POSITIVE
In order to
improve macroeconomic stability efforts were directed at the management of
excess liquidity thus a number of
measures were introduced to reduce liquidity in the system. These included the reduction in the maximum ceiling on credit growth allowed
for banks: The recall of the special deposits requirements against outstanding
external payment arrears to CBN from banks, abolition of the use of foreign
guarantees/currency deposits as collateral for naira. Loans and the withdrawal
of public sector deposits from banks to the CBN. Also effective
August, 1990
the use of stabilization securities for
purposes of reducing the bulging size of excess liquidity in banks was re-introduced
commercial banks cash reserve requirements were increased in 1989, 1990,1992,
1996 and 1999.
The rising level of fiscal deficits was identified as
a major source of macroeconomic
instability.
Consequently, government agreed not only to reduce the
size of its deficits but also to synchronies fiscal and monetary policies. By
way of inducing efficiency and encouraging a good measure of flexibility in
banks credit operations, the regulatory environment has improved.
NEGATIVE ASPECT
Areas of perceived disadvantages to merchant banks were
harmonized in line with the need to create a conducive environment for their
operations. The liquidity effect of large deficits financed mainly by the bank
led to an acceleration of monetary and credit aggregate in 1998, relative to
stipulated targets and the performance in the precede year. Out flow of funds
through the CBN weekly foreign exchange
transaction at the Autonomous Foreign Exchange Market (AFEM) and, to a lesser
extent, at open market operation (Omo) exerted some moderating effect.