Nigeria: CBN: Driving Economic Growth Through Financial Market Stability

The year 2024 will be remembered as a challenging one for Nigerians, marked by a 34.6% inflation rate that strained the socio-economic well-being of citizens. Rising costs of living left many families struggling to afford necessities like food. Amid these difficulties, the Central Bank of Nigeria (CBN) implemented significant monetary and financial reforms to stabilize the economy and bolster financial confidence.

Combating Inflation Through Monetary Policy

In response to soaring inflation, the CBN’s Monetary Policy Committee (MPC) took decisive action, raising the Monetary Policy Rate (MPR) multiple times throughout the year—from 26.25% in May to 27.50% by December. These rate hikes were aimed at curbing liquidity in the system, a critical step toward managing inflation.

CBN Governor Olayemi Cardoso highlighted the positive outcomes of these measures during the Chartered Institute of Bankers of Nigeria (CIBN) Annual Dinner. “Our efforts to curb inflation, coupled with foreign exchange market reforms, have spurred economic growth,” he noted. The economy grew by 3.46% in Q3 2024, up from 2.54% in the same period in 2023, driven by robust growth in the telecoms and financial services sectors. Improved oil production and domestic refining also contributed to this recovery.

However, the agriculture and manufacturing sectors faced setbacks due to high borrowing costs, underlining the urgent need for targeted support to stimulate growth, reduce inflation, and create jobs.

Building Economic Confidence and Stability

Under its current leadership, the CBN has prioritized policies to foster economic confidence, attract foreign investment, and support business growth. Enhanced transparency and foreign exchange (FX) market reforms have been pivotal, including the unification of FX markets and the clearance of $7 billion in FX forward obligations.

These reforms reduced FX volatility and boosted external reserves to $44.06 billion by October 2024. Additionally, the introduction of the Electronic Foreign Exchange Matching System (EFEMS) streamlined FX transactions, curbing speculation and enhancing market efficiency.

Fitch Ratings upgraded Nigeria’s economic outlook from stable to positive in May 2024, citing improved financial stability and policy effectiveness. This progress reflects the CBN’s unwavering commitment to strengthening the financial system and creating a favorable environment for investment.

Regulatory Reforms and Innovations

The CBN introduced a range of measures to enhance financial stability and regulatory compliance:

• Bank Licensing and Expansion: One non-operating financial holding company and two regional commercial banks were approved, alongside 16 new microfinance banks.
• BDC Regulation: New licensing requirements and a franchise model were implemented to enhance oversight of Bureau de Change (BDC) operations.
• Consumer Protection: Updated consumer protection regulations addressed emerging fintech risks and improved standards for financial institutions.

Cybersecurity and Anti-Fraud Measures

Recognizing the growing importance of cybersecurity, the CBN adopted ISO 27001 standards, introduced a Risk-Based Cybersecurity Framework, and implemented advanced anti-money laundering (AML) measures. Initiatives like linking Tier 1 accounts to BVNs or NINs and stricter Know Your Customer (KYC) requirements reinforced the integrity of the financial system.

Supporting Financial Inclusion and Stability

The CBN took several steps to improve financial inclusion and system resilience:

• Dormant Accounts Management: Guidelines for dormant accounts and unclaimed balances aimed to reunite funds with rightful owners while standardizing management practices.
• Cash Deposit Incentives: Processing fees on cash deposits exceeding N500,000 for individuals and N3,000,000 for corporates were suspended, encouraging greater cash flow into the banking system.

Strengthening Governance and Market Integrity

To enhance governance in the financial sector, the CBN intervened in management issues at three banks, revoked the license of one national bank, and facilitated a merger to ensure stability. Measures like prohibiting the distribution of unearned income, including FX revaluation gains, further reinforced market integrity and transparency.

A Positive Outlook for Nigeria

The CBN’s concerted efforts to stabilize the financial system have yielded tangible results, from taming inflation momentum to enhancing Nigeria’s global financial reputation. Governor Cardoso emphasized the importance of economic diversification, collaboration with fiscal authorities, and fostering growth across key sectors.

Through its bold reforms, regulatory advancements, and unwavering commitment to financial stability, the CBN has laid a strong foundation for Nigeria’s economic recovery and long-term growth. These initiatives are driving progress and inspiring confidence in a resilient financial future for the nation.