In this third part of Businessday’s investors series on Looking in from the outside, Publisher Frank Aigbogun reports on the question and answer session held with investors by Central Bank Governor Godwin Emefiele. It is part of the feedback from a weeklong market development programme conducted in London by leaders of FMDQ OTC exchange.
Central Bank Governor, Godwin Emefiele’s question and answer session with investors and bankers, was easily one of the high points of this year’s ICBC Standard Bank, London Africa investors’ conference. I needed to come out of the scheduled meetings being held between leaders of FMDQ OTC exchange, to be at the Q & A. As a journalist, I was keen to observe and understand investors evolving attitude towards investing in Nigeria.
Venue was a hall inside the well-apportioned London headquarters of ICBC Standard Bank on Gresham Street. Thirty minutes before the session started, investors began to take their seats inside the hall and it was wise they did for when it began, all seats had been occupied and several investors had to stand at the back of the hall. The huge interest, I was told by the bankers, must be taken for a sign of the improving investor sentiments about Africa’s largest economy. This time last year, not many of the investors wanted to be told anything about Nigeria.
Just as the session began, CBN Governor, Emefiele invited Bola Onadele, Managing Director of FMDQ to join him, since some of the questions might require comments or additional response from him.
The questions came quick and fast. It was the anniversary of the futures window and not surprisingly, some questions were about how the CBN expects this window to evolve, especially given that FX rates were converging and with liquidity on the spot market improving.
In his initial comments, the Governor made it clear that he saw no place for AMCON 2.0 but he would welcome private investors coming in to buy the non-performing loans of banks.
He said he was happy to hear investors make positive comments about the Investors and Exporters FX window, which the Central Bank introduced nine weeks ago.
When asked if the apex bank had a timeline for the convergence of the FX rates, the governor said he did not think it wise to force a convergence, especially as the investors themselves prefer a market determined process.
The governor was then asked if he would not buckle, should oil price fall below $30 a barrel, or if production disruptions happen in the Niger Delta, severely impairing oil dollar flows to Nigeria. In particular, he was asked how would he respond in relation to the autonomy of the rate setting mechanism of the I & E window, should there be a significant threat to Nigeria’s dollar receipts from oil.
Said Emefiele, “should all of this happen, the Central Bank would not interfere with the market. We believe we have demonstrated our desire to allow that market operate freely because when it started, the rate began at N410 to the dollar and we did not interfere. So if what you say happens and rates go up to N410 to the dollar, we will not interfere. I assure you that oil price drop will not push the CBN to move in to disrupt the market.”
The investors wanted to know if there was still any backlog of unmet demand for FX and his response was that rather than call this a backlog, perhaps it should be delayed demand, as no one would stop people from going to the I & E window to source their FX requirement at any time.
One of the investors wanted to know why the CBN was extending unlimited credit to the Federal Government and the governor answered this by saying that what ever credit the government was getting, was well within the limit of the government’s holding with the CBN under the TSA regime. For those who sought further explanation on this, the governor promised to send them more information by email.
The governor said he did not see any chance soon, of loosening the grip on liquidity. He made it clear that on the MPC, he had only one vote but he senses there is consensus for the continuation of the tight monetary stance for sometime to come.
Perhaps the toughest questions were related to the non-performing loan position of Nigerian banks and their capital adequacy.
Even on this, the governor seemed relaxed as he took the questions, which came in quick succession. First, the governor said he was unhappy about the rising NPLs and that the apex bank was working with the banks to ameliorate the situation, while insisting that it had not gotten out of control. He said, as is the case with Nigeria, whenever you adjust the currency, you should expect a spike in NPL.
One investor dug deeper, seeking to know the exchange rate at which the CBN expects the banks to book their loan books – N305, N325 or the autonomous I & E rate.
There was a heated debate when it came to this and it seemed one area where the CBN will do more communication in the near future.
I had opportunity a day later, to seek reactions from the investors at subsequent meetings with them. The investors were impressed that the governor did not parry the questions. However, some thought the governor appeared too relaxed, a clear sign that they were disappointed when they did not see a combative governor.
