Towards a sound financial system for Nigeria

Banks are vital institutions in any society as they significantly contribute to the development of the economy through the facilitation of businesses. They also facilitate the development of saving plans and are the major instruments of the government’s monetary strategy. A sound, stable and efficient financial system is a sine qua non to the development of a sound economy.

We are aware that these are not the best times Nigerian banks. No thanks to the decline of crude oil prices, slow or even negative GDP growth, falling forex reserves and the new regime of the federal government’s Single Treasury Account (TSA) that seeks to streamline the remittances of revenue generated by various agencies, they have had to operate under very difficult and challenging environment they had not been used to. This is besides the regulatory pressures they face to meet very strict regulatory requirements such as the five percent threshold for non-performing loans. We weren’t surprised therefore when some banks began to show signs of stress and profits began to nosedive. Unexpectedly, some began to lay off workers.

Much more worrying however is the fact that the Central Bank of Nigeria had to intervene recently to effect a change of management in Skye bank Plc due to what the apex bank terms as “persistent failure of Skye Bank PLC to meet minimum thresholds in critical prudential and adequacy ratios, which has culminated in the bank’s permanent presence at the CBN Lending Window. In particular, Skye Bank’s Liquidity and Non-performing loan Ratios have been 2 below and above the required thresholds, respectively, for quite a while.”

Also, recently The Managing Director/Chief Executive of the Nigeria Deposit Insurance Corporation (NDIC), Alhaji Umaru Ibrahim came out to express serious concerns over the increasing wave of non-performing insider loans in various banks and its consequence on the stability of the nation’s banking system. Surely, we agree with him that this poses credibility questions which are capable of eroding public confidence in the banking system. We also entirely agree with his call for strict compliance with the existing code of conduct and a review of existing laws and regulations to provide stiffer penalties for Directors who take advantage of their positions and fail to pay back their loans.

We urge the banks to do more to address the increasing problems of insider loans, concentrated loans, poor risks management and absence of skills in areas of loans and risk management to understand what is necessary to grant loans to specific sectors.

Furthermore, the banks need to refocus and prime themselves to providing real banking services to the public by offering seamless services to all Nigerians and businesses, digitalising of banking services, eliminating the usual high cost associated with serving from branching network, and maintaining the highest standards on credit management.

Beyond the efforts of the individual banks, the industry will require policies support and interventions of government to improve the economic environment for banks to operate effectively. The apex bank and regulator also need to do more in form of regulation and supervision to ensure compliance with extant rules by all the banks to boost the confidence of the public in our banking institutions. Nigeria cannot afford another banking crisis with the current GDP negative growth.