The Central Bank of Nigeria (CBN), this year, implemented a series of interest rate hikes, raising the Monetary Policy Rate (MPR) from 26.25% in May to 27.50% by this month, to combat rising inflation and stabilise the economy. These measures, alongside foreign exchange reforms, boosted the nation’s GDP growth to 3.46% in Q3 2024, driven by resilience in the services sector and improved oil production. However, agriculture and manufacturing lagged behind, highlighting the need for targeted support to these critical sectors. Assistant Editor Nduka Chiejina looks at the developments
The year 2024 presented the Central Bank of Nigeria (CBN) with a formidable challenge: taming rampant inflation. In response, the CBN’s Monetary Policy Committee (MPC) embarked on an aggressive tightening cycle, culminating in a series of interest rate hikes. The journey began with a significant increase in May 2024, raising the Monetary Policy Rate (MPR) to 26.25%. This was followed by another 50-basis-point hike in July, bringing the MPR to 26.75%. The tightening continued unabated in September, with another 50-basis-point increase to 27.25%. Finally, at the last MPC meeting of the year, the rate was further increased to 27.50%.
These successive rate hikes underscore the MPC’s unwavering commitment to curbing inflationary pressures. The rationale behind these decisions stems from the recognition that rising prices erode purchasing power, stifle economic growth and exacerbate social inequalities. By increasing borrowing costs, the CBN aimed to dampen aggregate demand, thereby cooling inflationary pressures.
Expanding access and strengthening the financial system
Beyond monetary policy tightening, the CBN undertook several initiatives in 2024 aimed at strengthening the Nigerian financial system and expanding access to financial services for individuals and businesses. Under the banking sector expansion initiative, the CBN approved one new non-operating financial holding company, allowing for greater diversification and complexity within the banking sector. Additionally, one merchant bank successfully transitioned to a national commercial bank, signifying a vote of confidence in its operations and financial strength.
Two banks received “Approval-in-Principle” (AIPs) for regional commercial bank licences, while another received an AIP for a regional non-interest banking licence. This move aims to deepen financial inclusion in underserved regions by encouraging the establishment of regional banks better equipped to cater to the specific needs of local communities. The CBN recognised the crucial role of microfinance institutions in financial inclusion by licensing 16 new microfinance banks and re-licensed 53 previously revoked institutions. This action was intended to revitalise the microfinance sector and enhance access to credit for small businesses and low-income individuals. In addition, five new finance companies were granted operating licenses, further diversifying the financial landscape and providing alternative sources of financing for businesses and consumers.
In November 2023, the CBN announced a new directive requiring banks to meet higher capital thresholds by March 31, 2026. This move was made to strengthen the resilience of the banking system and enable banks to better withstand economic shocks and support the growing needs of the economy. Banks have been given the flexibility to meet these new capital requirements through various options, including equity issuance, mergers, or adjustments to their business models. Implementation strategies commenced on April 30, 2024.
The CBN updated guidelines for Bureau de Change operators, introducing new licensing requirements, capital standards and a franchise model. These reforms aim to enhance the regulation and oversight of the foreign exchange market, improve transparency, and combat illicit financial flows. The Financial Services Regulation Coordinating Committee (FSRCC) continued to play a vital role in fostering inter-agency collaboration and coordination on key regulatory issues. Regular meetings and joint initiatives on matters such as cryptocurrency frameworks and infrastructure financing have enhanced regulatory effectiveness and ensured a consistent approach across different sectors. Furthermore, the CBN conducted a comprehensive review of its consumer protection regulations in February 2024 to address emerging risks, particularly those associated with Fintech innovations. This review was intended to strengthen consumer protection standards, enhance financial literacy, and promote fair and ethical practices within the financial sector.
These initiatives demonstrate the CBN’s commitment to strengthening the financial system, promoting financial inclusion and fostering a conducive environment for sustainable economic growth. By expanding access to finance, improving regulatory frameworks, and enhancing consumer protection, the CBN aims to build a more robust and resilient financial sector that can better serve the needs of the Nigerian economy.
Enhancing consumer protection and driving financial inclusion
The CBN, in 2024, demonstrated a strong commitment to consumer protection, financial inclusion and the responsible development of the financial sector. The introduction of a pilot Consumer Protection Risk-Based Examination represents a significant step forward. This approach allows the CBN to proactively identify potential risks and address emerging issues within the financial sector, complementing traditional compliance checks. The CBN rigorously enforced sanctions against financial institutions that violated regulations, deterring unethical behaviour and promoting a culture of compliance within the sector.
The apex bank addressed numerous consumer complaints, resolving a significant portion and facilitating refunds to customers who had disputes with financial service providers. This demonstrates the CBN’s commitment to fair treatment of consumers and ensuring their rights are protected. The implementation of the Unified Complaints Tracking System (UCTS) and the development of a USSD code (*959#) for verifying licensed financial institutions have significantly improved service delivery and enhanced transparency for consumers. In addition, the launch of the Women Entrepreneurs Finance Initiative (We-FI) Code in June 2024 marks a significant step towards closing the gender gap in financial inclusion. This initiative aims to improve access to financial services for women-owned MSMEs, empowering female entrepreneurs and contributing to economic growth. Also, the CBN updated the National Financial Literacy Framework and the Financial Education Curriculum (FEC) in Nigerian schools, aligning them with global best practices and promoting sound financial decision-making among youth.
The adoption of ISO 27001 standards and the introduction of a Risk-Based Cybersecurity Framework demonstrate the CBN’s commitment to enhancing the resilience of the financial sector against cyber threats while the CBN has revised guidelines to include Virtual Assets Service Providers (VASPs) within the anti-money laundering/combating the financing of terrorism (AML/CFT) framework, reflecting the evolving nature of financial crime in the digital age.
During the year, the CBN actively engaged with the fintech sector, promoting transparency and disclosure while ensuring compliance with regulatory standards. New guidelines were introduced to address cybersecurity threats, facilitate diaspora remittances, and improve capital inflows. Furthermore, the CBN implemented stricter Know Your Customer (KYC) and AML requirements, including linking Tier 1 and wallet accounts to Bank Verification Numbers (BVNs) or National Identification Numbers (NINs), to combat fraud and enhance the integrity of the financial system.
The CBN implemented several key regulatory reforms, including revising the minimum Loan to Deposit Ratio (LDR), prohibiting foreign currency (FCY) denominated collaterals for local currency (LCY) loans, and adjusting the Cash Reserve Ratio (CRR) framework. These measures aim to support monetary policy objectives, stabilise the financial system, and ensure the soundness of financial institutions. The bank introduced a crucial measure to enhance market integrity and strengthen bank resilience by prohibiting banks from distributing unearned income, such as foreign currency (FCY) revaluation gains, for the financial year ending December 31, 2023. This ensures that investors have a clearer picture of bank performance, fostering informed investment decisions and promoting market transparency. These initiatives demonstrate the CBN’s multifaceted approach to strengthening the Nigerian financial system. By prioritizing consumer protection, fostering financial inclusion, and embracing technological advancements, the CBN aims to create a more robust, resilient, and inclusive financial sector that supports sustainable economic growth.
Strengthening the financial system and enhancing global standing
The CBN undertook several crucial initiatives in 2024 to further strengthen the Nigerian financial system and enhance its global standing. It intensified efforts to combat money laundering, terrorist financing, and proliferation financing (AML/CFT/CPF). Through enhanced supervision and conducting spot checks on Nigerian banks and their foreign subsidiaries, the CBN aimed to address the concerns raised by the Financial Action Task Force (FATF) and expedite Nigeria’s delisting from the Grey List. Delisting from the Grey List is crucial for attracting foreign investment, improving Nigeria’s international reputation, and fostering a more secure and stable investment environment.
In July 2024, the CBN issued new guidelines to improve the management of dormant accounts, unclaimed balances, and other financial assets. These guidelines are intended to: identify and reunite dormant accounts and unclaimed balances with their rightful owners; hold these funds in trust for their rightful owners; standardize management practices across the financial system and establish clear procedures for reclaiming warehoused funds. These guidelines address concerns regarding inadequate compensation for funds held in dormant accounts and the risk of fraudulent transactions, thereby reinforcing trust and confidence in the financial system.
Recognising the importance of cash in the Nigerian economy, the CBN suspended processing fees on cash deposits exceeding N500,000 for individuals and N3,000,000 for corporates from May 6 to September 30, 2024. Additionally, a three-month waiver was granted to Deposit Money Banks (DMBs) for depositing lower denominations (N50 and below) with the CBN at no cost. These measures aim to encourage cash deposits, strengthen financial intermediation, and facilitate the effective transmission of monetary policy. The CBN enhanced its Early Warning Systems (EWS) to proactively identify and mitigate potential systemic risks and vulnerabilities. Key developments include: enhanced monitoring of financial soundness indicators and net open positions and implementation of regulatory sanctions on non-compliant banks. These measures enable the CBN to intervene promptly to address potential contagion risks and ensure the safety and soundness of the financial system.
In the outgoing year, the CBN continued to support the growth of the fintech ecosystem, building upon the successes of the Payments System Vision (PSV) 2020. Fintech innovations, such as mobile banking, online payments, and block-chain technology, have democratised financial services, reduced costs and enhanced efficiency, particularly benefiting underserved regions. Under the leadership of Governor Mr. Olayemi Cardoso, the CBN has strengthened consumer protection regulations to enhance consumer confidence and safeguard against unethical practices. This includes increased focus on consumer education and awareness initiatives to empower consumers to navigate the financial system effectively. The CBN has vowed to remain committed to maintaining a robust regulatory framework to support sustainable economic growth and stability. The CBN aims to position Nigeria as a leading financial hub in Africa, driving long-term economic development and growth through innovation, collaboration, and a commitment to sound financial practices.
Fostering economic stability and confidence
The CBN has taken significant steps in 2024 to enhance economic stability and foster investor confidence. Through the implementation of sound economic policies, the CBN has cultivated an environment of increased confidence in the Nigerian economy. These policies have attracted foreign investment and encouraged business growth. It has enhanced its communication strategy by, providing clear and timely information on monetary policy decisions and economic developments. This transparency has minimised economic uncertainties and built trust among investors and the public.
The apex bank has adopted a contractionary monetary policy stance, including raising the Monetary Policy Rate (MPR) and adjusting the Cash Reserve Ratio (CRR) and Liquidity Ratio, to combat inflationary pressures. The implementation of an Inflation-Targeting (IT) framework is meant to stabilize price levels, reduce currency volatility, and foster sustainable economic growth. The pace of inflation has slowed down significantly. While inflation remains a concern, recent data from the National Bureau of Statistics (NBS) shows a reduction in headline inflation year-on-year, indicating progress in the fight against inflation.
The CBN streamlined the foreign exchange (FX) market into a single framework, enhancing liquidity and reducing market distortions. The clearing of a $7 billion backlog of valid FX forwards has stabilised the exchange rate and boosted market confidence. These reforms have contributed to reduced FX volatility and an increase in external reserves. The introduction of EFEMS for FX transactions in the Nigerian Foreign Exchange Market (NFEM) aims to curb speculation and market distortions.
The development of the Fiscal and Monetary Policy Coordination Framework (FMPCF) has improved the synergy between monetary and fiscal policies, ensuring a more coordinated and effective approach to economic management. The CBN has significantly improved its communication of monetary policy decisions through strategic planning and increased engagement with media and stakeholders. The introduction of podcasts and enhanced social media presence has provided timely updates and increased public engagement with the CBN’s activities.
Data-driven decision-making and a positive outlook
The CBN has prioritised data-driven decision-making and technological advancements to enhance the effectiveness of its monetary policy. It has leveraged big data analytics through tools like Dynamic Integrated Analytic Modeling (DIAMoND) and the Macro Diagnostic Framework to gain deeper insights into economic trends and inform more accurate policy decisions. It has maintained high forecast accuracy and developed news-based indices to better assess and quantify policy uncertainty. In 2024, the CBN invested heavily in capacity-building programmes for its staff, enhancing their expertise in economic analysis, policy-making, and the use of advanced analytical techniques. The integration of mobile technology has improved data collection and analysis, enabling the CBN to make more informed and timely policy decisions.
In May 2024, Fitch Ratings revised Nigeria’s economic outlook from stable to positive, reflecting improved financial stability and the effectiveness of the CBN’s policy measures. This positive rating upgrade signals increased confidence in the Nigerian economy and its future prospects. The year has been marked by significant strides in financial regulation and market conduct under the guidance of the CBN Governor. From enhancing market transparency through the restriction on unearned income distribution to facilitating Nigeria’s delisting from the FATF Grey List, the CBN has demonstrated a steadfast commitment to strengthening the financial system.
The introduction of new guidelines for dormant accounts, the suspension of processing fees to encourage cash deposits, and the advanced use of Early Warning Systems further underscores the Bank’s dedication to promoting stability and trust within the financial sector. As we celebrate these accomplishments, we acknowledge the Governor’s role in driving progress and ensuring a resilient financial environment for Nigeria.
The CBN faced significant challenges in 2024, primarily cantered around managing inflation while supporting economic growth. In 2025, the key challenges the CBN will face include: balancing price stability with economic growth; addressing potential shocks like global recession or geopolitical instability; enhancing regulations and mitigating emerging risks and deepening financial inclusion, expanding access to finance for underserved populations. Others are: maintaining a stable and competitive exchange rate; ensuring effective collaboration with other government agencies; integrating climate considerations into monetary policy; navigating the opportunities and challenges of fintech and ensuring transparency and clear communication of policies.
Success in addressing these challenges will be crucial for maintaining macroeconomic stability and fostering sustainable economic growth in Nigeria. The CBN has demonstrated a strong commitment to fulfilling its mandate of promoting price stability and supporting sustainable economic growth. Through a combination of monetary policy tightening, regulatory reforms, and a focus on financial inclusion, the CBN has taken significant strides in strengthening the Nigerian financial system and enhancing its resilience. While challenges remain, the CBN’s proactive approach, data-driven decision-making, and commitment to continuous improvement position the apex bank to effectively navigate the complexities of the global and domestic economic landscape.