Currency Swap Deal: CBN Lacks Transparency—Vitafoam Boss

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By Dipo Olowookere

Managing Director of Vitafoam Nigeria Plc, Mr Taiwo Adeniyi, has accused the Central Bank of Nigeria (CBN) of not being transparent in its dealings with stakeholders in the industry.

Mr Adeniyi was quoted by Daily Sun as saying that the apex bank sometimes shows partiality when carrying out its policies.

He was reacting to the announcement made by the CBN Governor, Mr Godwin Emefiele, of the bank’s readiness to buy Commercial Paper (CP) from large companies in order to lend to them at single digit interest rate.

According to Daily Sun, some companies were still waiting for the policy document from the CBN on this.

When asked for his opinion of the issue, the Vitafoam chief said, “When they (CBN) are taking such decisions, they have certain companies they are working with. So, they know what they are doing. When they are taking such decisions they know which organizations can issue commercial paper.

“They know the people they want to use it to help. Even the Yuan they are talking about; has it started? Is it operational?

“The news has gone all over the world that we are doing currency swap. Who and who are benefiting from it? They should tell us.

“Even the commercial banks that know how to operate it, you will hear them say they are still waiting for CBN.

“And yet, it is in the news that they have started the currency swap. So, when they are taking decisions, they know the companies they are targeting to help. So they just push it under the guise of every one of us,” Mr Adeniyi was quoted as saying.

But reacting to the allegation of being biased and not transparent, spokesman of the central bank, Mr Isaac Okorafor, when he contacted by Business Post, said the apex bank has always been plain in its operations.

“Which aspect of the deal (currency swap) does he feel we are not transparent? Is it in the amount of the deal or the rate or the trading?

“On the former, anyone doubting us can crosscheck with the PBoC. On the latter, trading is open and transparent and dealers are allowed to quote whatever they like.

“However as in the rules of the market, anyone who makes an unreasonable quote will be punished by the extent of his or her deviation from the rate that we feel should clear the market.

“It is done to ensure that speculation is put at bare. We have just started this process and with time, we will perfect it,” Mr Okorafor told Business Post in a text message.

Also commenting on the intention of the CBN to buy CP from firm, Managing Director of Afrinvest Securities Limited, Mr Ayodeji Ebo, said the development was a form of quantitative easing and advised the apex bank to come up with structures that will make SMEs participate in it.

“This is a form of quantitative easing. The only reservation is that this will be mainly enjoyed by the blue chip companies due to the SMES inability to issue Commercial Paper. The CBN may need to come up with structures that will enable the SMEs take part in the quantitative easing as this segment is more critical to the growth of the economy,” he said.

The CBN Governor had said at the end of the last Monetary Policy Committee (MPC) meeting in Abuja that the apex bank would buy commercial paper from large companies to lend to them at single digit interest rate.

“The MPC deliberated extensively on what can be done to encourage banks to lend to the private sector because of the numbers we looked at during the main meeting. The MPC was concerned that credit to the real sector was sliding and there was need to incentivise the banks to lend to the private sector.

“At this meeting, we saw improvement which was gratifying, but we feel we must still do what we want to do. In order to achieve lowering interest rate especially to agriculture and manufacturing sectors, we will encourage large corporates to issue CP into the market. In order to complement the banks, we expect that the CP will come in single-digit of 9 percent or below 10 percent, and for a long tenor, as high as five years or seven years, with a two-year moratorium, and for specific purposes.

“If the CBN sees those kinds of notes in the market, we will complement the efforts of the banks through any mechanism to support that by lending to that corporate at that single-digit rate. It is not meant to be in competition with the banks, it is meant to complement their efforts. We want to see that our objective to see to it that we achieve lower interest rate of a single digit can come through this means.

“If a bank lends such money for new projects or plant expansion and it is verifiable, not for refinancing, a project for seven years inclusive of two years moratorium at 9 percent. That bank providing those evidence and verified by the CBN, we will go into bank’s Cash Reserve Ratio and we will release cash of the equivalent sum to that bank at zero cost. In which case, that bank will earn its spread of 9 per cent of that money.

“We feel this is novel. It is something that we should give a chance. In the past, we had reduced CRR and released liquidity into the market, but the liquidity was not channelled into the high-impact, employment-generating sectors and productivity sectors of the economy.

“That is why we feel we should approach it through this means. We believe this will work. We will, from time to time, monitor the level of liquidity in the market and we feel that rather than the banks using their monies to buy Treasury Bills, they can put money into these sectors. And we will provide the liquidity to fund these transactions, as long as they meet these specified terms and conditions.”

A commercial paper (CP) is an unconditional promise by a person to pay to the order of another person a certain sum at a future date.

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