Stakeholders list expectations as Emefiele assumes office

As Godwin Emefiele assumes office as governor of the Central Bank of Nigeria (CBN) tomorrow, analysts expect to see a tenure that should be radically different from that of his predecessor, with inclination to a dovish stance as well as preparing Nigerians and the international community for a return to the traditional conservative profile of the governor of Nigeria’s central bank.

Stakeholders who spoke to BusinessDay say they are certain that Emefiele would eschew the controversies that dogged the tenure of his predecessor, Sanusi Lamido Sanusi, deliberate in policy initiatives and be much less vocal.

They add that these traits, among others, are required to effectively manage the exchange rate in the face of fast-depleting reserves and address frontally the development aspects of the responsibilities of the CBN, ensuring in the process that devaluation of the naira is avoided.

“It is, however, the dawn of a new era, an incoming CBN governor with a different style and philosophy,” said Bismarck Rewane, chief executive officer, Financial Derivatives Company, in his May 21 FDC Economic Bulletin.

“Many expect Godwin to be a mature leader and a monetary policy dove rather than a hawk. The markets respect him highly for his experience, but will be looking up to him for leadership in a time of financial turbulence and political uncertainty. This is especially true because he will be taking over from Governor Sanusi who has an iconic global image for reforming Nigeria’s banking system,” he said.

Nigeria’s external reserves level increased marginally to $37.83 billion as at March 31 before declining back to $37.63 billion as at May 9, representing about 22.98 percent below the 2013 peak of $48.86 billion and 13.69 percent below the December level of $43.6 billion.

The analysts expect the incoming CBN governor to be decisive in the policy option that will lead to aggressive accretion of the reserves, as well as encourage foreign direct investment to halt sustenance of the reserves on ‘hot money’.

Besides, they are looking forward to the CBN’s contribution to the attainment of a more diversified economy which would grow more jobs, at a time that the economy is leading on the continent.

The new CBN governor will be taking the helm at a period when banks, while having relatively stronger balance sheets after the 2009 banking crises, are contending with reduced profitability on the back of higher reserve requirements, lower fees and increased competition.

The banks are also increasingly getting exposed to dollar liabilities (Eurobonds) to match expected dollar-denominated loans to the power and oil and gas sectors, leaving them exposed to currency risk in event of a naira devaluation scenario.

Rewane expects Emefiele to start by evaluating the monetary conditions to determine what mix of monetary policy instruments will be required to achieve equilibrium and balance between the domestic and external sectors of the economy.

“He will take comfort in the fact that headline inflation is not too high but will need to see the big difference between anticipated inflation and historical price levels. He will also have to determine if he would prefer to use monetary policy instruments as a strategic tool for economic management or, alternatively, to react to the illusion of a false sense of economic patriotism,” he said.

The FDC boss further said that although the macroeconomic environment has been relatively stable, Emefiele should be wary of other risks, such as the conflicting trends of core and headline inflation since January 2014, as well as the eroding fiscal buffers which, he said, needed to be put in perspective.

Ayodeji Ebo, head, investment research, Afrinvest, said, “In view of the 2015 campaign spending, we anticipate further liquidity tightening by an additional increase in the CRR on public sector deposit to 100.0 percent before the end of 2014 and a subsequent reduction post the 2015 election. In addition, the gradual depletion of the reserves (from US$49.0bn in May 2013 to US$37.3bn as at May 2014), which also constitutes approximately US$10.0bn in ‘hot money’, questions the viability of the continued intervention of the CBN at the foreign exchange market.”

He added that in addition, in view of further stimulus tapering in the US and the expected end to Quantitative Easing (QE) in November 2014, they foresee further capital reversals, hence mounting more pressure on the naira in the mid-term.

“This presents the CBN with the daunting task of either increasing the MPR (by 50bps) to moderate capital flow reversals, or permit the devaluation of the naira to prevent further depletion of the reserves. The former may be the preferred, so as to prevent inflationary pressure due to the import-dependent nature of the Nigerian economy,” he said.

Emefiele’s last scorecard saw Zenith Bank’s Q1’14 recording an 8 percent growth in gross earning to N94.32 billion. However, the top-line gain was eroded by the 11 percent and 27 percent increase in operating expense and loan loss expense, respectively.

The bank’s pre-tax income increased marginally by 0.1 percent to N28.92, while a 4 percent decline in taxes paid resulted in a 1 percent increase in PAT to N23.68 billion, from N23.41 billion.

John Omachonu