Non-bank Transactions Surge Threatens W’Africa’s Financial Stability – Cardoso
The Governor of the Central Bank of Nigeria, Yemi Cardoso, has raised concerns about the growing volume of financial transactions by non-bank and Other Financial Institutions, saying they pose significant risks to the stability of the West African financial stability.
He also emphasised the vital role of non-bank financial institutions in promoting financial growth and inclusion in the West African Monetary Zone.
Speaking at the 10th meeting of the College of Supervisors for Non-Bank Financial Institutions in Abuja on Monday, Cardoso noted that NBFIs provide essential financial services to underserved segments of the population, including small and medium-sized enterprises.
Non-bank financial institutions are financial institutions that provide financial services but do not accept deposits like commercial banks.
The governor commended the efforts of the CSNBFI in advancing regulatory frameworks, notably mentioning the recent adoption of the Model Act for Non-Bank Financial Institutions and Non-Bank Financial Holding Companies across the WAMZ.
This legislative milestone, approved in March 2024, marks a pivotal step towards harmonising supervisory practices and enhancing the resilience of the financial sector.
Highlighting emerging trends, the apex bank’s governor addressed the increasing role of fintech innovations and their implications for financial stability.
The CBN governor also commented on the rise in fintech loans, alongside crypto and stablecoin assets.
Cardoso said, “We reiterate the importance of monitoring trends, risks and innovations of NBFIs/OFIs as their increasing transaction volumes pose major financial system stability risk.
“Fintech loans and digital platforms are reshaping financial intermediation,” he remarked, urging supervisors to bolster their cybersecurity frameworks and adopt risk-based supervisory approaches to mitigate associated risks.
“Fintech loans are one of the most commonly reported innovations. While overall this may appear small in relation to the size of credit by DMBs, some jurisdictions globally, have noted a growing trend in the volume of these loans. In many cases, fintech credit is provided via electronic platforms that connect lenders to borrowers – in which case the platform takes the role of a financial auxiliary.”
He added, “In some cases, however, loans are taken on the balance sheet of these platforms (even if it is short-term), in which case the platforms are akin to new types of financial intermediaries. These entities are typically fintech firms that offer applications, software, and other technologies to streamline mobile and online banking.
“In many jurisdictions, these digital firms have a banking license and are subject to prudential requirements or they may just be regulated as Fintech payment service firms. Innovations linked to crypto or stablecoin assets were also reported by some jurisdictions.”
He emphasised that while these innovations offer significant opportunities for financial inclusion and efficiency, they also pose substantial risks to financial stability if not properly regulated.
The CBN has been actively working to develop frameworks that can effectively monitor and manage these risks.
The Chairman of the college, Yaw Sapong, in his speech, acknowledged the crucial role of non-bank financial institutions in promoting financial inclusion and economic growth.
Sapong highlighted achievements made by the college, including harmonised regulatory frameworks, and automation of supervisory processes.
He emphasised the need for coordinated policy responses to address current economic challenges, including inflation and currency fluctuations.
“We must continue to work together to build a resilient and inclusive financial sector that supports sustainable economic growth in our region,” Sapong urged.
Also, the Director General of WAMI, Dr Olorunsola Olowofeso, emphasised the need for strengthened resilience in the financial sector, citing emerging risks such as climate-related risks, cyber threats, and digitization challenges.
“We must continue to monitor policy actions and spillovers to ensure the financial system is resilient,” he urged. WAMI remains committed to implementing the WAMZ integration agenda,” he said
The CSNBFI meeting aims to review progress made in the NBFI sector since late 2023 and formulate strategies to address current challenges. Discussions will encompass regulatory harmonization, cybersecurity, and the impact of digital innovations on financial services.
SOURCE: The Punch
