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In advance of the
third meeting this year of the central bank’s (CBN) rate-setting
committee (MPC), the quantity of tea taken in our banking halls has
gone up noticeably.

Arguably, the
supposedly rejuvenating qualities of this beverage, and the ungodly
hours that bankers are required to put in daily, could account for the
fact of its increased consumption. But bankers in the country today,
have more problems than this. The industry appears to have fallen in on
itself.

Aside from the
massive loan loss write-offs since August last year, rates in the money
market have nudged record lows on a daily basis. In part, this is
because the central bank’s most recent shot at bringing the industry’s
practices and philosophies up to scratch has made the traditional
haunts of banks’ wunderkinds (the capital market, the downstream sector
of the oil and gas industry, and the top-end of the build-to-own real
estate market) no longer attractive.

Surprisingly, a
much bigger part of the industry’s worries arises from the fact that
the central bank’s attempts to repair the damage to the financial
sector as part of its efforts to help a return to growth and the repair
of households’ balance sheets has had several adverse unintended
consequences.

Better governance
requirements, more robust risk management frameworks, and all of the
apex bank’s quantitative easing have not driven a recovery in the
industry’s intermediation function. Retail rates suggest a total
disinterestedness on the part of bankers with growing the liabilities
side of their balance sheets.

It is as if the
banks were telling deposit-rich segments of the economy to go away with
these deposits. At the same time, there ain’t much activity on the
asset side of the industry’s balance sheet. At this point, no one is
quite certain what the problem is. Nor for that matter what the
possible solutions might be.

Of course, having
taken a rap on the knuckles for immediate past excesses, the industry
is not minded to take risks at the margin anymore. So, one can
understand the reluctance to create speculative credits. But having
offered all manner of inducements and comfort arrangements in support
of a return to credit growth, the central bank ought now to be
concerned about the failure of banks to create meaningful credit in the
last two quarters.

So, what does the
apex bank do in addition to its existing policies? This is where I
think the increased tea drinking in the industry has more to do with
attempts by industry operatives to discern the monetary policy
trajectory through reading the tea leaves, than with the refreshment
offered by the beverage.

On this score, the
central bank has a lot to do still. It is increasingly useful to find
references in the central bank’s publications to the fact that owing to
current policies, inflation expectations in the domestic economy have
become properly anchored.

However, there are
good reasons to believe that there remains some confusion in the
economy about which of two things the apex bank should be addressing
its limited resources to. An independent monetary policy or a fixed
(managed) exchange rate policy? In the face of shocks to the economy in
the nature of recent events, which levers do the markets expect the CBN
to pull? And in which direction? Clarity on this would help to anchor
market expectations better than any declaration to the same effect
could.

But by far the
greatest need is for the central bank to restore the traditional
understanding of its functions. Under its immediate past governor, the
fervour with which the CBN took up the “Vision 20: 2020” thing created
the impression that single-handedly the apex bank could propel the
economy into the league of emerging economies.

The 2004
consolidation turned economic logic on its head. Bigger banks were now
to drive economic growth, rather than banks growing in response to the
needs of a growing economy. With all this focus on the financial
services sector’s capacity to grow the economy, the finance ministry
went to sleep.

Macroeconomic
policy, fiscal and monetary was in the CBN’s court. Truth is that as a
statement of policy nothing could be more wrong. To use an earthier
metaphor, to the extent that it is responsible for fiscal policy,
government has its foot on the economy’s accelerator. The apex bank, on
the other hand, applies the brakes.

Time for the MPC to help remind the economy of this relationship!