Finance

 

The Central Bank of Nigeria: An Agent of Financial Stability

 

By Chinenyeze J. Amaechi, LLB, B.L, LLM (Manchester), PhD (Manchester), Lecturer, Faculty of Law, Imo State University, P.M.B. 2000, Owerri, Imo State, Nigeria. E-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.

 

Abstract

This article examines the Central Bank of Nigeria (CBN) and its position as the apex regulator for banks and other financial institutions in Nigeria. Particularly, the article focuses on examining how effective the institution is in realizing its core objective of promoting a sound financial system and maintaining monetary and price stability. To achieve its objectives, it uses the provisions as contained within the Central Bank of Nigeria Act (1991) 2007 and the Bank and Other Financial Institutions Act 1991 (as amended). This article argues that despite the statutory powers of the CBN, Nigeria experienced different episodes of financial crisis. The article argues that some of the factors which have not enabled the CBN realize its core objectives, are, political interference, a high rate of non-performing loans, corruption and inconsistent monetary policies. One of the recommendations of this article is lower interest rates to enable banks to channel fund to the real sector of the economy. The article observes that the government interferes with exchange rate by selling dollar at a cheap rate to some businessmen while others are left at the mercies of market forces. As such, it suggests a consistent exchange rate policy that is dependent on the forces of demand and supply. A consistent exchange rate policy will reduce the discrepancy between the official rate of dollar and the parallel market rate. It also suggests that employment of the CBN staff and appointment of its officials should be strictly based on expertise and professionalism. Arguably, these suggestions will strengthen the position of the CBN as an agent of financial stability in Nigeria.

Keywords: Central Bank of Nigeria, Federal Ministry of Finance, Nigeria Deposit Insurance Corporation, Banks, financial stability.

 

Introduction

This article examines the position of the CBN as the apex institution and its responsibility to ensure financial stability. The CBN is the apex regulatory authority of the Nigerian financial system and it came into existence in 1959 after the promulgation of the Central Bank of Nigeria Act, 1958. By virtue of Section 2, some of the core objectives of the CBN include formulating and implementing monetary policy and the promotion of a sound financial system in Nigeria.[1]Also, the CBN determines interest rates and manages the foreign reserve of Nigeria.[2]The CBN operates a dual role as both a regulator and supervisor, and in this capacity, it sets the standard expected of banks and other financial institutions.[3] In this capacity also, the provisions of BOFIA and the CBN Act also provide that the Governor of the CBN, with the approval of the Board of Directors, may withdraw, vary or revoke the licence of any financial institution, if it has insufficient assets to meet its liabilities.[4]Given the important role played by the CBN in the regulation and monitoring of banks, arguably, the position of the financial system, and any problems that it may encounter, may be attributed to the effectiveness of the CBN in carrying out its statutory duty. 

Thus, the health of financial institutions in Nigeria at any point in time revolves around the activities of the CBN. Furthermore, other factors that militate against ability of the CBN to carry out its regulatory and supervisory duties are political interference, high rate of non-performing loans, corruption and inconsistent monetary policies.

In analysing the issues raised, the article is structured into five sections. The first section is the introduction. The second section examines the establishment and origin of the CBN. The section provides an overview of the CBN and its development till date. It explores the evolvement of the law underpinning the institution. The third section explores the role and statutory powers of the CBN in maintaining financial stability in Nigeria. Particularly, the focus is on the extent to which it has been able to realize its statutory objectives. This section also examines the impact of other institutions such as the Nigeria Deposit Insurance Corporation (NDIC) and the Federal Ministry of Finance (FMF)on achieving the goal of financial stability in Nigeria. The fourth section examines factors which may have been a hindrance to achieving the objectives of the CBN. Some of the factors examined in this section are political interference, high rate of non-performing loans in banks, corruption and inconsistent monetary policies. The final section concludes the article and proffers recommendations.

 

The Establishment and Origin of the CBN.

The establishment of the CBN can be traced to 1892 to 1952, when the colonial administration made enquiry as to banking practice in Nigeria.[5]The Paton Report that emanated from this enquiry led to the First Banking Ordinance of 1952.[6]This Ordinance set in motion the promulgation of the Central Bank Act, 1958, which led to the eventual establishment of the CBN in 1959. At the early stage of Nigeria’s independence, the legal framework under which the CBN and banks operate is the CBN Act, 1958(as amended) and the Banking Decree of 1969 (as amended).[7]The introduction of the Structural Adjustment Program (SAP) in 1986, with its economic liberalization and deregulation measures, led to the increment in the number of banks in Nigeria.[8]The economic liberalization introduced by SAP exposed the weakness of the CBN in a relatively free market economy. In order to equip the CBN with the necessary tools to better regulate and supervise banks, the Banking Decree of 1969 was repealed with Banks and other Institutions (BOFI) Decree 24 and 25 of 1991.[9]It is worth knowing that the essence of BOFI was to strengthen the CBN by granting it autonomy over the regulation and supervision of banks. For instance, sections 30 to 38 of the Decree gave the CBN the power to amongst other things supervise and examine banks and also, the power to revoke the licence of banks or assume control of failing banks.[10]

The 1991 BOFI Decree was amended in 1997 to enhance the responsibility of the CBN. After the amendment, BOFI increased the responsibility of the CBN to include the “supervision of all commercial, merchant, people’s and community banks, finance companies, discount houses, mortgage institutions, bureau de change and development banks”.[11]However, the CBN suffered a setback in 1997 as a result of the promulgation of the CBN (amendment) Decree No 3and BOFI (amendment) Decree No 4. The two Decrees tampered with the autonomy of the CBN and placed it under the supervision of the Ministry of Finance.[12]This anomaly was corrected by the CBN (amendment) Decree No.38 of 1998, which repealed the CBN Decree No.3, and BOFI(amendment) Decree No.38 of 1998 which repealed BOFI(amendment) Decree No.4 of 1997. BOFI (amendment) Decree No.40 of 1999 further enhanced the power of the CBN by giving the CBN governor the power to remove the manager or officer of a failing bank or other financial institutions.[13]

The CBN Act, 2007 took a step further in strengthening the independence of the CBN.[14] In the first instance, section 1(3) of the Act[15] states that the main objective of the CBN is to promote stability and continuity in economic management and that the CBN shall be independent in the discharge of its duties. The Act also widened the objects of the CBN to include ensuring sound monetary policy, price stability and to promote a sound financial system in Nigeria.[16]Thus, the next section looks at the role of the CBN in the financial stability of Nigeria.

 

The Role of the CBN in the Financial Stability of Nigeria.

Financial stability is defined as:

A condition whereby the financial system is able to withstand shocks without giving way to cumulative processes, which impair the allocation of savings to investment opportunities and the processing of payments in the economy.[17]

However, this definition is criticized as it is argued that Soviet Union from 1917 to 1991 did not allocate savings efficiently and yet it did not suffer any financial instability.[18] Another definition of financial stability which focuses on the characteristics of a stable system sees financial stable system as one that “dampens rather than amplifies shocks”.[19]A definition of financial stability which focuses on causes of financial instability sees instability as emanating from the risks “economic agents” take that make it impossible for them to repay loans in full.[20]In other words, the inability of economic agents to repay loans exposes banks to losses which may make banks use depositors’ money to cushion the effect of the losses, or recall loans and stop lending. Arguably, the reaction of banks in this instance may trigger financial instability. Furthermore, the Central Bank of Bahrain defines financial stability as “a situation where the financial system is able to function prudently, efficiently and uninterrupted, even in the face of shocks”.[21]Financial instability is also defined as “a situation where financial institutions find themselves in a position where they are unable to do what they normally do in normal situation”.[22]This article leans towards the last two definitions of financial instability to better understand what financial stability means. To this extent, when banks do not give loans to the real sector of the economy, unemployment rate rises and businesses are closed, the country in question is said to be unstable.

The 2008 financial crisis reignited the need for central banks to play active role in achieving financial stability. During the crisis, central banks were relied on to ensure “continuous flow of credit” that was needed to propel the economy.[23] The CBN Act provides the CBN with the responsibility of maintaining financial stability in Nigeria.[24]In order to respond to the financial crisis experienced in 2008, the CBN placed a number of measures with the aim of reducing the Monetary Policy Rate (MPR), reducing cash reserve and liquidity ratio and promoting accountability and transparency in banks.[25]

It is argued that “the faltering development process of the Nigerian economy and the need for professionalism in economic policy formulation and management” justifies the need for the CBN to be involved in macro-economic policy matters.[26]For instance,

In a boom, tighter monetary policy (increase in interest rates) will reduce aggregate demand and thus lower the increase in short run output. In a recession, looser monetary policy (lower interest rates) may increase equilibrium output.[27]

By virtue of section 2(a) of the Act, the CBN is responsible for ensuring monetary and price stability.[28]  However, central bank’s reliance on monetary policy alone may not be sufficient to achieve financial stability. Thus, “fiscal policy can be used as an instrument to complement monetary policy in order to achieve stability in the economy”.[29] For instance, during economic expansion, the government can increase taxation, cut spending and adopt “tightening” fiscal policy in order to stabilize the economy.[30]Also, during depression, the government can cut tax and increase spending in order to stabilize the economy.[31]It can rightly be said that it takes professionalism atcentral banks to understand the relationship between monetary and fiscal policies and to know when a hybrid of both is needed to achieve financial stability.This is because lapses on the part of central banks are capable of destabilising the economy. For instance, it has been argued that the CBN contributed to Nigeria financial crises of 1990 and 2008[32] and has contributed to the current economic instability in Nigeria.[33]

It should be noted that there are other institutions that assist the CBN in ensuring the financial stability of Nigeria. Such institutions include the FMF, which is responsible for, inter alia, formulating policies on fiscal and monetary matters. It is stated that one of the causes of economic crisis in Nigeria is “policy disharmony between the CBN and the Finance Ministry”.[34]Thus, in order to achieve financial stability, it is important that the CBN and the FMF have a cordial working relationship. It is only when this cordial relationship exists that both institutions will be able to formulate sound monetary and fiscal policies that can achieve financial and economic stability in Nigeria. Another institution that works with the CBN in achieving financial stability in Nigeria is the NDIC. The NDIC was established in 1988 and its core responsibility is to ensure adequate regulation and supervision of deposit taking institutions. It advises the CBN on the liquidation of distressed banks and ensures that their assets are properly managed until their final liquidation.[35]Thus, the NDIC enhances confidence in banks by “guaranteeing the payments to depositors in case of imminent or actual suspension of payments by insured institutions”.[36] By guaranteeing depositors of the safety of their deposits, the NDIC ensures that crisis in one bank is not transmitted to other banks. Having examined the role of the CBN in enhancing financial stability in Nigeria, it is necessary to explore factors that may hinder the CBN in achieving financial instability.

 

Factors that may militate against the CBN’s ability to achieve financial stability.

Recurring economic and financial crisis in Nigeria may be evidence that the CBN has not always been successful in its mandate of achieving financial stability. Thus, this section explores the factors that may hinder the CBN from achieving financial stability in Nigeria.

Political Interference

The phrase ‘political interference’ does not have any specific connotation. Its meaning is better understood by looking at what various institutions term as political interference. It has been argued that a pattern of political interference could be a “tendency to see overseas posts as rewards for loyalty not talent”.[37] It has also been said to be when “the influence of the head of the department in the administration of its affairs, or the formation of its policy, is overshadowed by others”.[38]The American College of Obstetricians and Gynaecologists sees political interference as where “politicians are pursuing unprecedented number of measures inappropriately interfering in the patient-physician relationship and legislating the practice of medicine”.[39]In the educations sector, it is argued that “scholars should have the freedom to teach or communicate ideas or facts including those that are inconvenient to external political groups or to authorities without being targeted for repression, job loss or imprisonment”.[40]In other words, the moment scholars are prevented from enjoying this freedom by political authorities, it can be said that there is political interference in their affairs. In terms of the correlation to the CBN, political interference refers to a situation where the CBN officials are prevented from relying strictly on their initiatives and expertise in carrying out their responsibilities. This political interference can come in the form of appointment of key officials or interference in the decision making of the CBN.

A good example to exemplify the impact of political inferences can be drawn from the decision of the CBN to revoke the banking licence and subsequently close Savannah Bank Plc.[41]In 2002, the then CBN Governor issued a notice to revoke the banking licence of the bank. The rationale for the revocation of the licence was based on the bank’s insufficient assets to meet liabilities and noncompliance with obligations as imposed by BOFIA. It should be noted that this was despite the NDICs attempts to save the bank, given the alleged financial health challenges.[42]Both Savannah bank and the CBN were engaged in litigation for almost seven years, with the CBN, basing their claim under s 53(1) BOFIA.[43] The Court of Appeal formulated two specific issues for determination:

1.     Whether there was a conflict between the provisions of the Constitution of the Federal Republic of Nigeria (CFRN)[44] and the provisions of BOFIA[45] which could make the latter unconstitutional;

2.     Whether ‘bad faith’ was established during the course of the CBN’s decision to revoke Savannah Bank’s licence.

The Court of Appeal concluded that the revocation of the bank’s licence was in bad faith, given that the there was evidence to demonstrate that the financial health of the bank had improved. [46]

On the issue of bad faith, the Court of Appeal went further to define bad faith as:

involves(ing) actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation not prompted by an honest mistake as to one’s right or duties but some interested and sinister motive.[47]

It should be noted that while the bank was successful in challenging the actions of the CBN, they have not, till date, resumed banking business. This indicates that while clearly, the powers of the CBN can be challenged, there is a strong likelihood that banks would not want to engage in this as it will be detrimental to the reputation of banks. Also, it will likely result in a lack of investor confidence and in turn, may invariably affect stability of banks.

The CBN “in its current form” is said to have no board.[48]This is due the fact that appointment to key positions at the CBN is based on political affiliations and not on the individual’s expertise. As such, people who have little or no knowledge of economics and finance find themselves in positions where they decide on the policies that will achieve financial and economic stability. Also, the decision of the CBN to peg the Nigerian currency at 197-199 per dollar was based on presidential directives.[49]This singular act by the CBN on the directive of the presidency increased the cost of doing business in Nigeria and led to cash outflow that crippled the Nigerian economy.[50]In fact, a former deputy governor of the CBN argued that political interference in the operation of the CBN is one the factors that led to the current economic crisis in Nigeria.[51]It is worth knowing that this economic crisis affected banks negatively and led to loss of thousands of bank jobs and closure of bank branches.[52]

 

 

High Rate of Non-Performing Loans

Non-performing loan is “a loan on which the borrower is not making interest payment or paying the principal”.[53] It has also been defined as “the sum of borrowed money upon which the debtor has not made his scheduled payments for at least 90 days”.[54]In other words, non-performing loans are loans that are not being serviced, that is, neither the interest nor the principal is being paid. The extent to which non-performing loans affect financial stability cannot be overemphasized. This is because high rate of non-performing loans in a country signifies that the banks in that country are not healthy and as such, they may find it difficult to give loans to the real sector of the economy. High rate of non-performing loans in a country could also mean that the central bank of that country has not been efficient in supervising banks since there are loan limits which banks must not exceed and conditions that must be fulfilled before issuing loans.

Banks are mandated to keep the ratio of non-performing loans to total credit below 5% but evidence shows that in Nigeria, the ratio rose from 5.0% in June 2015 to 11.5% and 14.0% in June 2016 and December 2016 respectively.[55] In fact, the non-performing loan ratio of First Bank of Nigeria increased from 4.1% in 2015 to 23% in 2016.[56]Arguably, the reason for the rise in the rate of non-performing loans is due to high rate of inflation, negative GDP growth and the depreciation of the naira.[57]

It has been argued that the rise of non-performing loans in a country is a “salient feature of financial crises”.[58]It is also stated that banks grant fewer loans when credit risk is high.[59]This work argues that when non-performing loans are high, the rate of default increases while the tendency for banks to lose both principal and interest becomes high thus, leading to high rate of credit risk. A study has shown a positive relationship between non-performing loans and economic growth in Nigeria.[60]That is to say that high rate of non-performing loans leads to decline in the economic growth of Nigeria, while the reverse is the case when the rate of non-performing loans is low. All these go to show the need for the CBN to be efficient in supervising banks so that they do not exceed their loan limits and drag the economy to crisis.

 

Corruption

The term corruption does not have any specific connotation. It has been defined as “a dishonest or illegal behaviour especially by powerful people”.[61]It is also said to be a “dishonest and fraudulent conduct by those in power, typically involving bribery”.[62]The Transparency International sees corruption as “an abuse of entrusted power for personal gain”.[63]Corruption may take the shape of a number of forms. This may range from fraud to extortion, lobbying, embezzlement, collusion, political, grand and petty corruption.[64]To this extent, the focus of this work is political corruption and it has been defined as the “manipulation of policies, institutions and rules of procedure in the allocation of resources…”[65] In other words, the focus here is on situations where the CBN officials manipulate policies in order to achieve their selfish interest or the interest of their political masters, and how this in turn impact on financial stability.For instance, one of the reasons why the CBN has been unable to adopt flexible exchange rate is that most of the Bureau de Change operating in Nigeria are owned by senior CBN officials.[66]Another instance is the controversy surrounding the inability of Etisalat Nigeria, a Nigerian Telecommunication Company, to repay $1.2bn loan given to it by a consortium of Nigerian banks.[67]When Etisalat defaulted in repaying the loan, it requested that the loan be written off as non-performing loan, a request the banks rejected since Etisalat was viable. All attempts towards restructuring the loan were rejected by Etisalat and this compelled the banks to attempt to take over the Company. However, the banks were surprised when the CBN and the Nigerian Communication Commission (NCC) stepped in to prevent the banks from taking over the Company. In fact, the whole scenario led some banks to conclude that there was a sort of connivance between the CBN and Etisalat.[68]

The extent to which corruption can influence the decision of senior bank officials is captured succinctly by the former Governor of the CBN, when he commented that:

What we do know is that we have today, among those parading themselves as role models in society, people who profited from failed banks. Owners and managers who go on to become governors and senators…the owners and managers of banks, the rich borrowers and their clients in the political establishment are one and the same class of people…[69]

Consequently, the above observation demonstrates the extent to which corruption can play an integral role in the decision-making process and in turn, may become a substantial factor which leads to financial instability. The fact that it is possible for bank owners, managers and rich borrowers to potentially conduct their transactions outside the provisions of the CBN and BOFIA Acts, may illustrate that the CBN has the power to go outside of the scope of powers in terms of its prior duty to discharge regulation and supervision effectively. Arguably, these instances create an environment of uncertainty and may result in a loss of confidence in the banking sector. This may then discourage foreign investors and deny the country of the needed foreign direct investment.

 

 

Inconsistent Monetary Policies

Monetary policy is defined as “how central banks manage liquidity to create economic growth”.[70]It is also defined as

The macroeconomic policy laid down by the central bank (and) it involves management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.[71]

Monetary policy also refers to “actions taken by the central bank to regulate the value, supply and cost of money in the economy with a view to achieving government’s macroeconomic objectives.”[72]From the definitions of monetary policy above, it is glaring that it falls within the purview of central banks hence, the need to analyse CBN’s monetary policies and how they have impacted on financial stability.

In the first quarter of 2017, Gross Domestic Product (GDP) indicated that the Nigerian economy contracted by 0.52 percent, showing five consecutive quarters of contraction.[73] These five consecutive contractions are evidence of the extent to which high rate of inflation is inflicting injury on the Nigerian economy. Thus, it is necessary to examine what caused the high rate of inflation and its negative impact on the Nigerian economy. It has been argued that “foreign exchange policies impact positively and significantly on product prices”.[74] The reason behind this argument is that since Nigeria is import dependent, foreign exchange rate is more effective than monetary policy rate in controlling inflation in Nigeria.[75] The current high rate of inflation in the Nigerian economy can be traced to the activities of the CBN since the emergence of this current administration. In the first instance, even though the CBN stated that it would operate a market-driven currency system, it restricted access to dollars for importers of items it considered non-essential.[76]The CBN’s action increased the demand for dollars and created a wide margin between the official and parallel market rates in the foreign exchange market.[77]

One of the decisions of the CBN that is militating against financial stability in Nigeria is direct funding of the Federal Government by the CBN.[78]Direct funding of the Federal Government is “twentyfold higher” than what the law permits.[79]Direct funding of the Federal Government, in addition to a high interest rate make it impossible for the private sector to get the needed loans that would have impacted positively on the Nigeria economy.[80] Also, the decision of the CBN to devalue the naira even after the Federal Government promised not to do so caused more harm than good. The CBN devalued naira in June 2016 and this weakened naira to the extent that businessmen need between N300 and N350 to buy a dollar.[81]An analysis of the impact of currency devaluation onthe Nigerian economy shows that devaluation has negative and insignificant impact on the Nigerian economy on the short-run but leads to increase in the prices of goods and services in the long-run.[82]It has also been stated that the import-driven nature of Nigeria makes devaluation not to be attractive.[83]This is due to the increase in the cost of imported goods while local goods are not sufficient to cater for the needs of the masses. It is worth knowing that one of the consequences of inconsistent policies of the CBN is the increment in unemployment rate from 10.4% in quarter four of 2015 to 14.2% in quarter four of 2016 and 18.8% in the third quarter of 2017.[84] Arguably, instead of achieving financial and economic stability, the CBN has by its policies, succeeded in contributing to the instability being experienced in Nigeria.

 

Conclusion and Recommendations.

This article has explored the CBN as an agent of financial stability for the Nigerian banking system. It has articulated that the institution is responsible for supervising and monitoring financial institution in addition to promoting financial stability. It may therefore be argued that the progress and trajectory of the economy is contingent on the CBN making adequate policy and regulatory decisions.

The introductory section of this article has provided a historical account of the Nigerian banking environment, and this article has gone further to elucidate the gaps.  It has also gone further to examine the banking crisis of 2008, which led to restructuring of banks within the system. Given the impact of the crisis, it is clear that in order to provide an adequate regulatory environment, it is necessary for the institution to be equipped with appropriate individuals in order to be able to put in place sound strategic policies and improve the CBNs position as an agent of financial stability.

The article went further to identify important institutions which must, arguably, work in hand with the CBN to achieve the overall objective of financial stability. The article observed that political interference, high rate of non-performing loans, corruption and inconsistent monetary policies are some of the factors militating against the ability of the CBN to achieve financial stability in Nigeria.

Thus, the article recommends lower interest rates to enable banks to channel fund to the real sector of the economy. Arguably, lower interest rate will increase aggregate demand and create employment in the country. It also suggests a consistent exchange rate policy that is dependent on the forces of demand and supply. A situation where the government interferes by selling dollar at a cheap rate to some businessmen while others are left at the mercies of market forces cannot achieve financial stability in Nigeria. Also, a consistent exchange rate policy will reduce the discrepancy between the official rate of dollar and the parallel market rate. Employment of the CBN staff and appointment of its officials should be strictly based on expertise and professionalism, while they are allowed to carry out their responsibilities without any form of interference. Arguably, these suggestions will strengthen the CBN as an agent of financial stability in Nigeria.

 

 

 

 

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Constitution of the Federal Republic of Nigeria, 1999.

 

 

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Banks and Other Financial Institutions Act 1991 (as amended), Revised Edition (Laws of the Federation of Nigeria), Act.

The Central Bank of Nigeria Act, 2007.

 

 

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Levinus Nwabughiogu, ‘Economy: Buhari angry with CBN for Naira Devaluation’, Vanguard News Paper, (28  June 2016) <https://www.vanguardngr.com/2016/06/economy-buhari-angry-cbn-naira-devaluation-says-policy-not-helpful/> accessed 24 January 2018

Maria Balgova and Alexander Plekhanov, ‘The Economic Impact of Reducing Non-performing Loans’, VOX, (18 November 2016) <http://voxeu.org/article/economic-impact-reducing-non-performing-loans> accessed 11 January 2018.

Meristem, ‘Impact of Naira Devaluation on Equity Investments’, Meristem, (2015), 1-11 <http://www.meristem.com.ng/uploads/files/Equity%20Research%20Report/Special%20Report%20Equities%20Market%20(Feb%202015).pdf>  accessed 24 January 2018.

Merriam Webster, ‘Corruption’, Merriam Webster Dictionary, (1828) <https://www.merriam-webster.com/dictionary/corruption>  accessed 15 January 2018.

Maggie Fick, ‘Nigeria Economy Suffers First Annual Contraction in 25 years’, Financial Times, (28 February 2017) <https://www.ft.com/content/12698e60-fdb4-11e6-8d8e-a5e3738f9ae4> accessed 24 January 2018.

National Bureau of Statistics, ‘Nigeria’s Labour Force Increases to 85m in Q3’, Vanguard Newspaper, (22 December 2017) <https://www.vanguardngr.com/2017/12/nigerias-labour-force-increases-85m-q3-nbs/> accessed 24 January 2018.

NDIC, ‘Deposit Insurance’, (2011) <http://ndic.gov.ng/deposit-insurance/#tab-1-6> accessed 31 December 2017.

Oyetunji Abioye, ‘Banks to close Branches as Recession Bites Harder’, Punch Newspaper, (20 September 2016) <http://punchng.com/banks-close-branches-recession-bites-hard/>  accessed 5 January 2018.

Obinna Chima, ‘Monetary Policy as Gamble?’, Thisday Newspaper, (6 September 2017) <https://www.thisdaylive.com/index.php/2017/09/06/monetary-policy-as-gamble/> accessed 23 January 2018.

Oxford Dictionary, ‘Corruption’, Oxford University Press, (2018) <https://en.oxforddictionaries.com/definition/corruption> accessed 15 January 2018.

Peter Obiora, ‘NDIC Hands Over Savannah Bank’, Proshare, (9 June 2009) <https://www.proshareng.com/news/Monetary%20Policy/NDIC-hands-over-Savannah-Bank-/6748> accessed 5 January 2018.

Post Nigeria, ‘Nigeria’s Central Bank Governor caught up in fresh Corruption’, Post-Nigeria, (7 June 2016) <http://www.post-nigeria.com/nigerias-central-bank-governor-caught-up-in-fresh-corruption/> accessed 16 January 2018.

Premium Times, ‘Banks seek EFCC Investigation of Etisalat Nigeria over $1.2bn Loan’, Premium Times, (21 June 2017) <https://www.premiumtimesng.com/news/headlines/234695-banks-seek-efcc-investigation-etisalat-nigeria-1-2-billion-loan.html> accessed 16 January 2018.

Ray Echebiri and Alex Ekemenah, ‘Role of Central Bank of Nigeria in the Management of Nigeria’s Economy’, Proshare, (10 November 2013) <https://www.proshareng.com/news/People/Role-of-Central-Bank-of-Nigeria-in-the-Management-of-Nigeria-s-Economy-/21468> accessed 23 December 2017.

Sahara Reporters, ‘Loan Scandal: Central Bank of Nigeria Browbeats Banks as Etisalat proposes paying only 10% of bad Loan’, Sahara Reporters, (22 June 2017) <https://www.google.com.ng/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&cad=rja&uact=8&ved=0ahUKEwjI1syPx9vYAhVaGsAKHWyyDuMQFgg_MAM&url=http%3A%2F%2Fsaharareporters.com%2F2017%2F06%2F22%2Floan-scandal-central-bank-nigeri-browbeats-banks-etisalat-proposes-paying-only-10-bad&usg=AOvVaw3_E_bxWf4E3H2di2-1tpfe> accessed 16 January 2018.

The American College of Obstetricians and Gynecologists, ‘Political Interference’, (2017) <https://www.acog.org/About-ACOG/ACOG-Departments/State-Legislative-Activities/Political-Interference> accessed 4 January 2018.

The Central Bank of Nigeria, ‘History of the CBN’, <https://www.cbn.gov.ng/AboutCBN/history.asp> accessed 10 December 2017.

The Economic Times, ‘Definition of ‘Monetary Policy’’, The Economic Times, (2018) <https://economictimes.indiatimes.com/definition/monetary-policy> accessed 17 January 2018.

The Federal Reserve Bank of San Francisco, ‘What is the difference between Fiscal and Monetary Policy?’, (2002), 1-3, <https://www.frbsf.org/education/publications/doctor-econ/2002/march/fiscal-monetary-policy/> accessed 27 December 2017.

Tommaso Padoa-Schioppa, ‘Central Banks and Financial Stability’, European Central Bank, (2003) <https://www.ecb.europa.eu/press/key/date/2003/html/sp030707.en.html> accessed 21 December 2017.

Transparency International, ‘Anti-Corruption Glossary’, Transparency International, (2017), <https://www.transparency.org/glossary> accessed 15 January 2018.

Transparency International, ‘Political Corruption’, Transparency International, (2017) <https://www.transparency.org/glossary/term/political_corruption> accessed 15 January 2018.

Transparency International, ‘What is Corruption’, Transparency International, (2017) <https://www.transparency.org/what-is-corruption> accessed 15 January 2018.

United States Department of State, ‘Political Interference and Corruption’ <https://history.state.gov/departmenthistory/short-history/interference> accessed 4 January 2018.

Vanguard, ‘Central Bank in a Dilemma over Nigeria’, Vanguard Newspaper, (31 October 2016), <https://www.vanguardngr.com/2016/10/central-bank-dilemma-nigerian-banks/> accessed 28 December 2017.

Victor K. Owusu, ‘Summary of Political Interference in the Administration of the University Education, Winneba’, (2017), <https://www.modernghana.com/sports/804766/summary-of-political-interference-in-the-administration-of-t.html> accessed 4 January 2018.

Zambia Business Times, ‘Political Interference is Threatening Autonomy of Central Banks in Africa’s Key Economies’, Zambia Business Times, (17 September 2016) <https://zambiabusinesstimes.com/2016/09/17/political-interference-is-threatening-autonomy-of-central-banks-in-africas-key-economies/>  accessed 5 January 2018.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



* Chinenyeze J. Amaechi, LLB, B.L, LLM (Manchester), PhD (Manchester), Lecturer, Faculty of Law, Imo State University, Nigeria.

[1] The Central Bank of Nigeria Act, 2007. See also the Banks and Other Financial Institutions Act 1991 (as amended), Revised Edition (Laws of the Federation of Nigeria), Act, 2007 s. 1.

[2] CBN Act, 2007 s. 24.

[3] Banks and Other Financial Institutions Act 1991 (as amended) ss. 31-42, Op.cit.

[4] Ibid, ss. 5, 12 & 14.

[5] The Central Bank of Nigeria, ‘History of the CBN’, available at https://www.cbn.gov.ng/AboutCBN/history.asp, accessed on 10/12/2017.

[6] Ibid.

[7] Ibid.

[8] Ibid.

[9] Ibid.

[10] Bank and other Financial Institution Decree, 1991.

[11] C. T. Onyemenam, ‘The Impact of Banking Regulation and Supervision in Nigeria Commercial Banks’, (2014), available at http://articlesng.com/impact-banking-regulation-supervision-nigeria-commercial-banks/, accessed on 10/22/17.

[12] The Central Bank of Nigeria, ‘History of the CBN’, Op.cit.

[13] BOFI (amendment) Decree No.40 of 1999 s. 35(2)(c).

[14] This Act repealed the CBN Act, 1991.

[15] CBN Act, 2007.

[16] Ibid, s. 2.

[17] T. Padoa-Schioppa, ‘Central Banks and Financial Stability’, European Central Bank, (2003), available at: https://www.ecb.europa.eu/press/key/date/2003/html/sp030707.en.html, accessed on 21/12/2017.

[18] W. Allen and W. Geoffrey, ‘Defining and Achieving Financial Stability’, (2006), 2 (2) Journal of Financial Stability, 152-172, 154

[19] ibid, 155.

[20] J. Driffill, et al., ‘Monetary Policy and Financial Stability: what Role for Future Markets?’, (2006), 2 (1) , Journal of Financial Stability, 95-112, 98.

[21] A. Abayomi and A. S. Mohammed, ‘What is Financial Stability’, (2008), 1-26, at 16, available at: http://www.cbb.gov.bh/assets/FSP/What%20is%20Financial%20Stability.pdf, accessed on 21/12/2017.

[22] C. J. Amaechi, ‘Exploring the Interrelationship between the Economic Policies of a State and Financial Stability: a Focus on Nigeria’, (2016), 2(2),  Port Harcourt Journal of Business Law, 467-484, 479.

[23] R. Echebiri and A. Ekemenah, ‘Role of Central Bank of Nigeria in the Management of Nigeria’s Economy’, November 10, 2013, Proshare, available at: https://www.proshareng.com/news/People/Role-of-Central-Bank-of-Nigeria-in-the-Management-of-Nigeria-s-Economy-/21468, accessed on 23/12/2017.

[24] CBN Act, 2007 s. 2. See also Banks and Other Financial Institutions Act 1991 (as amended), Op.cit. s.1(2).

[25] Central Bank of Nigeria, ‘Financial Stability Report January 2009 – June 2010’, (2010), 1-83, at 39, available at: http://www.cbn.gov.ng/out/2010/publications/bsd/financial%20stability%20final%20to%20printer%20-%2015102010.pdf, accessed on 23/12/2017.

[26] R. Echebiri and A. Ekemenah, Op.cit.

[27] A. Alain, Economics, (Causeway Press, Liverpool, 5th edn., 2010,), at 248.

[28] CBN Act, 2007.

[29] C. J. Amaechi, ‘Examination of the Effectiveness of Micro and Macro Prudential Policies in achieving Bank Stability with special focus on Basel III’, (2015), 6 (2) , The Gravitas Review of Business and Property Law, 22-46, 28.

[30] The Federal Reserve Bank of San Francisco, ‘What is the difference between Fiscal and Monetary Policy?’, (2002), 1-3, available at: https://www.frbsf.org/education/publications/doctor-econ/2002/march/fiscal-monetary-policy/, accessed on 27/12/2017.

[31] D. Troy and E. Leeper, ‘Monetart-Fiscal Policy Interactions and Fiscal Stimulus’, (2009), 1-39, available at: http://www.nber.org/papers/w15133.pdf, accessed on 27/12/2017.

[32] Vanguard, ‘Central Bank in a Dilemma over Nigeria’, Vanguard Newspaper, October 31, 2016, available at: https://www.vanguardngr.com/2016/10/central-bank-dilemma-nigerian-banks/, accessed on 28/12/2017.

[33] A. Abdulaziz, ‘Nigeria Central Bank endangers the Economy as Bank illegally funnels huge Cash to fund broken Federal Government’, Premium Times, September 25, 2017, available at: https://www.premiumtimesng.com/news/headlines/244088-exclusive-nigeria-central-bank-endangers-economy-bank-illegally-funnels-huge-cash-fund-broke-federal-govt.html, accessed on 24/01/2018.

[34] E. Anaeto, ‘Policy issues: CBN, Finance Ministry Rift Deepens’, Vanguard Newspaper, March 23, 2017, available at: https://www.vanguardngr.com/2017/03/policy-issues-rift-deepens-cbn-finance-ministry/, accessed on 30/12/2017.

[35] O.O. Afiemo, ‘The Nigerian Money Market’, Central Bank of Nigeria, 2016, 1-15, at 5, available at: https://www.cbn.gov.ng/out/2016/mpd/understanding%20monetary%20policy%20series%20no%2027.pdf, accessed on 30/12/2017. Also note that liquidation only occurs after the CBN has revoked the licence (BOFIA 1991(as amended) s. 39). The NDIC automatically becomes the liquidator once the licence has been revoked. Note also that the NDIC may recommend that a licence is revoked if it is unable to resuscitate the bank. See BOFIA 1991(as amended) ss. 35 38.

[36] Nigerian Deposit Insurance Corporation Act, 2006 s. 2(1)(C). By virtue of of the NDIC Act, 2006, s. 20(1)  the maximum insurance coverage is N200, 000 for deposit-taking banks and N100, 000 for other deposit-taking financial institutions. However, this maximum has been increased by virtue of s. 20(2) of the same Act to N500, 000 and N200, 000 respectively. See NDIC, ‘Deposit Insurance’, 2011, available at: http://ndic.gov.ng/deposit-insurance/#tab-1-6, accessed on 31/12/2017.

[37] United States Department of State, ‘Political Interference and Corruption’, available at: https://history.state.gov/departmenthistory/short-history/interference, accessed on 04/01/2018.

[38] Ibid.

[39] The American College of Obstetricians and Gynecologists, ‘Political Interference’, 2017, available at: https://www.acog.org/About-ACOG/ACOG-Departments/State-Legislative-Activities/Political-Interference, accessed on 04/01/2018.

[40] V.K. Owusu, ‘Summary of Political Interference in the Administration of the University Education, Winneba’, (2017), available at: https://www.modernghana.com/sports/804766/summary-of-political-interference-in-the-administration-of-t.html, accessed on 04/01/2018.

[41] Savannah Bank of Nigeria Plc v. C.B.N. (2009) 6NWLR (Pt.1137) 237 C.A.

[42] P. Obiora, ‘NDIC Hands Over Savannah Bank’, Proshare, June 9, 2009, available at: https://www.proshareng.com/news/Monetary%20Policy/NDIC-hands-over-Savannah-Bank-/6748, accessed on 05/01/2018.

[43] Bank and other Financial Institutions Act, 1991 (as amended). Op.cit. See also Savannah Bank of Nigeria Plc v. C.B.N. supra at 314, paras. A-C.

[44] CFRN 1999, s.4 (8).

[45] BOFIA 2004, s. 53 (1).

[46] Savannah Bank of Nigeria Plc v. C.B.N. supra, at 293-295, paras. G-F; 297, paras. B-D.

[47] Ibid, at 292, paras. D-G; 295,paras. G-F.

[48] I. Onuba, ‘Political Interference in CBN Operations led to Recession-Moghalu’,  Punch Newspaper, December 1, 2017, available at: http://punchng.com/political-interference-in-cbn-operations-led-to-recession-moghalu/, accessed on 05/01/2018.

[49] Zambia Business Times, ‘Political Interference is Threatening Autonomy of Central Banks in Africa’s Key Economies’, Zambia Business Times, September 17, 2016, available at: https://zambiabusinesstimes.com/2016/09/17/political-interference-is-threatening-autonomy-of-central-banks-in-africas-key-economies/, accessed on 05/01/2018.

[50] Ibid.

[51] I. Onuba, Op.cit.

[52] O. Abioye, ‘Banks to close Branches as Recession Bites Harder’, Punch Newspaper, September 20, 2016, available at: http://punchng.com/banks-close-branches-recession-bites-hard/, accessed on 05/01/2018.

[53]Financial Times, ‘Definition of non-performing loan NPL’, Financial Times, available at: http://lexicon.ft.com/Term?term=non_performing-loan--NPL, accessed on 06/01/2018.

[54]Investopedia, ‘Nonperforming Loan-NPL’, Investopedia, available at: https://www.investopedia.com/terms/n/nonperformingloan.asp, accessed on 06/01/2018.

[55] Bloomberg, ‘Banks Bad Loans Rise above CBN Limit’, Daily Trust Newspaper,  October 5, 2016, available at  https://www.dailytrust.com.ng/news/business/banks-bad-loans-rise-above-cbn-limit/165254.html, accessed on 11/01/2018 and CBN, ‘Financial Stability Report December 2016’, (2017), 1-71, at 40, available at: https://www.cbn.gov.ng/out/2017/fprd/fsr%20december%202016%20(2).pdf, accessed on 11/01/2018.

[56] Ibid.

[57] CBN, ‘Financial Stability Report December 2016’, Op.cit.

[58] M. Balgova and A. Plekhanov, ‘The Economic Impact of Reducing Non-performing Loans’, VOX, November 18, 2016, available at: http://voxeu.org/article/economic-impact-reducing-non-performing-loans, accessed on 11/01/2018

[59] D. Cucinelli, ‘The Impact of Non-performing Loans on Bank Lending Behaviour: Evidence from the Italian Banking Sector’, (2015), 8(16), Eurasian Journal of Business and Economics, 59-71, at 67.

[60] C.N. Patricia-Nezieanya and C.D. Izuchukwu, ‘The Implication of Non-performing Loans on Nigerian Economic Growth (1992-2009)’, (2014), 6(1), IOSR Journal of Business and Management, 6-11, at 10-11.

[61] Merriam Webster, ‘Corruption’, Merriam Webster Dictionary, 1828, available at: https://www.merriam-webster.com/dictionary/corruption, accessed on 15/01/2018.

[62] Oxford Dictionary, ‘Corruption’, Oxford University Press, 2018, available at: https://en.oxforddictionaries.com/definition/corruption, accessed on 15/01/2018.

[63] Transparency International, ‘What is Corruption’, Transparency International, 2017, available at: https://www.transparency.org/what-is-corruption, accessed on 15/01/2018

[64] Transparency International, ‘Anti-Corruption Glossary’, Transparency International, 2017, available at: https://www.transparency.org/glossary, accessed on 15/01/2018.

[65] Transparency International, ‘Political Corruption’, Transparency International, 2017, available at: https://www.transparency.org/glossary/term/political_corruption, accessed on 15/01/2018.

[66] Post Nigeria, ‘Nigeria’s Central Bank Governor caught up in fresh Corruption’, Post-Nigeria, June 7, 2016, available at: http://www.post-nigeria.com/nigerias-central-bank-governor-caught-up-in-fresh-corruption/, accessed on 16/01/2018.

[67] Premium Times, ‘Banks seek EFCC Investigation of Etisalat Nigeria over $1.2bn Loan’, Premium Times, June 21, 2017, available at: https://www.premiumtimesng.com/news/headlines/234695-banks-seek-efcc-investigation-etisalat-nigeria-1-2-billion-loan.html, accessed on 16/01/2018.

[69] S. L. Sanusi, ‘The Nigerian Banking Industry: What went wrong and the way forward’, (2010), 49, BIS Review, 1-17, at 2 & 3, available at: https://www.bis.org/review/r100419c.pdf, accessed on 16/01/2018.

[70] K. Amadeo, ‘What is Monetary Policy? Objectives, Types and Tools’, The Balance, October 6, 2017, available at: https://www.thebalance.com/what-is-monetary-policy-objectives-types-and-tools-3305867, accessed on 17/01/2018.

[71] The Economic Times, ‘Definition of ‘Monetary Policy’’, The Economic Times, 2018, available at: https://economictimes.indiatimes.com/definition/monetary-policy, accessed on 17/01/2018.

[72] Central Bank of Nigeria, ‘What is Monetary Policy’, Central Bank of Nigeria Monetary Policy Series, 2006, available at: https://www.cbn.gov.ng/Out/EduSeries/Series1.pdf, accessed on 17/01/2018.

[73] O. Chima, ‘Monetary Policy as Gamble?’, Thisday Newspaper, September 6, 2017, available at: https://www.thisdaylive.com/index.php/2017/09/06/monetary-policy-as-gamble/, accessed on 23/01/2018.

[74] E. Oseni, ‘Achieving Price Stability in Nigeria: Monetary Policy Rate Approach vs. Foreign Exchange Rate Approach’, (2013), 3(2), Australian Journal of Business and Management Research, 32-43, at 37.

[75]Ibid.

[76] M. Fick, ‘Nigeria Economy Suffers First Annual Contraction in 25 years’, Financial Times, February 28, 2017, available at: https://www.ft.com/content/12698e60-fdb4-11e6-8d8e-a5e3738f9ae4, accessed on 24/01/2018

[77] A. Ekpo, ‘Better Macro-economic Management, Key to Nigeria’s Recovery’, Proshare, January 24, 2017, available at: https://www.proshareng.com/news/NIGERIA%20ECONOMY/Better-Macro-economic-management-key-to-Nigeria-s-recovery-Prof-Akpan-Ekpo/33566, accessed on 24/01/2018.

[78] A. Abdulaziz, Op.cit.

[79] CBN Act, 2007 s.38(1) & (2).  See also A. Abdulaziz, Ibid.

[80] E.J. Noko, ‘Economic Recession in Nigeria: Causes and Soluation’, Education Hub, September 10, 2017, available at: http://educacinfo.com/economic-recession-nigeria/, accessed on 24/01/2018.

[81] L. Nwabughiogu, ‘Economy: Buhari angry with CBN for Naira Devaluation’, Vanguard News Paper, June 28, 2016, available at: https://www.vanguardngr.com/2016/06/economy-buhari-angry-cbn-naira-devaluation-says-policy-not-helpful/, accessed on 24/01/2018

[82] A. Momodu and F. Akani, ‘Impact of Currency Devaluation on Economic Growth of Nigeria’, (2016), 5(1)(16), International Journal of Arts and Humanities, 151-163, at 160 - 163.

[83] Meristem, ‘Impact of Naira Devaluation on Equity Investments’, Meristem, 2015, 1-11, at 3, available at: http://www.meristem.com.ng/uploads/files/Equity%20Research%20Report/Special%20Report%20Equities%20Market%20(Feb%202015).pdf, accessed on 24/01/2018.

[84] National Bureau of Statistics, ‘Nigeria’s Labour Force Increases to 85m in Q3’, Vanguard Newspaper, December 22, 2017, available at: https://www.vanguardngr.com/2017/12/nigerias-labour-force-increases-85m-q3-nbs/, accessed on 24/01/2018.