The Senate has initiated the process to amend the Central Bank of Nigeria (CBN) Act of 2007. One of the proposed changes is to extend the Governor’s term from five years, which can be renewed, to a single six-year term.
Additionally, there is a proposal to increase the recapitalization requirement for commercial banks from N100 billion to N1 trillion.
The Senate is pushing for significant reforms in the organization, administration, and functions of the CBN through a bill that was read for the second time during a session on Tuesday. The Committee on Banking, Insurance, and Other Financial Institutions also reviewed nominees for the Board of Directors of the bank.
A proposal to implement a six-year single term for the CBN Governor, Deputy Governors, and members of the Board of Directors was included in a bill aimed at amending the CBN Act of 2007. This bill was sponsored by Senator Adetokunbo Abiru (APC Lagos East) in his role as the chairman of the Senate Committee on Banking, Insurance, and Other Financial Institutions.
During his presentation of the bill, Senator Abiru, along with 41 other committee members, highlighted that the purpose of the proposed six-year single term was to minimize political interference in the roles of the CBN Governor, Deputy Governors, and Board of Directors.
“The bill proposes to amend this provision to provide a single non-renewal term of six years for the Governor and the Deputy Governors.
“This is the practice adopted by many independent banks such as the US Federal Reserve and the European Central Bank, where their Chief Executive Officers serve only one non-renewable term.
“Empirical evidence shows that a single term for the members of the Executive and Board members of central banks helps to reduce political influence on monetary policy decisions and the time inconsistency problem associated with non-independent central banks,” he said.
Abiru stated in the bill that the N1 trillion recapitalization proposal aims to require banks to have a paid-up capital of N1 trillion, which can be increased with government approval through transfers from the General Reserve Fund or other approved means after consultation with the board.
Additionally, the bill proposes the establishment of a Coordinating Committee for Monetary and Fiscal Policies, as the current act does not include provisions for this.
He said, “The current Act made no provision for coordination of monetary and fiscal policies which is the reason that monetary policies of the bank often diverge from fiscal policies to the detriment of the economy.
“To this end, the bill introduces, for the purpose of coordination of the monetary, fiscal and trade policies, a Coordinating Committee for Monetary and Fiscal Policies.
“The functions of the committee shall include: setting internally consistent targets of monetary and fiscal policies that are conducive to controlling inflation and promoting financial conditions for sustainable economic growth; applying caps to any fiscal deficit at a level that can be financed without having recourse to direct monetary financing from the bank, etc.
The bill aims to control the issuance of Ways and Means by the CBN to the Federal Government.
Currently, the CBN Act allows the CBN to provide temporary advances to the Federal Government to cover unexpected budget revenue shortfalls with no specific time frame.However, the proposed law suggests that these advances should not exceed five percent of the previous year’s actual revenue of the Federal Government and must be repaid by the end of the financial year in which they were granted.
“In order to firm up this provision and prevent a repeat of the recent experience in which the Bank’s Ways and Means have fueled inflation and significantly distorted economic management, the Bill proposes the following: any such direct advance to the Government should not exceed 10% of average government actual revenues during the preceding three years.
“For the purpose of determining the government’s actual government revenue, proceeds from asset sales shall be excluded to avoid capturing revenues from exceptional items.
“Such temporary loans should be repaid in full within three months from the date it is made available. This is consistent with global practice.
“The current provision, which stipulates before the end of the fiscal year is prone to abuse as it creates a window for the government to obtain overdrafts from the bank in January and wait until December to make repayment.
“In order to minimize default risk, any sum which becomes outstanding at the end of the expiration of the credit period should be held against and recovered from the proportion of the Federal Government’s FAAC Receipts,” he explained.
The individuals screened on Tuesday for the Board of CBN Directors were Mr. Robert Agbede, Mr. Ado Yakubu Wanka, and Mrs. Muslimat Olanike Aliyu.
