Apr. 27, 2018

Godwin I. Emefiele


Godwin I. Emefiele

Governor , Central Bank of Nigeria (CBN)

TBY talks to Godwin I. Emefiele, Governor of the Central Bank of Nigeria (CBN), on battling inflation, maintaining exchange rate stability, and eliminating round-trippers.


Godwin I. Emefiele is Governor of the CBN. Prior to taking over the helm at the CBN, he spent over 26 years in commercial banking, having joined Zenith Bank at inception in 1990. He was the bank’s executive director in charge of corporate banking, treasury, financial control and strategic planning, and was appointed Deputy Managing Director in 2001. Under Emefiele's leadership, Zenith Bank strengthened its position as a leading financial institution in Africa, winning recognition at home and abroad for giant strides in corporate governance, service delivery, and deployment of cutting-edge ICT. He holds degrees in banking and finance from the University of Nigeria-Nsukka and took management courses at Harvard, Stanford, and Wharton.

How would you describe the monetary policies implemented by the CBN over the past few years?

Over the last three years, the Nigerian economy encountered enormous external shocks that exposed our vulnerabilities. Due to inherent structural imbalances, Nigeria relies on oil revenue for its foreign exchange supply and has an unwarranted taste for imported goods. The sharp collapse of oil prices that began in 2014 adversely impacted fiscal revenue, foreign exchange reserves, and exchange rate stability. As fiscal space contracted, the maneuverability of macroeconomic and social policies diminished. All these, in addition to shrinking reserves and a depreciating exchange rate, put immense strain on the Nigerian economy. By 2016, the economy had fallen into a recession as inflation surged to intolerable heights. Given the importance of price stability in macroeconomic stabilization and the role of the exchange rate in the dynamics of relative-prices, the CBN focused its efforts on battling inflation and maintaining exchange rate stability. Our analyses indicate that runaway inflation could only worsen the already unsavory situation. Hence, monetary policy stance remained cautiously tight in its efforts to categorically rein in inflation and extricate lingering money illusions in the macroeconomy. We also took several decisions to finetune operations in the foreign exchange markets, with a view to purge the system of unscrupulous excess demand and ensure exchange rate stability.

How do you intend to ensure exchange rate stability is sustained into the future?

Through our multifaceted approach to combating foreign exchange market instability, we succeeded in stabilizing the exchange rate from NGN515.0/USD in February 2017 to about NGN365/USD in November. The bank's strategy was to resolutely manage FX demand while concurrently seeking means to enhance FX supply. We eliminated speculators, bettors, and round-trippers and restricted access to FX in the market. The bank also increased transparency in the market through a more flexible FX market and the establishment of an I&E window. Moreover, we ensured an appropriately tight monetary policy throughout that period. All these jointly culminated in the stability we see today. To ensure that this endures, the bank will sustain transparency in the market so as not to upend investor confidence. We will also continue to target transactions-based demand, shut the door on unscrupulous rent-seekers, and continually fine tune the policy stance to ensure its appropriateness.

How would you assess the health of Nigerian banks today, and what message would you send to boost the sector's performance?

Our assessment indicates that the financial system remains fundamentally robust despite the enormous external shocks that debilitated the economy. This is highlighted by increased profits recorded across the industry and improved credit ratings from prominent agencies. To ensure sustained financial stability, the CBN will continue to closely regulate banks using the risk-based supervision model and maintain the elevated threshold of prudential indicators. As against the CAGR of 8% prescribed internationally, we set a threshold of 16% for systemically important banks, 15% for banks with international presence, and 10% benchmark for all others. Given that the banking system is the lubricant of the economy, banks have an enormous role to play in supporting the economic recovery. I would encourage them to channel more credits to agriculture and MSMEs through our development finance initiatives. Contrary to the amplified risk perception of MSME credits, that sector's NPL is far below the industry average.

What role can the bank play in funding agriculture?

Four commodities—rice, fish, sugar, and wheat—consumed nearly NGN1.3 trillion annually in import bills. These and other commodities in the list of 41 items were a drain on our FX reserves. Our proclivity for imports has enriched other countries and impoverished ours. If we increase domestic food production, we will create jobs, reduce poverty, and shield our economy from foreign impulses. Thus, the bank is channeling a great deal of development finance and interventions toward agriculture to ensure sufficiency in the production of food and raw materials through our various development finance mechanisms and schemes.