THE Central Bank of Nigeria (CBN) said it would mandate financial institutions to raise their capital adequacy ratio relative to serving a $1 trillion economy anticipated in the coming years.
The CBN’s governor, Olayemi Cardoso, said this on Friday, November 24, while unveiling the apex bank’s monetary policy thrust and economic outlook for 2024 at the 58th Chartered Institute of Bankers of Nigeria Annual Bankers’ Dinner.
He also said the apex bank would sanction payment service operators operating beyond their core mandates.
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While highlighting Nigeria’s myriad macroeconomic and social challenges, Cardoso pointed out that with proper policy measures, the country could overcome the obstacles and pave the way for progress and prosperity.
“Considering the policy imperative and the projected economic growth, achieving a $1 trillion economy in the next seven years, it is crucial for us to evaluate the adequacy of our banking industry to serve the envisioned larger economy.
“It is not just about the financial stability of the financial system in the present moment, as we have already established that the current assessment shows stability.”
He asked, will Nigerian banks have sufficient capital relative to the finance systems needed to serve a $1 trillion economy in the near future?
In his opinion, Cardoso believes the answer is a capital no unless the country takes action.
“Therefore, we must make difficult decisions regarding capital adequacy. As a first step, the central bank will be directing banks to increase their capital,” he stressed.
In his speech on Friday, regarded as his first public address on the monetary authority stance on Nigeria’s economy since he and his committee of governors assumed office, Cardoso pointed out that high inflation eroded the banking system’s financial stability and affected banks’ asset quality and insolvency ratios.
“Additionally, the persistent naira depreciation poses a significant risk for domestic banks with foreign exchange exposures,” he noted
The ICIR reports that CBN’s capital adequacy ratio, currently at 32.5 per cent, indicates how well a bank can meet its obligations. It is critical to ensure banks have a large enough financial cushion to absorb reasonable losses before becoming insolvent.
In a report on November 14, The ICIR analysed that the continued weakening value of naira is eroding banks’ capital base.
Expressing that technology will continue to play a critical role in delivering financial services and enhancing financial inclusion, Cardoso hinted that recent developments in the payment services landscape have raised concerns regarding the use of technology and the operators’ existing licensing and regulatory framework.
He said, “We have observed that some licensees are operating outside of their approved activities, breaching the boundaries set for them.
“Any intentional or unintended non-compliance will be subject to sanction, as operators have the responsibility to ensure that they are licensed for the activities undertaken.”
According to Cardoso, the apex bank has concurrently conducted a comprehensive review of the licensing framework of the payment service operators and will consult extensively to develop a new regulatory and compliance framework suitable for the technology-driving payment service sector.
Stressing further on the financial system’s stability, he said, “Looking ahead for the industry, banks should reassess their responsible banking framework to ensure that the requirements are effectively integrated into the strategies.
“I am aware that some banks have made commendable progress in this regard.”
Furthermore, he maintained that CBN is enhancing its in-house capacity to assist other banks struggling to implement their sustainability principles.
Some macroeconomic and social challenges highlighted by the CBN governor include high and rising inflation, inadequate foreign exchange supply, exchange rate depreciation, limited external reserves, weakened output and high unemployment.
“These challenges have led to increased interest rates, discouraging investment in productive activities,” Cardoso said.