CBN Reveals Plans To Sanction Banks

In a decisive move to reform Nigeria’s banking sector, the Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, has announced a commitment to creating an aggressive regulatory environment aimed at curbing infractions within the country’s banking system.

Speaking at his first Monetary Policy Committee meeting since taking office in September 2023, Cardoso revealed that an extensive investigation into banks involved in regulatory breaches is currently underway.

The announcement, made on Tuesday in Abuja, underscores the apex bank’s dedication to enhancing the integrity and stability of Nigeria’s financial landscape.

Cardoso emphasized the development of “stringent regulations,” particularly aimed at overhauling the foreign exchange market, to ensure its cleanliness and integrity.

Amidst efforts to promote transparency and efficiency in the foreign exchange market, the governor also shared positive news regarding the nation’s economic reserves.

As of February 20, Nigeria’s foreign reserves had climbed to $34 billion, marking a $2 billion increase from the $32.23 billion recorded at the end of January.

The Nigerian currency, however, has seen significant depreciation since the new administration’s decision to float the naira and merge exchange rate windows.

This policy shift has led the naira to weaken dramatically, dropping from over N700/$1 in May 2023 to over ₦1,500/$1 on Tuesday.

Cardoso assured that the CBN is transitioning towards a “very aggressive regulatory environment” to address the issues head-on, including combating arbitrage activities facilitated by banks and Bureau De Change operators (BDCs).

He said, “What we are doing at the moment is a collaboration between the central bank and the law enforcement agencies to ensure that we can understand better what is going on in the market and where infractions are taking place. They will be speedily dealt with.

“Now, I must say that we are moving as far as the central bank is concerned, we are moving to a very aggressive regulatory environment, where those policies have been coming out, as you can see, and tolerance for people not to abide by the regulations that are coming out and to comply is zero.

“People will have to abide by those regulations, and those that do not will face the consequences. I can assure you that a very thorough exercise is going on to identify what needs to be done on banks aiding infractions. And once we come out with the outcome of those, it is not something that we will keep to ourselves. We will advise you accordingly and we will do what we have to do.”

According to Cardoso, the apex bank would continue to make the market more liquid and to ensure that those who are genuine and want to abide by the rules and regulations that have been set by the central bank will be free to do so, adding that those who do not should be ready to face the consequences.

“Gross external reserves stood at $34.51bn on February 20, 2024, compared with $32.23bn at the end of January 2024. The improvement was driven by reforms in the foreign exchange market and an increase in oil production amongst others in the global economy,” he disclosed.

Cardoso revealed that the apex bank had paid another $400m out of $2.2bn of valid FX backlog to those who were genuinely identified.

According to the CBN governor, the bank will work to restore the confidence of the public and remains committed to its FX backlog to businesses being owed.

He stated, “In terms of the backlog, we are committed to clearing the backlog of identified and genuine requests that are pending. We are committed to doing that and I can tell you that just today, we paid out $0.4bn to those that were identified, and we are committed to continuing doing so in one form or the other to those genuinely identified and proven cases.”

The CBN had a $7bn FX backlog when Cardoso assumed office as the apex bank governor on September 15, 2023.

However, the CBN governor stated in an interview that the legitimate FX obligation of the bank stood at over $4bn and the bank had cleared around $2.3bn with about $2.2bn remaining.

Also, the Governor stated that around $2.4bn of FX claims were not valid after the bank instituted a forensic audit of the claims.

Reiterating his stance on the suspension of intervention programmes and loans by the bank, the former Lagos State Finance Commissioner, said, “Interventions have two dysfunctions as far as I am concerned, from the central bank space. One is that it takes away a lot of your time for something that really and truly you do not have the expertise to do. And two, it also, if not carefully handled, creates a lot of distortions in your economy through the inflow of money supply. The interventions that took place in the recent past were estimated in excess of N10tn.

“I am not talking about ways and means. I am talking about interventions, over N10tn. What was the budget of the Federal Government of Nigeria? What was the budget of the largest state in Nigeria? Do the math and it will tell you the extent of damage. Too much of what may appear to be good things can do (harm) to an economy. So, for me, it is a major issue.”