Vice President calls for a re-think on financial strategies in Nigeria

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Cyril Okonkwo, Abuja

Nigeria’s Vice President, Professor Yemi Osinbajo, has called for a rethink on the long and short term implications of bailouts and bridge banks in Nigeria’s financial sector, saying that the number of safety tools in the system might not be sustainable in the future.

He also said that the Asset Management Company of Nigeria, AMCON, type of bailout, which cost Nigeria about N5trillion during 2009 bank crisis, might not be an option in the future given the enormity of the money that would be involved.

Vice President Osinbajo spoke on Monday at the 30th Anniversary event of the Nigerian Deposit Insurance Corporation, NDIC, held in Abuja.

“The problem for me, of course, is that most of the reliable studies we have seen showed that an overly generous financial safety nets or system has generally tended to increase bank risks and systemic fragility. 

“My respectful view is that there must be some re-thinking of the long and short term implications of the use of these tools and their sustainable use in the coming years.

“I think a reference was made to the fact that we may not even have that option of AMCON type bailout, given the sheer enormity of money that will be involved.”

Disruptive technology
Professor Osinbajo also urged the Nigerian financial sector to brace up for “the implications of disruptive technologies that are quickly changing the landscape of financial services,” saying fintech companies were challenging traditional banking with innovations.

“It seems to me that fintech will continue to be the most profound   force for change, for good and for ill as we’ve seen in the financial services industry. 

“Indeed, already banks all over the world are investing in fintech and may in time become fintech themselves as these smaller firms are eating faster with more innovative systems into the customer base of most of our banks.”

The Vice President advised regulatory institutions to spend more time and resources on researching the nature and management of developments such as the speed of transaction, cross border transactions, money laundering concerns, data privacy and security issues.

He said there was need to train personnel to meet the required capacity for these developments.

Financial inclusion
Osinbajo said that the Nigerian government’s programmes are geared towards financial inclusion of the poor which would imply that the customer base of banks would rise, requiring greater involvement of regulatory institutions like the NDIC.

He said that government’s micro-credit programme covering over two million informal traders, and the conditional cash transfer scheme covering over a million of the poorest in Nigeria’s communities, have formalised to a certain extent services to millions of individuals who were outside the banking system.

“So, we are looking at a much more phenomenally larger customer base for the banks and of course, with all of the implications that this will have for regulations.

“With the signing of the African Continental Free Trade Area agreements, we are also bound to see even greater opportunities for our banks whose footprints are already firmly all over Africa.

“Again these opportunities plus technology present their own issues both for the NDIC, domestic deposit insurers in sister African countries and the regional deposit insurance bodies.”

While commending the NDIC for the professionalism and international respect that it has gained over the past 30 years, the vice president enjoined the corporation not dwell on its past achievements but work to ensure that it prepares for the dynamics of engaging the future of Nigeria financial safety systems.

The President of Nigeria’s Senate, Ahmad Lawan, said the National Assembly would give accelerated hearing to the proposed NDIC Amendment Bill that is the National Assembly.

Senator Lawan said that the National Assembly was not unaware of the operational challenges facing the corporation and would, by legislation, remove such obstacles.

The Managing Director of the NDIC, Alhaji Umaru Ibrahim, said that the event was to celebrate the success of NDIC in delivering on its mandate in the last 30 years.

 

Lateefah Ibrahim