Ensuring Safety Of The Banking Sector

CBN reemphasised its commitment to secure the banking environment where depositors can be fully confident in the safety of their funds.

In a press release, the Acting Director, Corporate Communications, Mrs Hakama Sidi- Ali stated that “the CBN wishes to categorically re-assure the public, depositors and stakeholders that the Nigerian banking sector remains resilient, safe and sound.”

Over the years CBN has continued to prioritise financial system stability.

The financial system comprises the money market and the capital market both of which consist of a network of financial institutions, financial markets, financial instruments and the operators.

Banking operation is categorised under the money market and which provides short-term funds.

Banking products include bank accounts, term certificates of deposit, interbank loans, commercial papers, bankers acceptances, treasury bills, bills of exchange and others.

CBN is the major regulator in the money market while the Securities and Exchange Commission (SEC) is the major regulatory agency in the capital market.

CBN has been proactive with policies and mechanisms that protects the stability and integrity of the banking sector.

As noted by Mrs Sidi-Ali, “the Bank affirms that it continues to monitor all financial institutions under its regulatory purview and maintains robust frameworks for early warning signals and risk-based supervision. These mechanisms ensure that any emerging issues are promptly addressed to protect the integrity of the financial system.”

Ahead of the 2008- 2009 global financial crisis, CBN had evolved the Nigerian Financial System Strategy, FSS 2020, which was futuristic and proactive. It helped to fortify the banking system and cushioned the impact which the crisis would have exerted in the banking sector.

Prior to the FSS 2020 which incorporated the banking consolidation policy  implemented in 2004, Nigerian banks were characterised by persistent illiquidity, poor asset quality, weak corporate governance, insider abuses, dependency on public funds, unprofitable operations and weak capital base.

It was noted that most banks operated with a capital base of less than USD10 million before 2004 and that the largest bank had a capital base of $240 million compared to the $526 million for the smallest bank in developed countries which its capital base was larger than all of the Nigerian commercial banks put together.

In his address in 2004, the then CBN Governor, Professor Chukwuma Soludo said that the Nigerian banking system was “fragile and marginal.”

He noted that CBN envisioned a banking system that would be a part of the global change and which was strong and competitive and reliable and which depositors could trust and investors could rely upon.

The implementation of the policy transformed the banking sector and CBN has continued to promote stability and protect the integrity of the banking sector.

Going forward, the Bank also launched a corporate governance project to eliminate ambiguities and maintain global best practices and developed other appropriate tools for managing potential threats to the banking sector.

Stress test is mandatory for all banks  to assess the impact of various risk-drivers including credit, market and operational risks.

The Acting Director, Corporate Communications, Mrs Hakama Sidi- Ali noted that “regular stress testing is conducted to identify potential vulnerabilities, helping to ensure that our financial institutions are resilient “

She added that “CBN recognises the crucial role that confidence plays in banking operations and wants to affirm that all deposits in Nigerian banks are secure “

CBN also extended its proactive mechanism internationally through Memoranda of Understanding with countries where Nigerian banks operate their subsidiaries.

Under the present Governor, Yemi Cardoso, the apex Bank is implementing another round of bank recapitalisation which will further fortify the banking sector and deepen financial intermediation for the greater benefit of the economy.

The importance of banks in driving the economy cannot be overemphasised, especially in developing countries where there is a predominance of a bank-based financing system.

There are presently 43 deposit money banks in Nigeria and which CBN categorised as international, national and regional on the basis of their banking licence.

Banks in the international category would recapitalise with a minimum share capital of N500 billion, national banks would recapitalise with a minimum of N200 billion and regional banks, N50 billion minimum share capital.