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‘We need tough decisions on forex management’

The Nation logo The Nation 12/10/2020 Mustapha Temidayo

President, Chartered Institute of Bankers of Nigeria (CIBN) and Managing Director of First Registrars Nigeria, Mr Bayo Olugbemi is a crossbreed and thorough finance professional. In this interview with Deputy Group Business Editor, Taofik Salako, Olugbemi speaks on the economy, banking sector, regulatory affairs and capital market, among others

What is the outlook for the economy in the short- to medium terms?

I think business and economic growth indices may remain flat in the short-to-medium term as a result of the COVID-19 pandemic. The country recorded a lower growth rate and a decline in Gross Domestic Products (GDP) growth rate of 1.87 per cent in the first quarter of 2020, from 2.55 per cent the quarter before mainly as a result of the pandemic, especially in the global market. This may not pick up immediately because most economies are only just making recovery plans from the effects of the coronavirus pandemic.

What is your opinion on foreign exchange management and what will you suggest as the best approach to manage forex for optimal economic development?

There is no doubt that a stable foreign exchange (forex) facilitates economic development. Nigeria at the moment is at a disadvantageous position of having primarily one major source of foreign exchange. Oil and gas sector, which serves as the primary source of revenue for the government, was severely disrupted by the price war between Saudi Arabia and Russia as well as the halt in economic activities occasioned by the coronavirus pandemic. Both events led to a reduction in oil prices, which in turn, puts pressure on the nation’s forex reserves. It is a tough decision as no government actively seeks to devalue its currency. However, to relieve the pressure on forex reserves such tough decisions may have to be made so as to boost exports, accelerate GDP and reduce the cost of financing government loans. That said, I fully support the policies put in place by the CBN in this regard.Over the past few months, they have taken steps to control the fall in forex reserves.

Giving the overall situation in the financial markets, what do you consider as the best step forward?

I think more private companies should be encouraged to come to the capital market to raise funds. Initiatives to spur investors’ confidence in the market should also be put in place. Risk management is paramount as cases of fraud, cybercrime and insecurity, among others that have become prevalent, have all contributed to lower investors’ eagerness in the market. So, deliberate efforts should be put in place to manage risks and reduce frauds. I also think modern trading technology platforms and infrastructure should also be accelerated to drive local and transnational transactions.

There has been a steaming controversy around the BOFIA in recent period. What is the position of the institute?

I am of the opinion that the agitation or arguments around the amendments of the BOFIA should be balanced as so much emphasis has been placed on a few specific sections. Taking a holistic view about the entire amendments will reveal that it will do more good than harm. For instance, the Bill has made provisions to safeguard the asset quality of banks, reduce non -performing loans and insider dealings. While Section 18 imposes a heavy fine of N10 million or prison term of three years on any director, manager or officer of a bank, who fails to disclose his interest in any credit facility, Section 20 (1) precludes banks from granting credit facility to any person in excess of 20 per cent of the shareholders fund unimpaired by losses.

The amendment will make the banking and other financial institutions even stronger and more efficient in the long run. Additionally, I also think there should be some form of control to monitor the apex governing body to ensure they are also responsible and accountable for their actions and policies while in office. This will keep everyone on their toes.

From the vantage point of an astute operator and a regulator, what is your assessment of the Nigerian banking sector now?

CIBN is not a regulator but a certifying authority of banking and finance professionals. That said, the banking sector is stronger, more efficient and more accountable than it was years back. This is not to say that we are there yet, especially when compared with the banking sector in the developed countries and even some selected banks in Africa, especially South Africa. However, we are in the right direction and with strict adherence to the ongoing reforms and Acts guiding the operations of the banking sector, it may take a little while, but we are on the right track. I also think the banking sector should be more customer driven, there are charges, fees and commissions that are applicable to customers in our clime that are not applicable in other climes; yet banks in other climes remain profitable not at the expense of the customers.

Do you foresee another round of consolidation, merger and acquisitions in the banking sector?

This may not be out of place, just consider the capitalisation of most banks in the country compared with their counterparts in other jurisdictions like United Kingdom (UK), United States of America (USA) and South Africa, you will agree with me that it is better to have a small number of banks with significant market capitalisation than having several banks with little capitalisation. Higher capitalisation attracts foreign investors and builds investor confidence. The possibility of another round of consolidation was highlighted in the  CBN Governor, Mr Godwin Emefiele’s policy thrust over his five-year tenure in office. The aim is to ensure that banks are among the top 500 banks globally.

Some analysts have called for knee-jerk devaluation of the Naira to bridge gap with parallel market. What’s your opinion?

As earlier mentioned, devaluation comes with some benefits that enhance economic growth, lessen the demand for imported finished products and relieve the pressure on foreign reserves. This policy may, however, cause a rise in inflation and make the import of raw materials more expensive for manufacturers. Inflationary pressures may also affect the purchasing power of an average Nigerian. This year, the Naira has been devalued twice, initially in March where the rate was changed from N307/$1 to N360/$1. The rate was later changed from N360/$1 to N380/$1. I believe that this policy thrust should be implemented gradually as the economy recovers from the effects of the pandemic. The government should also begin to think about other initiatives aside the Naira devaluation. GDP should be enhanced with policies that will encourage local production while inflation rate should be kept to a single digit among other beneficial policies.

There has been a steady decline in foreign portfolio investment. What’s responsible for this and what are the necessary structures to make the market the emerging market hub?

No doubt, foreign portfolio investment (FPI) is on the decline. I recall that in the first quarter of 2020, the World Bank reported that foreign portfolio investment inflow to Nigeria declined by 54 per cent. This is mainly a risk management tactic by foreign investors to minimise their exposure and risk in the capital market whose performance has not been consistent lately. The pandemic has brought about a significant decrease of about 4.82 per cent in the All Share Index since the beginning of 2020. To stimulate FPI inflows, the CBN should continue to offer high yield to foreign investors through tailored policies. The market should also be opened to allow foreign investment inflows. Policies to ensure ease of doing business should be vigorously pursued and new ones put in place. Investment promotion agency should also promote sectors that are of interest to foreign investors etc.

Compared to other countries, financial inclusion is still a major problem in Nigeria. What do you think are necessary to foster financial inclusion, including domestic investments?

Financial inclusion has gained commendable traction in Nigeria. The CBN, in collaboration with the Body of Bank chief executive officers, Nigeria Inter-Bank Settlement Systems (NIBSS) and Licensed Mobile Money Operators established Shared Agent Network Expansion Facility (SANEF) to drive and widen financial access points and services for the purpose of increasing financial inclusion to 80 per cent by 2020. I believe there are some lessons to gain from M-Pesa in Kenya, in accelerating financial inclusion in Nigeria. M-Pesa was targeted at markets where there are little or no financial services at all but in the case of Nigeria, most of the financial inclusion initiatives are targeted at the already banked and what we see is the jettisoning of one platform to adopt another. This brings about cannibalisation after so much has been invested in technology. Financial institutions should have a clearly defined target market for their financial inclusion offerings. Awareness again is very important, communicating the right message to the right audience.

What challenges and opportunities do you see in the post COVID-19 era for the economy?

The pandemic, and especially the lockdown, exposed a few weaknesses in our financial service providers. No wonder immediately after the lockdown was eased, the crowds at the banking halls were beyond imaginations largely due to the type of cash economy that we run in this clime. It is, therefore, an opportunity for players to invest more in infrastructure and innovative technologies that will enhance customers’ experience and bring to the barest minimum cash transactions.The world has gone digital and the COVID-19 has introduced a new normal that will spur the adoption of digital technology and platforms.

 As a foremost Registrar and capital market operator, how do you think we can resolve the problem of huge unclaimed dividends?

Investor sensitisation is key in this case, the industry players and regulator have provided various platforms for investors, it is left for the investors to embrace and take advantage of these platforms. For example, the EDMMS platform has been around for a while, yet adoption seems to be low. First Registrars has introduced a dividend prepaid card for shareholders who do not have bank accounts, again, the adoption rate is still very low. Also, the window opened for consolidation of multiple shareholdings is still there to harness. More public awareness and investors’ engagement will be crucial at this stage, we should not relent.

What are the policy imperatives that you think the new leadership at SEC should pursue to deepen the growth of the capital market?

Just as mentioned above, the new leadership at Securities and Exchange Commission (SEC) should engage all the stakeholders in the capital market from self regulatory organisations (SROs) to operators and investors with a view to bringing back investors’ confidence and moving the capital market forward.

The banking industry is often cited for casualisation of workforce. What is your view on this?

Generally, casualisation of workforce in any sector may not be very good, especially for the employee. No doubt, employers of  have every reason for casualisation as a form of cost reduction strategy, but then, the impacts may cause harm than good. It dehumanises and degrades labour integrity, which results in poor work ethics, low employee commitment, low productivity, disloyalty and increase in crime rate, with staff involvement in fraudulent practices, especially in the banking sector. Furthermore, digitisation, to a large extent, is rapidly replacing manual processes, where processes otherwise carried out by people are now being executed digitally or electronically. People should begin to build capabilities in the new skill areas that are in high demand. If you have the right on-demand skill, you will not be redundant. Furthermore, the strength of an organisation is not just in the money it makes but in its people, its workforce; employees should be treated well and kept, and if perhaps they must be laid off, this should be done the right way with human face and care.

As the new President of CIBN, what’s your vision for the institute?

My vision for the institute as the 21st President and Chairman of Council is encapsulated in the acronym code named A-TEAM, which means, Accelerated development, Technology Enhancement, Engagement for Growth, Accountability and Transparent leadership and Membership drive for value.

To achieve this feat, we would pursue creative and innovative ideas that would transform, project and propel the institute into global limelight in line with its vision of becoming a global reference point for skills and conduct. This vision will be executed in congruence with the institute’s Corporate Strategic Plan: 2020 – 2024.

How is CIBN championing discipline and ethics in the banking sector?

CIBN as the umbrella professional body for banks and bankers in Nigeria takes the issue of discipline and ethics very seriously. The institute prides itself in the observance and upholding of ethics and professionalism. Section 13 of the CIBN Act provides for the establishment of two statutory committees namely: CIBN Investigating Panel and Disciplinary Tribunal. The former focuses on investigating any member who has been alleged to have violated the Code of Conduct in the Nigerian Banking Industry and such a member could thereafter be referred to the Disciplinary Tribunal. The Disciplinary Tribunal has the powers of a High Court. Many cases have been adjudicated on and any one found guilty is punished according to the law.

Also, the CIBN serves as the Secretariat of the Bankers Committee, Sub-committee on Ethics and Professionalism, an industry regulatory mechanism that adjudicate on cases of customers versus banks or even banks versus banks. The decision of the Committee is binding on the parties and banks abide by the decisions taken on complaints brought before the Committee.

In addition, there is compulsory ethics certification programme as part of competency framework for practitioners in the industry on annual basis. The institute also initiated a joint development of code of conduct and business ethics with Bankers Committee which covers every employee within the banking industry and has been operational for some time now. The institute also went into strategic collaboration and partnerships with all relevant bodies to deepen ethics, professionalism and indeed consumer protection. All these we do to entrench and promote ethics and professionalism in the industry.

 With the opening up of African markets for intra-Africa trades, how prepared is the Nigerian banking sector and the economy generally? 

With the opening up of African markets for intra-Africa trade, Nigerian banking sector is fully prepared to support Nigeria and the Africa as one of the facilitators of economic growth through its intermediation functions. Banks provide credit facilities to agricultural and other sectors of the economy which help to boost foreign exchange earnings, infrastructural development, job creation and regional trade balance among others. Also, as you are aware, many of our banking institutions are becoming pan -African in nature as they have subsidiaries across nations of Africa. So, I think Nigerian banks are in good stead for the competitive landscape.

You are a leading banker and capital market operator; how do you think we can bridge the policy dichotomy often between the money and capital markets in such a way to achieve a fully integrated financial system? 

We can bridge policy dichotomy between the money and capital market by making policies that will not create conflict in both markets. This is because any economy that wants to develop and become great cannot rely only on money market to get huge resources to finance her development; the capital market must also be considered in order to fully integrate the financial system. Furthermore, the instrumentality of Financial Services Regulators Coordinating Committee (FSRCC) chaired by the CBN should be properly harnessed to bring about needed harmonization of both markets.

Do you see any room for improvements in the monetary management system now?

Oh yes, there are rooms for improvements, I think there is need for a reform. There should be a focus on liquidity management, interbank rates should be minimised and bank reserves should be improved among other policies. Also, the implementation of the capital market master plan should be accelerated.

If you are to review the current funding interventions by the CBN, what will be your suggestions for improvements?

The CBN has done quite well in terms of the various intervention and social investment schemes it had injected into the market. I would further recommend that more funding should be focused on the real sectors of the economy especially agriculture, transportation, information and communication technology (ICT)/digital economy and power among others. My advice would be that application processes should be made easier. More awareness needs to be created at the grassroots level on how to apply for such funds. For example, trainings and workshops on how to successfully apply for and manage intervention funds should be conducted for small and medium enterprises (SMEs) free of charge. It is important that we support our businesses every step of the way from the application process to the disbursement and management of the fund. This would ensure that those entrepreneurs accessing such intervention funds have the capacity to manage the loans successfully despite the rough business terrain brought on by the pandemic.

 What are the imperatives for a stable positive stock market?

As said earlier, more companies should be encouraged to enlist on the various Stock Exchanges. We should encourage local production while also implementing more favourable policies around foreign direct investment (FDI) and FPI. The rebound and stability may not happen overnight but gradually; we will be taking a leap forward.

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