Bank CEOs urge reforms to check 'hot money' inflow

Nigerian bank executives yesterday urged the government to quickly pull through those structural reforms, particularly in the power and oil sector ,that would open up the economy, encourage long-term investment inflows and check influx of hot money into the system, which has remained challenging to the Central Bank of Nigeria (CBN).

The need to check the influx of portfolio investments, popularly known as ‘hot money’ and its attendant negative impact in the economy, was one of the key issues raised and discussed at their bankers’ committee meeting yesterday, where they also committed to devise means of lowering lending rates to small businesses.

The bank chiefs were of the view that if the needed structural reforms were effectively concluded, more investors, especially  long term investors, would be encouraged to commit their funds in the economy, which would then substantially discourage speculators who help drive hot money inflows.

“One of the issues discussed was the continued need for structural reforms in the country, with specific focus on the  power and oil and gas sectors. This is important because current inflows into the country are in the form of portfolio inflows, which are short term in nature. While these are important, as they bring in substantial liquidity into the market, they also exit at will.

“Therefore, the structural reforms will ensure that these monies that come into the country are not just short term money or hot money, but rather long money. The discussion was that we should try and have the structural reforms concluded in the power sector, oil industry, then we will begin to see flows migrate from short term to long term FDI,” Omar Hafeez, Managing Director, CitiBank said, while briefing on the outcome of the meeting.

But Ugochukwu Okorafor, CBN Director, Corporate Communications, told journalists that the apex bank has already flushed out a reasonable amount of these portfolio investments from  the system, with their sources being tracked on regular basis ,to forestall any negative impact in the system.
Okorafor could not confirm how much of these monies were still in circulation. He assured however, that there were enough external reserves to mitigate any unexpected shock from sudden withdrawal of such monies from the system.

Meanwhile, the Nigeria’s bank executives at the meeting pledged to reduce rates at which they lend money to the real sector, particularly the small, Micro and Small Enterprises in the country.

Alex Oti, Managing Director, Diamond Bank, said the bank CEOs had an extensive discussion on how their institutions can begin to support the real sector, the retail segment of the market, as well as the micro and small scale industries.

He acknowledged that these sectors had over the years been starved of funds and that the bankers’ decision to now support them buoys from their ability to reduce social tension by generating a lot of employment and empowering a lot of people.

And according to him, further discussions on the modalities would be held by the banks.

“Banks also discussed ways and means to reduce interest rate to these sectors of the economy generally. We had a lot of discussions and the decision that was taken by the bankers’ committee was that we would go back and sit down during our bankers’ retreat and come up with a strategy… So I assure that in a couple of weeks, we are going to come out with clear modalities on how this is going to happen,” Oti pledged.