CBN must contain rising banking sector risks, says IMF

…seeks more ambitious tax reforms, increase in excise
duties

The International Monetary Fund on Wednesday called on the
Central Bank of Nigeria to contain rising banking risks in the
country, while also commending the regulator for its recent
decision to stop weak banks from paying dividends to
shareholders.

Against the backdrop of huge non-performing loans, which have
weakened the capital base and asset quality of the country’s
Deposit Money Banks, it also called on the apex bank to carry out
an asset quality review in order to identify any potential capital
need among the lenders.

The call came in the IMF’s Article IV Consultation, an annual
appraisal of a country’s economy, which was released in Washington
DC, United States.

The report came a few days after an IMF team completed its
Article IV Consultation visit to Nigeria for 2018.

The IMF executive board assessment report read in part,
“Directors stressed that rising banking sector risks should be
contained. They welcomed the central bank’s commitment to help
increase capital buffers by stopping dividend payments by weak
banks.

“They called for an asset quality review to identify any
potential capital need. They noted that an enhanced risk‑based
banking supervision, strict enforcement of prudential requirements,
and a revamped resolution framework would help contain risks.”

The proposed asset quality review by the IMF will help the CBN
to determine if banks have made adequate provision for NPLs and
that whether the loans are properly classified, according to
experts.

It will also help the regulator to know if some banks have
adequate capital.

The level of the NPLs in the industry is currently at 14 per
cent, far above the five per cent recommended by the CBN.

Some local experts said the CBN might ask the banks, which have
their NPLs above the industry average, to recapitalise so as to
avoid insolvency.

The Washington-based lender, however, commended the CBN for
maintaining a tight monetary policy stance, just as it lauded it
for its foreign exchange policy, which has attracted forex inflow
to enhance exchange rate stability.

The report further stated, “Directors commended the central
bank’s tightening bias in 2017, which should continue until
inflation is within the single digit target range. They recommended
continued strengthening of the monetary policy framework and its
transparency, with a number of directors urging consideration of a
higher monetary policy rate, a symmetric application of reserve
requirements, and no direct central bank financing of the economy.
A few directors urged confirmation of the appointments of the
central bank’s board of directors and members of the monetary
policy committee.

“Directors commended the recent foreign exchange measures and
recent efforts to strengthen external buffers to mitigate risks
from capital flow reversals. They welcomed the authorities’
commitment to unify the exchange rate and urged additional actions
to remove remaining restrictions and multiple exchange rate
practices.”

The IMF also said the Nigerian economy was slowly exiting
recession but remained vulnerable because its growth was tied to
oil prices and improved revenues were restricted to the energy and
agriculture sectors.

The Nigerian economy had emerged from its first recession in 25
years in the second quarter of 2017.

The recession was largely linked to low crude prices and
militant attacks on oil facilities.

Higher oil prices and an end to the attacks mostly accounted for
the end of the recession.

“The Nigerian economy is slowly exiting recession but remains
vulnerable,” the IMF said in the report.

It added that the economy had been helped by higher oil prices,
improved access to foreign exchange and foreign reserves rising to
a four-year high.

The Washington-based lender, however, noted that the
improvements had not yet boosted non-oil and non-agricultural
activities.

“Lower oil prices, tighter external market conditions,
heightened security issues, and delayed policy responses are the
main downside risks,” it added.

To address these vulnerabilities, the IMF team stressed that
comprehensive and coherent policy actions remained urgent.

In addition to ongoing efforts to improve tax administration,
the IMF directors underlined the need for more ambitious tax policy
measures, including through reforming the Value Added Tax,
increasing excise, and rationalising tax incentives.

They said the implementation of an automatic fuel price‑setting
mechanism, sound cash and debt management, improved transparency in
the oil sector, increased monitoring of the fiscal position of
states and local governments, and substantially scaled-up social
safety nets should support the adjustment.

The report further stated, “Directors emphasised that structural
reform implementation should continue to lay the foundation for a
diversified private‑sector‑led economy. They noted that, building
on recent improvements in the business environment, implementing
the power sector recovery plan, investing in infrastructure,
accelerating efforts to strengthen anti‑corruption and transparency
initiatives, and updating and implementing the financial inclusion
and gender strategies remain essential.

“Directors welcomed the continued improvement in the quality and
availability of economic statistics and encouraged further efforts
to address remaining gaps.”

The IMF also commended the progress in implementing the Economic
Recovery and Growth Plan, including the start of a convergence in
foreign exchange windows, tight monetary policy, improvements in
tax administration, and significant strides in improving the
business environment.

…seeks more ambitious tax reforms, increase in excise
duties

The International Monetary Fund on Wednesday called on the
Central Bank of Nigeria to contain rising banking risks in the
country, while also commending the regulator for its recent
decision to stop weak banks from paying dividends to
shareholders.

Against the backdrop of huge non-performing loans, which have
weakened the capital base and asset quality of the country’s
Deposit Money Banks, it also called on the apex bank to carry out
an asset quality review in order to identify any potential capital
need among the lenders.

The call came in the IMF’s Article IV Consultation, an annual
appraisal of a country’s economy, which was released in Washington
DC, United States.

The report came a few days after an IMF team completed its
Article IV Consultation visit to Nigeria for 2018.

The IMF executive board assessment report read in part,
“Directors stressed that rising banking sector risks should be
contained. They welcomed the central bank’s commitment to help
increase capital buffers by stopping dividend payments by weak
banks.

“They called for an asset quality review to identify any
potential capital need. They noted that an enhanced risk‑based
banking supervision, strict enforcement of prudential requirements,
and a revamped resolution framework would help contain risks.”

The proposed asset quality review by the IMF will help the CBN
to determine if banks have made adequate provision for NPLs and
that whether the loans are properly classified, according to
experts.

It will also help the regulator to know if some banks have
adequate capital.

The level of the NPLs in the industry is currently at 14 per
cent, far above the five per cent recommended by the CBN.

Some local experts said the CBN might ask the banks, which have
their NPLs above the industry average, to recapitalise so as to
avoid insolvency.

The Washington-based lender, however, commended the CBN for
maintaining a tight monetary policy stance, just as it lauded it
for its foreign exchange policy, which has attracted forex inflow
to enhance exchange rate stability.

The report further stated, “Directors commended the central
bank’s tightening bias in 2017, which should continue until
inflation is within the single digit target range. They recommended
continued strengthening of the monetary policy framework and its
transparency, with a number of directors urging consideration of a
higher monetary policy rate, a symmetric application of reserve
requirements, and no direct central bank financing of the economy.
A few directors urged confirmation of the appointments of the
central bank’s board of directors and members of the monetary
policy committee.

“Directors commended the recent foreign exchange measures and
recent efforts to strengthen external buffers to mitigate risks
from capital flow reversals. They welcomed the authorities’
commitment to unify the exchange rate and urged additional actions
to remove remaining restrictions and multiple exchange rate
practices.”

The IMF also said the Nigerian economy was slowly exiting
recession but remained vulnerable because its growth was tied to
oil prices and improved revenues were restricted to the energy and
agriculture sectors.

The Nigerian economy had emerged from its first recession in 25
years in the second quarter of 2017.

The recession was largely linked to low crude prices and
militant attacks on oil facilities.

Higher oil prices and an end to the attacks mostly accounted for
the end of the recession.

“The Nigerian economy is slowly exiting recession but remains
vulnerable,” the IMF said in the report.

It added that the economy had been helped by higher oil prices,
improved access to foreign exchange and foreign reserves rising to
a four-year high.

The Washington-based lender, however, noted that the
improvements had not yet boosted non-oil and non-agricultural
activities.

“Lower oil prices, tighter external market conditions,
heightened security issues, and delayed policy responses are the
main downside risks,” it added.

To address these vulnerabilities, the IMF team stressed that
comprehensive and coherent policy actions remained urgent.

In addition to ongoing efforts to improve tax administration,
the IMF directors underlined the need for more ambitious tax policy
measures, including through reforming the Value Added Tax,
increasing excise, and rationalising tax incentives.

They said the implementation of an automatic fuel price‑setting
mechanism, sound cash and debt management, improved transparency in
the oil sector, increased monitoring of the fiscal position of
states and local governments, and substantially scaled-up social
safety nets should support the adjustment.

The report further stated, “Directors emphasised that structural
reform implementation should continue to lay the foundation for a
diversified private‑sector‑led economy. They noted that, building
on recent improvements in the business environment, implementing
the power sector recovery plan, investing in infrastructure,
accelerating efforts to strengthen anti‑corruption and transparency
initiatives, and updating and implementing the financial inclusion
and gender strategies remain essential.

“Directors welcomed the continued improvement in the quality and
availability of economic statistics and encouraged further efforts
to address remaining gaps.”

The IMF also commended the progress in implementing the Economic
Recovery and Growth Plan, including the start of a convergence in
foreign exchange windows, tight monetary policy, improvements in
tax administration, and significant strides in improving the
business environment.