It’s Time to Improve the Regulations for Nigeria’s Financial System
In Nigeria, 35 banks folded in just 6 years. After the year 2000, another 10 followed. By the year 2004, the CBN had made additional efforts to try and strengthen the financial system in the country while also trying to make sure that people had a solid structure in which they could rely on. Experts have called this macroprudential regulation. These regulations are designed to try and reduce the risk of the financial system in general. For Nigeria, this meant that the CBN commercial banks that were operating across the country needed to somehow increase their capital from 2 billion to 25 billion. This would then make sure that the financial system would be able to withstand economic shock while also absorbing a good degree of loss. Another reason for increasing the capital base would be to try and increase loans. Secure banking would increase the amount of confidence that people have in the sector and it would also lead to banks raising much more deposits. Real sectors, that include technology, the Nigerian casino industry, and even the entertainment sector would then be able to employ more people and this would benefit everyone in the country.
New Capital Requirements
In 2019, the CBN Governor stated that Nigerian banks would have to maintain a very high level of capital and that they would also need to put a lot of work in over the coming years. The new increase here is being driven by two main factors. There would need to be a significant change in the currency exchange rate and there would also need to be an increase in the amount of non-performing loans. Since 2004, which is when the last regulation was put in place, it looked like there was a significant devaluation in the naira.
Banks also made loans to sectors, such as the oil and power industry. They have not been able to pay these back which has put them in a bad position. Of course, it’s important to know what the implications of this are that banks are very vulnerable to economic shock and they are also somewhat vulnerable to losses as well. In a situation where any non-performing loans double, it’s safe to say that banks are not as secure as they once were.
No figure has been put forward right now but there have been some indications that show that the new capital base requirements are going to range between 35 billion and 230 billion. This is going to be based on whether the bank in question needs to have an international, national or regional license. Increasing the capital base requirement is going to strengthen the country’s system overall but there could be some cracks in the system.
Cracks in the system
Financial policies tend to put a lot of emphasis on the Tier 1 capital. This is quite possibly the most perfect and ideal form of capital as it’s the bank’s funds. Some banks have raised fake cash in the past to try and bypass this.
