The outgoing year, 2024, has been challenging for the Nigerian economy, with rising inflation necessitating rates hike. In the year, the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) had to raise interest rates to 26.25 percent. In May 2024; followed by another 50 bp increase to 26.75 percent in July 2024. At its September 2024 meeting, the MPC, raised the MPR by 50 basis points to 27.25 percent and at the last meeting for 2024, it raised MPR to 27.50 percent.
As the year ends, reviewing the bank’s effort at curbing inflation and strengthening the Nigerian financial system is appropriate.
Governor of the Central Bank of Nigeria, Mr Olayemi Cardoso was correct when he noted at the annual dinner of the Chartered Institute of Bankers of Nigeria (CIBN) last December that “The measures implemented to curb inflation, coupled with foreign exchange market reforms, are bolstering Nigeria’s economic growth.”
In Q3 2024, the economy grew by 3.46 percent, compared to 2.54 percent in the same period in 2023. This growth was driven primarily by resilience in the services sector, particularly telecoms and financial services, which recorded a real growth of 5.17 percent, recovering from a 0.85 percent contraction in Q3 2023. Improved oil production and increased domestic refining also contributed to the growth. However, agriculture and manufacturing continue to underperform. Targeted support for these critical sectors reduces inflation, creates jobs, and boosts overall output.
The case for economic diversification has never been more urgent – reliance on a single sector is simply unsustainable. The consequences of neglecting diversification are clear; as the saying goes, ‘we cannot reap where we did not sow.’
At the Central Bank, Cardoso told the gathering at Transcorp Hilton that “we are committed to collaborating with fiscal authorities to foster growth across key sectors and deliver meaningful progress for all Nigerians.”
Specific Highlights of 2024:
Bank licensing and expansion One bank was approved as a non-operating financial holding company; another transitioned from a merchant to a national commercial bank. Two banks received AIPs for regional commercial licenses; one for regional non-interest banking.
In the microfinance sub-sector, 16 new banks were licensed while 53 previously revoked microfinance banks were re-licensed. Apart from that, five new approvals were given to finance companies for operations within the Nigerian space.
Recapitalisation of banks:
The CBN announced in November 2023 that banks must meet new capital thresholds by March 31, 2026. Options include equity issuance, mergers, or license adjustments. Implementation strategies are due by April 30, 2024.
Foreign Exchange Market Reforms
To strengthen the foreign exchange market, CBN engaged in a regulatory review of Bureau de Change (BDCs) with new licensing requirements, capital standards, and a franchise model to enhance FX distribution and oversight.
The central bank has significantly achieved foreign exchange market unification by streamlining the FX market into a single framework, enhancing liquidity and reducing market distortions.
The Cardoso-led CBN cleared a $7 billion backlog of valid FX forwards, stabilising the exchange rate and boosting market confidence. The administration also reduced FX volatility and increased external reserves to $37.9 billion as of July 2024, up from $33.6 billion in October 2023. The Bank also announced the Electronic Foreign Exchange Matching System (EFEMS) for foreign exchange transactions in the Nigerian Foreign Exchange Market (NFEM) to curb speculation and market distortions.
To support that drive, the CBN developed a fiscal and monetary policy coordination framework (FMPCF) to improve the synergy between monetary and fiscal policies, ensuring better economic management.
The apex bank, through its financial services regulation coordinating committee, has ensured regular inter-agency meetings and collaborations on issues such as cryptocurrency frameworks and infrastructure financing.
In the year under review, the CBN ensured a comprehensive review of consumer protection regulations to improve standards and address emerging fintech risks. Through that intervention programme, the bank enhanced customer service standards and increased engagement with formal financial institutions.
Achievements In Details
The CBN implemented risk-based examination to proactively identify policy gaps and improve conduct among financial institutions (FIs). The risk-based approach complements traditional compliance checks by highlighting urgent risks that could affect financial consumer protection (FCP).
Apart from that, the CBN has rigorously enforced sanctions to ensure compliance, deter unethical behaviour, and enhance transparency within the financial sector. It addressed 19,988 complaints from customers in eight months, resolving 15,306 (76.58 percent).
From that the apex bank facilitated refunds totalling approximately N7.05 billion and $714,569.03 to customers disputing financial service providers, underscoring a commitment to fair treatment.
On its brag list is the implementation of the Unified Complaints Tracking System (UCTS) and the development of USSD (*959#) for verification of licensed financial institutions.
On June 29, 2024, the central bank launched the Women Entrepreneurs Finance Initiative (We-FI) Code aimed at closing the 9.0 percent gender gap in financial inclusion by improving access to financial services for women-owned MSMEs. In that same period, it updated and benchmarked against global standards to improve financial literacy and decision-making among youth.
In that same regard, the apex bank updated the Financial Education Curriculum (FEC) in Nigerian schools to align with global trends and promote financial inclusion.
In resolve to enhance cybersecurity in Nigeria, the bank adopted ISO 27001 standards and introduced a risk-based cybersecurity framework, a move that has been widely applauded by industry players. CBN also conducted a cyber and technology assessment to improve resilience and operational efficiency in the financial sector. In that light, CBN announced revised guidelines to include virtual assets service providers (VASPs) and updated anti-money laundering measures to adapt to evolving digital asset trends.
Financial System Regulation Reforms
The CBN introduced remarkable regulatory and supervisory frameworks that significantly reduced manipulation and abuse of the foreign exchange market. For instance, the bank revised the minimum Loan to Deposit Ratio (LDR), prohibited foreign currency (FCY) denominated collaterals for local currency (LCY) loans and adjusted the Cash Reserve Ratio (CRR) Framework. These measures support monetary policy and stabilize the financial system.
Beyond that, the apex bank intervened in governance issues at three banks, revoked the license of a national bank, and facilitated a merger to strengthen system stability.
To improve financial system resilience, the CBN has prohibited banks from distributing unearned income, such as foreign currency (FCY) revaluation gains, for the financial year ending December 31, 2023. This measure strengthens banks’ countercyclical buffers and ensures investors receive a clear picture of bank performance, fostering informed investment decisions and promoting market integrity.
In its avowed commitment to facilitating Nigeria’s delisting from the FATF Grey List, Mr Cardoso said the CBN has significantly enhanced supervision and conducted spot checks on Nigerian banks and their foreign subsidiaries to expedite Nigeria’s delisting from the Financial Action Task Force (FATF) Grey List. The efforts aim to create a more secure investment environment, attract foreign investment, and bolster Nigeria’s global financial reputation.
In July 2024, the CBN introduced guidelines to improve the management of dormant accounts, unclaimed balances, and other financial assets. The objectives include: identifying dormant accounts and unclaimed balances to reunite them with their owners; holding the funds in trust for rightful owners; standardising management practices; and establishing procedures for reclaiming warehoused funds.
The rationale of the guidelines was to address issues such as inadequate compensation for funds and risks of fraudulent transactions, thereby reinforcing trust and confidence in the financial system.
The CBN has reduced the burden of financial transactions for customers of Nigerian banks with the suspension of processing fees on cash deposits. The CBN suspended processing fees on cash deposits exceeding N500,000 for individuals and N3,000,000 for corporates until September 30, 2024. Additionally, a 3-month waiver (from January 15 to April 15, 2024) was granted to Deposit Money Banks (DMBs) for depositing lower denominations (N50 and below) with the CBN at no processing cost. This initiative encourages cash deposits, strengthens financial intermediation, and aids in the effective transmission of monetary policy.
Upgraded ratings: In May 2024, Fitch Ratings revised Nigeria’s economic outlook from stable to positive, reflecting improved financial stability and policy effectiveness.
The year has been marked by significant strides in financial regulation and market conduct under the guidance of the CBN Governor Cardoso. From enhancing market transparency through the restriction on unearned income distribution to facilitating Nigeria’s delisting from the FATF Grey List, the CBN has demonstrated a steadfast commitment to strengthening the financial system.
The introduction of new guidelines for dormant accounts, the suspension of processing fees to encourage cash deposits, and the advanced use of Early Warning Systems further underscores the bank’s dedication to promoting stability and trust within the financial sector.
