The Nigerian Senate is currently deliberating extensive reforms in the governance and operations of the Central Bank of Nigeria by proposing amendments to the CBN Act of 2007.
Among the proposed amendments are changes such as fixing the tenure of the apex bank’s governor to a single six-year term, as opposed to the renewable five-year term specified in the current act.
Additionally, the proposed amendments include a recapitalisation requirement for commercial banks, raising the threshold from the current N100 billion to N1 trillion, in line with the demands of President Bola Ahmed Tinubu’s envisioned N1 trillion Dollar economy.
These proposed changes were discussed during the Senate plenary on Tuesday, coinciding with the screening of nominees for the Board of Directors of the bank by the Committee on Banking, Insurance, and other Financial Institutions.
On Tuesday, members of the Board of CBN Directors screened included Mr. Robert Agbede, Mr. Ado Yakubu Wanka, and Mrs. Muslimat Olanike Aliyu.
The bill proposing these amendments was sponsored by Senator Adetokunbo Abiru (APC Lagos East), who serves as the Chairman of the Senate Committee on Banking, Insurance, and other Financial Institutions.
Senator Abiru, leading the debate on the bill co-sponsored by 41 other committee members, emphasised that the proposal for a single six-year term for the CBN Governor, Deputy Governors, and Board of Directors aims to reduce political influence on these positions.
“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 stated.
Regarding the N1 trillion recapitalization, Abiru stated in the bill that the proposal aims to stipulate that the paid-up capital of the bank shall be N1 trillion, with provisions for potential increases over time.
Such increases may be approved by the government, either through transfers from the General Reserve Fund or through other means, in consultation with the board.
The bill also proposes the creation of a Coordinating Committee for Monetary and Fiscal Policies, as the existing act lacks provisions for such coordination. Senator Abiru explained,
“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.”
He further elaborated that “the bill introduces the Coordinating Committee for Monetary and Fiscal Policies to facilitate coordination among monetary, fiscal, and trade policies for the benefit of the economy.”
“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 also aims to regulate the issuance of Ways and Means by the CBN to the Federal Government. Currently, the CBN Act empowers the CBN to provide temporary advances to the Federal Government to address unexpected shortfalls in budget revenue, without specifying a time frame.
However, the proposed law suggests that such 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 it was 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 fuelled 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 they are made available.
“This is consistent with global practice. The current provision, which stipulates repayment 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”