of finished products. It is important for government to contribute first by providing those things that drive investors’ interest. You don’t expect banks to give loan and infrastructure amenities needed for effective business to thrive.
There must be sincerity, honesty and prudent management from the investors’ position before business can be successful. So it’s when all stakeholders decide to play its role that we can have success story.