1. The monetary policy framework which has the corridor interest rate system as an important component is hereby restored. Consequently, the Monetary Policy Rate (MPR) would be reduced from 8.00 per cent to 6.00 per cent per annum. The corridor of interest rates would be +/- 200 basis points, with the rate on the standing lending facility at 8.00 per cent and the rate on the standing deposit facility at 4.00 per cent.

2. In order to ensure that the inter-bank market is rendered efficient and to reduce counterparty credit risk, the CBN would provide a temporary guarantee from July 08 to March 31, 2010. The Bank would also impose a limit on the total volume of gross inter-bank loans extended to an individual institution. A guarantee fee will be charged if the guarantee crystallizes at 5 percentage points above the interest rate at which the loan was contracted.

3. Coinciding with (2) above and in order to foster financial stability, banks are expected to publish their accounts with sufficient disclosure to allow for risk assessment and analysis by creditors and investors by the end of March 2010.

4. In view of the fact that the high lending rates would not be consistent with the objectives of growth, inflation control and financial stability, the
CBN would encourage banks to bring down the lending rates in line with the economic realities. It is also important that the yield curve is normal with long term yield rates carrying reasonable premium over the short term market rates. The inter-bank foreign exchange market would be liberalized

5. completely with wDAS replacing the rDAS with a view to improving the supplies of foreign exchange in the economy.

You can download the communique and Sanusi’s remarks below:
Assessment of the Current Economic Situation - Lamido Sanusi (107)

However, in less than two weeks after the said Bankers’ Committee decision was made public, some banks have resumed the fierce competition for deposits by offering deposit rates in excess of the agreed maximum of 15 per cent per annum in order to entice depositors to move their deposits from one bank to the other.

To effectively deter and penalize actual violations of the Bankers’ Committee’s decision on maximum deposit rate, lending rate and other charges, the following sanctions shall, without prejudice to the provisions of Section 60 and 60A of BOFIA, 1991 as amended, be applied against erring banks.
i.  First Time Monetary penalty of N50 million and a letter of warning to the MD/CEO of the erring bank.
ii.  Second Time Suspension of the bank from accessing the RDAS and Class ‘A’ Bureau de Change window in addition to the fine of N50 million.
iii. Third Time Suspension of the MD/CEO, and all officials of the bank involved in the
breach.

You can read the memo here: [Download not found]

I have highlighted the major points of this paper and find it very instructive. The fact that neither the Ministry of Finance nor the CBN released statements to contradict this report lends credence to it.

On reading this article, there seems to be little communication between the Finance Ministry and the CBN.

Here is article:

Auditors raise alarm on Nigerian banks – “We doubt their state of health”

IF the verdict of a renowned auditing firm on Nigerian banks is true, then many depositors may soon be in trouble. The auditing firm, PriceWaterHouseCooper (PWC), on Tuesday gave a damning verdict about some Nigerian banks, saying they might not be as healthy as being portrayed by the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC).

The auditing firm, known for its uncompromising stand on financial matters, stated in Abuja that many of these banks were not actually healthy.

The renowned audit firm said in a statement on the global financial crisis and implications for Nigeria that some of the banks had already signaled interest in government’s intervention in their operational activities.

“As at the beginning of February 2009, none of the banks has publicly shown any signs of needing intervention. “However, in spite of positive financial statements, some of the banks have called for the intervention or part takeover by the government.

“Various industry commentators have reported that banks are struggling with non-performing facilities in excess of N300 billion to N400 billion,”the firm told the News Agency of Nigeria (NAN).

The PWC discussion paper, obtained from the Ministry of Finance by NAN, said that there had been concerns that the CBN’s assurances that the 23 banks in the country were liquid and operating well might not be entirely accurate.

“Western governments have taken stakes in banks in order to prevent their collapse. Whilst this has not yet happened in Nigeria, there is speculation that large underlying bad debts accumulated by banks could force government to intervene,” the PWC said.

According to PWC, banks in the country had all but stopped granting loans and credit terms had been cut to mere months and that their interest rates were among the highest in the world.

“In order to avoid government intervention in the event that bank balance sheets weakened, a second round of bank consolidation may still occur,” the PWC added.

The audit firm said that Nigeria’s reliance on oil and its falling price in the world market had exposed it to the vagaries of the global financial crisis, adding that “Oil prices recently fell to their lowest point in four years, having peaked at 147 dollars.

“As a result of the reduced prices, OPEC has instigated a reduction in quotas, through which Nigeria’s quota has been reduced by 18 per cent to 1.97 million barrels per day,” the PWC said.

Apart from dependence on oil, the PWC listed other areas of vulnerability to include reduction in global capital outflows, retrenchment of foreign investors towards familiarity and safety and Nigerians’ reliance on foreign investments.

On the capital market, the PWC said that the decreased investment levels caused a 46 per cent fall in the Nigerian All Share Index in 2008, partly driven by foreign divestment and exacerbated by a devaluing naira.

“Over the last year, foreign investors divested more than N1 billion from the Nigerian capital market, driven by the reduced availability of financing and concerns on liquidity.

“The Nigeria capital market lost N2 trillion in one month. Unsustainable capital borrowing and spending in 2007 helped drive Nigerian share prices to record highs.

‘’However, as investors began to see companies as overvalued, 2008 saw a severe cool-down in investing,’’ the PWC said. The audit firm added that the NSE lost N5 trillion market capitalisation in 2008 and in January 2009 alone, it dropped to a further N2 trillion.

“A confidence crisis in the Nigerian economy, coupled with prohibitive business environment, had caused international corporations with Nigerian operations to relocate to more sustainable and friendlier markets,‘’ the PWC said.

The devaluation of the naira over the last quarter, according to PWC, would further limit capital flows into the economy. The PWC said that there was the need for deeper cooperation between the Ministry of Finance and the 21 public institutions that work on the economy.

These institutions, it said, included the CBN, the NDIC, Securities and Exchange Commission (SEC) and the Debt Management Office (DMO), adding that they should work in harmony in handling the effects of the crisis.

“Co-operation between key stakeholders is important. However, existing links are highly bureaucratic, informal or inefficient resulting in poor management of the economy and slow response to the crisis,” the PWC said. The health of the commercial banks has been under the spotlight since last year, but the CBN and the NDIC had repeatedly given them a clean bill.

A commissioner at SEC, Mr. Charles Udora, heightened the suspicion when he disclosed a fortnight ago that the meltdown in the capital market was partly caused by the banks. Udora said that the banks sank more than N388 billion loan into the capital market, most of which had not been recovered. Quoting a report by Renaissance Capital, a Nigerian investment company, the PWC said that the country’s stocks were unlikely to recover this year, predicting a further fall in the All Share Index.