Legally, I suppose, the CBN does not need "public debate" in order to do its job, but our regulatory agencies (CBN, the SEC, the Ministry of Finance, the EFCC, the NSE, etc) have not been doing their regulatory jobs properly, which has added a specific Nigerian icing to the global cake in terms of how the worldwide crisis is affecting our economy. Like all governmental and quasi-governmenal entities, they operate in a vacuum, where there is no accountability to the public, and no transparency in decision-making.
It is difficult for we ordinary citizens to know what our government is actually doing. There are so many rumours masquerading as facts, and our leaders (like leaders all over the world) are not particularly honest in the statements to the broader public. Sometimes we are left to use consequences to work backwards to the actions and inactions that created the consequences. I do not believe our governmental and quasi-governmental agencies made contingency plans for the inevitable market correction; in the aftermath they have appeared to be scrambling from one ad hoc move to another (much like their counterparts elsewhere in the world).
In fact, when the slowdown began, the Nigerian authorities seemed keen on anti-market interventions to force the index to keep going up, measures that predictably failed.
This bothers me. I do not pretend to be a genius, so when I notice something and the supposed "experts" do not, it worries me. I knew it was a bubble, back when it was still expanding. And I knew that we (particularly citizen investors who flocked to the NSE, drawn by some of the highest rates of return in the world) were unprepared for what was always going to be a painful and inevitable market correction, even without the global crisis that just happened to occur at the same time our domestic equity bubble popped. And back when the bubble was still expanding, I was quietly wishing the governmental and quasi-governmental agencies would move, quietly but effectively, to slow it down and then ease the markets into more sane and sensible territory (the so-called "soft landing") rather than wait for the pop -- a pop they were unprepared for, though they should have long expected it.
Anyway, on to the CBN's announcements.
Firstly, the CBN has imposed maximum deposit and lending rates for Nigerian banks. The ceiling for deposit rates is 15%, and the ceiling for lending is 22%.
Secondly, Charles Soludo, the Central Bank governor, has insisted the CBN will not allow any bank to fail.
The central bank plans to carry out a “rigorous” examination of the nation’s banks to detect “early warning signals” about possible failures, Soludo said in a presentation today in the commercial capital, Lagos. Banks in distress may be provided with loans, have their management restructured, be forced to merge or be acquired by another bank, he said.
The hard ceiling on deposit rates appears to be linked to the desperation of some of the smaller banks facing a liquidity crisis. In order to attract new and higher deposits, these banks had raised their deposit rates as high as 21%. The larger, more liquid banks kept their deposit rates at an average of 11%. The CBN ceiling is 15%.
On the lending side, banks were raising their rates, reflecting a more cautious, risk-averse approach as the economy hits difficult times. Even in good times, our banks are known for favouring "easy money" options over risky entrpreneurial gambles. Apparently some lending rates were as high as 32%. The CBN has capped lending rates at 22%
This is a critique of the CBN announcements . I do not agree with everything the author says. For one thing, I think it might be "good" if liquid banks with solid fundamentals took over banks in distress, and don't understand why he thinks it is a bad thing. But I am intrigued by his suggestion that a another parallel market could develop. When the "government rate/price" and the "market rate/" differ in Nigeria, parallel (a.k.a "black") markets form; we have seen this in the foreign exchange and retail petrol markets. I am not sure how that would work in the lending markets, though. It is far more likely (as the author also mentions) that banks would comply with the new rates, but then charge additional "non-interest" fees that add up to what they would have taken in had they been allowed to set the interest themselves.
We'll see how it turns out.
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