NDIC, finance correspondents take aim at recession

The Nigeria Deposit Insurance Corporation (NDIC) recently organized a workshop for Business Editors and Finance Correspondents Association of Nigeria (FICAN) in Kaduna, with the theme, “Economic Recession and the Nigerian Banking Sector: Opportunities, Challenges, and the Way Forward.” The workshop was to tackling the current economic recession being experienced in the country.

The Principal Consultant of B. Adedipe Associates, Dr. Biodun Adedipe, in his presentation on “Impact of Economic Recession on the Nigerian Banking System,” observed that the sources of government revenues and foreign exchange earnings are not broad enough.

The finance expert said growth was robust until the end of 2014, averaging an annual 6.4 percent from 2001 to 2014. But he said in 2015, it grew by 2.79 per cent, dragging the 15- year average down to 6.16 per cent. Adedipe pointed out that growth was, however, not accompanied by jobs so it was not –inclusive and extended inequality resulting in dismal development indices.

“This is the best time to get ready for the impending economic recovery and stop whining about the recession. The signs are already there, no doubt. The recession is not all bleak; if it has a message that eludes most people, it is that recovery is inevitable. What you do then matters more than what you do during a recession,” he said.

The acting Director, Trade, and Exchange, Central Bank of Nigeria (CBN), Wutrika Dauda Gotring’ spoke on the “Challenges of Foreign Exchange Management” in his presentation. He said Foreign Exchange rate is one of the most important means through which a country’s relative level of economic health is determined. A country’s foreign exchange rate provides a window to its economic stability, which is why it is constantly watched and analyzed.

The presentation, he said, was to highlight the experience of the CBN in foreign exchange under recession and what the bank was doing to ensure stability and favourable trade flows in Nigeria.

According to him, investors can still retain confidence in a currency, even if the economy is in recession depending on prospects for renewed growth and underlying competitiveness.

“The sustenance of flexibility in the Foreign Exchange (FX) market remains the most viable option for Nigeria in the light of dwindling external reserves and the motivation to drive exports and support import substitution consumption,” he said.

He listed the way forward for Nigeria to include diversification of the economy, increased investment in agriculture, mining and solid minerals, increased investment in infrastructure to lower cost of doing business, enhancement of local manufacturing capacity and import substitution. Others include policy consistency that would encourage capital flows and promote local production, fiscal discipline, increased implementation of the cashless initiatives and closer collaboration of the CBN with fiscal authorities.

The CBN’s Director of Research, Policy and International Relations, Mohammed Umar,’s examined the “Implication of Economic Recession to Deposit Insurance System (DIS) in Nigeria.”

He said that there is no disputing the fact that prolonged economic recession occasioned by the collapse of the global oil market in 2007 and the attendant sharp fall in foreign exchange earnings adversely affected economic growth and development globally. He stated that the Nigerian economy has been hard hit by the current sharp decline in oil prices, and by extension decline in revenue. Umar pointed out that it is a well-known fact that the oil provides the bulk of government revenues and accounts for over 90 percent of Nigeria’s exports in value.

“The economy slipped into a recession in the second half of 2016 because of foreign currency shortages, a sharp reduction in power generation, and vandalism of the oil installations, lower oil production, and weak investor confidence,” he said.

“It is important to note that economic recession does not imply economic stagnation, this is because the recession is just a cycle it comes and goes and will end at a point in time. What is important is our ability as policy makers and stakeholders to develop an appropriate response mechanism to ensure that it does not last and also reduce the likely impact it will have on the Deposit Insurance System, the financial sector and the economy in general,” he stated.

Umar charged the NDIC and other regulatory agencies to be more vigilant in terms of regulation and supervision in order to address any problem that could arise as a result of the consequences of recession on the insured institutions.

“In order to address the likely issues of reduced collection of premium payable by the insured institutions and by extension the growth of its insured funds as a result of economic downturn and the fluctuations in the treasury bill rates, the NDIC needs to begin to explore other investment avenues/channels in which to invest its funds,” he said.

The Director further stated that the government needed to remain focused on its efforts at diversifying the economy and other policies put in place to ensure quick recovery from the current recession. When that is done, the economic environment, according to him, will be conducive for the banks to operate safely which reduces that risk of failure and hence negative consequences on the NDIC.

“There should be more intensive and synergetic collaborations between and among the safety net participants who incidentally are also members of the Financial Services Regulation Coordinating Committee. The activities of the committee through regular meetings as well as subcommittees and working groups should be intensified. Considering the inter- connectedness of the sub-sectors in the system, such collaboration should include cooperation with regards to issues of smooth information sharing, capacity building for all regulators and greater coordination of regulatory activities in the financial system”.

This, he said, could lead to efficiency in activities of all the members, greater ability to take prompt decisions as well as better position all the regulators to tackle any challenge that may arise in the various sub-sectors resulting from the downturn being experienced.

The Director maintained that this would, therefore, encourage continued stability of the entire system as well as confidence in the system despite recession being experienced.

The presentation of NDIC’s Director, Special Institutions, Joshua Etopidiok, was on the “Effect of Falling Oil Prices on the banking sector performance in Nigeria (MFBs/PMBs Perspectives).” He said Nigeria is experiencing stagflation and cost- push inflation which has been caused by an increase in the cost of production due to the devaluation of the Naira occasioned by the drop in the price of crude oil. “Since Microfinance Banks (MFBs) and Primary Mortgage Banks (PMBs), according to him, operate within the same economic environment, they are not insulated from the challenge.” The MFBs were not left out among those hard hit by the effect of the crash on the oil prices as it has affected their operation negatively.

“Slow growth of the financial inclusion indicator, dwindling liquidity, declining solvency (capital adequacy ratio), reduction in advances portfolio, declining volume of deposit liabilities, and job losses in the microfinance banks are all effect of the crash on the oil prices,” he said.

The Director, Bank Examination of the NDIC, Adetayo Adeleke, made a presentation on “Refocusing Banking Supervision in Nigeria in an era of economic recession.” He said the underpinning for banking system supervision is inextricably linked to the economic cycle characterized by Bubble and Burst. Each of them, he said, has the asymmetric impact on supervision.

The bubble according to him has a profound impact because of the tendencies to ignore the trail risk, and the pretence that the bubble will not burst.

He, however, stated that the current economic crisis also confirmed that bubble may not necessarily originate from the financial system. The current economic crisis which has its root in oil price slide has resulted to crystallization of exchange rate risk and credit risk (in particular) on the balance sheet of banks.

“Managing the economic recession: The role of the press” was the focus of the paper presented by the President of FICAN, Babajide  Komolafe. He said journalists should tell the truth about the impact of the recession on individuals, businesses and the society at large. So also the opportunities offered by the economic recession for individuals, businesses and government to make necessary corrections in the way we live, the way we allocate resources, the way policies we need to reverse and the ones we need to introduce.

He charged the media to tell the truth about public opinion, about the workability and effectiveness of whatever policies, measures that government wants to introduce to address the economic recession. “We should tell the truth about everything that can and will help to lead to the necessary adjustments and policies that will facilitate economic recovery,” he said.