CBN will not defend naira indefinitely Soludo


By Yemi Kolapo and Sunday Ojeme


The Governor of Central Bank of Nigeria, Prof. Chukwuma Soludo, has said that the country will not use its foreign reserves to defend the naira forever.


He said Nigeria did not want to repeat Russia's mistake of spending reserves to defend its falling rouble.


Soludo, who spoke in London on Monday said, We don't want to repeat the Russian experience of spending reserves to defend currency. We can't do it forever.


The London briefing was called to douse investors fears over the new foreign exchange rules, according to Reuters.


The apex bank boss also disclosed that the foreign exchange directive halting retail banks from reselling forex sourced from the Retail Dutch Auction System and other sources at the inter-bank market as well as all other directives to strengthen the naira could be prolonged.


According to him, These temporary measures could last for weeks or months. When the speculative elements are minimised, the market will return to operate the way it should.


However, the governor said he expected the naira to appreciate in the near future.


The clarifications came just as fresh indications emerged on Monday that some powerful vested interests might move against Soludo's re-appointment as the CBN governor after his term expires in April.


Soludo had been attacked in recent times for allegedly giving false hopes as regards the country's standing in the face of the current global financial meltdown.


It was gathered that Soludo's perceived foibles over time are being used against him were influential forces in the Yar'Adua government to frustrate his second-term bid.


Sources informed that the CBN boss might be unwittingly led into a show down with the media over his recent clampdown on certain aspects of bank's advertisement to curb what was perceived as the resort to undue propaganda by banks in competing for deposits and business in general.


Soludo had drawn the ire of media industry after he announced at the end of the Banker's Committee meeting on Friday that banks should, henceforth, restrict press publications on their annual reports to half-page black and white in two national newspapers of their choice.


Quarterly financial statements of the banks, he said, should also be restricted to a quarter or a half page, also in two national dailies.


Although he said this was to curtail excessive competition among the banks, experts said he missed the point because such publicity was needed for the public to be abreast of banks financial positions.


The CBN, however, posted a statement on its website on Monday, explaining that the tone of certain media reports on the issue was a deliberate attempt at distorting the decision jointly taken at the Bankers Committee meeting.


The statement, signed by the Head, Corporate Affairs of CBN, Mr. Festus Odoko, said the essence was to tone down the publicity associated with the publication of annual financial statements by banks.


This is not a directive of the CBN. It was a decision taken by the bankers themselves in order to moderate excessive propaganda, Odoko said.


He added, “Indeed, banks are permitted to post the detailed accounts on their websites and to their shareholders through the annual reports with maximum disclosure in line with international standards.


This clarification has become necessary to avoid misrepresentation by a section of the media, which misconstrued the decision of the committee to mean outright prohibition of banks from placing advert campaign materials in the press.


He added that “at no time did the CBN governor bar the banks from advertising their banks and banking products.


But industry watchers insist that this fresh controversy may not be good for Soludo's image, coming too soon after the dust raised by his contentious pronouncements on the global credit crunch.


His failed attempt to push for the re-denomination of the naira scored a low point for him as experts said at the time that the country's single-digit inflation did not warrant such an intervention.


Again, sources say the governor did not get high marks for his involvement in the provision of the $480m seed capital for controversial African Finance Corporation, which the present government later probed.


A chief executive in one of the top banks, who spoke on the condition of anonymity, said the banking sector consolidation was a very good initiative, which did the economy a lot of good. But he added that it was only part of a 13-point agenda that was not pursued to conclusion.


According to him, the CBN governor abandoned the other points, which is causing problems in the system because all the points are mutually reinforcing.


The bank chief said in the set agenda, the CBN promised to create an asset management company to manage bad debts of the banks, which was never done.


He promised to give forbearances to banks; they never came. He was also supposed to set up risk-based supervision, but it was not seriously pursued, the chief executive said.


He, however, added that the greatest blunder committed by the governor was to have told banks to scout for more capital after the first round of consolidation to enable them manage part of Nigeria's reserves, only to later abandon the move.


But, by then, the banks had gone to raise fresh funds from the capital market. I think he did not think that decision through before making it public. If local banks are to manage foreign reserves, then they are no longer foreign reserves, they have become local reserves, he noted.


Another stakeholder in the banking industry, who also asked not to be named, said Soludo shot himself in the foot by taking responsibility for a situation he did not cause just because he wanted to protect his banking consolidation legacy.


He said, Soludo's banking sector consolidation was unbelievably successful. That is going to be his ending legacy. But his pronouncements since the global financial crisis broke have been uncalled for. The crisis is exogenous; he did not cause it, so it should have been easy for him to defend it by preparing everyone for what to expect.


He appears to be scared that he may lose the legacy, which is why he is committing this blunder. Right now, everyone is in pains because of their exposure to the capital market and other offshoots of the crisis. He should say things that will calm people's nerves, even though he may not be in total control of the situation.


A former Chief Economist, Nigerian Economic Summit Group, Prof. Milton Iyoha, however, said that there was nothing wrong with the CBN clamping down on certain advertisements if it was meant to sanitise competition in the banking industry.


He also said it would not be in the interest of the country to start to think of changing the CBN governor now.


Iyoha said, It is like you are on a high speed and you suddenly change the driver.


I think he has done a fairly good job. If not for the banking sector consolidation, the banks would have failed with the magnitude of the current crisis.


He said although his re-denomination policy was premature and unnecessary, there might have been minor gains.


By and large, he has done a good job, which the country is enjoying now. It may not be easy to convey a non-expert how well the Monetary Policy framework has worked, but he has done well.â€ÃƒÆ’ƒâ€šÃ‚  - Punch

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