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Beyond some crucial
first steps, the necessity for the regulator to define its message as
narrowly as possible, and keep to the message through the execution
phase, remains a major requirement for the success of the Central Bank
of Nigeria’s (CBN) reform of the financial services sector.

A sense that the
central bank knows what it is about is necessary if the aim is to
restore the markets’ confidence in the financial services sector to
pre-crisis level, at least. And the appropriate market responses are
vital if – the necessary lapses permitting – the bank’s intervention in
the economy is to have the desired result. This requirement is as
important for the task of linking deposit taking institutions’ retail
rates to the policy rate, as it is for reforming the domestic financial
system and returning the banking system to good health.

However, the
extensive deterioration in domestic financial conditions has provided a
poor background against which to judge the CBN’s work. This is of
course not about the central bank’s culpability for the poor state of
the country’s financial services sector. You do not need too much
hindsight to recall that the sector was already in freefall, long
before the CBN discovered its present reforming zeal.

Nonetheless, the
implosion of the market for bank credit has hindered the regulator’s
ability to maintain domestic financial stability. We have seen it worry
about the humongous liquidity in the financial system, only to see its
intervention in support of continued interbank transactions create more
of such liquidity. With any luck, another such panacea, the Asset
Management Corporation (AMCON), in addition to its beneficial effects
on the economy, will exacerbate the financial sector’s current battle
with low-earning funds.

The “credit crunch”
has had other less than helpful effects too: on urban unemployment;
final domestic demand; and national output growth. Until recently, all
of these have had the tendency to divert the CBN from its core task. It
was a relief therefore, when some months back, the rate-setting
committee of the bank made a clear distinction between domestic
responsibility for credit supply (the remit of monetary policy), and
the responsibility for ensuring that the domestic demand for credit
keeps ticking (fiscal policy, and government’s continuing pursuit of
reforms to the economy).

After all is said,
and not much is done, how does all of these sit with the central bank’s
recent claim that it has commenced an 18-month plan to address the
contraction of the credit supply pipeline in the nation’s financial
institutions? According to Kingsley Moghalu, the CBN’s Deputy Governor
in charge of Financial System Stability, the newly discovered process
will help allay investors’ concern over the banks’ credit allocation
process. If it knew of this nostrum all this while, why did the central
bank wait until the credit-creation infrastructure collapsed, before it
bestirred itself? And why wait 18 months before this process yields
results?

There is a certain
noxious, albeit familiar, odour to this new claim by the central bank!
Strange isn’t it, that after having described the process of
stimulating credit demand in the country as the sole preserve of
government, including issues with the domestic cost of doing business,
the CBN should want to turn that logic on its head, by accepting that
it has a magic wand that will allow us witness “significant growth in
credit in the banks” only because the reforms embarked on by it were
“in consultation with the stakeholders and players in the banking
sector”.

We do not need the
Power Holding Company of Nigeria to work again. We do not need
government to resume reforms to the domestic economy, including passing
on some of the service functions that it currently discharges most
inefficiently to the private sector. No! All that matters is that the
CBN has its reform architecture right, and in 18 months time, the
credit taps will open once again. “To who?” would have been such a nice
question to ask Mr Kingsley. And it is a wonder that his audience at
the Financial Institutions Training Centre function where he made these
assertions did not enquire thus.

One other query, how much of the central bank’s newly discovered
competence is a pandering to suggestions from the executive arm of
government, keen to deflect attention away from its competence deficits
in an election year? The 18 months implementation horizon appears very
significant within this context.