What Nigerian financial regulators must do to protect customers’ deposits & banks, By VP Osinbajo

 

 

“…most reliable studies show that overly generous financial safety nets or system have generally tended to increase bank risks and systemic fragility. My respectful view is that there must be some rethinking of the short and long term implications of the use of these tools and their sustainability in the coming years. A reference was made in the past that we may not even have that option of the AMCON-type bailout given the sheer amount of money that will be involved.

“There is no question that regulatory institutions must now spend more time and resources on researching the nature, management of new risks such as the speed of transactions, cross border transactions, money laundering concerns and data privacy and security issues. Training to meet the required compliance capacity will also be crucial.

“Thirdly there are the challenges associated with the move towards financial inclusion.

“The other issue is coping with the implications for banking, of the disruptive technologies that are quickly changing the landscape of financial services. It seems to me that FINTECHS will continue to be most profound force for change for both good and ill ever seen in the financial services industry.”

BELOW IS THE FULL TEXT OF THE VICE PRESIDENT’S SPEECH:

SPEECH BY HIS EXCELLENCY, PROF. YEMI OSINBAJO, SAN, VICE PRESIDENT, FEDERAL REPUBLIC OF NIGERIA AT THE NDIC 30TH ANNIVERSARY LECTURE/BOOK LAUNCH, MONDAY OCTOBER 21, 2019 AT TRANSCORP HILTON HOTEL, ABUJA

It really is a special pleasure to join you today here at the 30th anniversary celebration of this unique institution and I am extremely grateful to the board and management for the kind invitation.

We have already heard of the various institutional achievements of the NDIC in the past three decades of its existence. The part that it has played in stabilizing the financial system especially the periods immediately after the early days of privatization and  private ownership of banks, its role in the failed banks crisis that followed immediately after, and the various professional and standards distinctions that it has received through the years.

Few will deny that even its mere existence has reassured a sometimes nervous system that banks will be able to convert liabilities to cash to fulfill their potential obligations to their customers. I must also join others in commending the NDIC for its professionalism, its steady unexcitable and conservative profile and for gaining international respect amongst peers for itself and for Nigeria.

Not only are you a reference point for deposit insurance institutions globally but also NDIC officials have been preferred to Executive Council (EXCO) membership of the highly respected International Association of Deposit Insurers (IADI), as well as the current Chairmanship of the IADI-Africa Regional Committee (ARC).

I must say again that the NDIC has continually demonstrated that it is an institution that deserves all of the accolades and commendations that it has received today and in the past. It is said that one of the great disincentives to greater glory is past glory.

Sometimes the status quo is so comfortable that the preparing for and taking on new challenges may not gain adequate attention.

I trust that the current board (whose talents and dynamism I can personally attest to) will be ahead of the challenges of the future. But it will be remiss of me not to mention some of my perceptions on some of the dynamics of engaging the future of our financial safety systems.

First is the number of institutions, and implicit and explicit tools in our safety system and their sustainability. Perhaps the most significant challenge to the financial system that we have experienced so far was that bank crisis of 2009. Going by the manner of resolution it appears that the preferred option was the establishment of Asset Management Corporation of Nigeria – an option that cost something in the order of N5 trillion. Since then we have also seen the use of a mixture of bailouts and bridge banks.

The problem, of course, is that the most reliable studies show that overly generous financial safety nets or system have generally tended to increase bank risks and systemic fragility. My respectful view is that there must be some rethinking of the short and long term implications of the use of these tools and their sustainability in the coming years. A reference was made in the past that we may not even have that option of the AMCON-type bailout given the sheer amount of money that will be involved.

The other issue is coping with the implications for banking of the disruptive technologies that are quickly changing the landscape of financial services. It seems to me that FINTECHS will continue to be most profound force for change both for good and ill, ever seen in the financial services industry.

Indeed, already banks all over the world are investing in FINTECHS and may in time become FINTECHS themselves as these smaller firms are eating faster, with more innovative systems, into the customer base of most of our banks – in mobile payment systems to the various crowd funding ideas. There is no question that regulatory institutions must now spend more time and resources on researching the nature, management of new risks such as the speed of transactions, cross border transactions, money laundering concerns and data privacy and security issues. Training to meet the required compliance capacity will also be crucial.

Thirdly there are the challenges associated with the move towards financial inclusion. In the past four years the Federal Government launched the Social Investment Programme, and in particular the micro-credit programme covering over two million informal traders, and then our Conditional Cash Transfer scheme meant to cover over a million of the poorest in our communities. All of these have formalized to a certain extent services to millions of individuals who were outside the banking system. And with our commitment (and the President has already stated that), we intend to lift 10 million persons annually from extreme poverty for the next ten years.

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.

So, the future is without a doubt exciting, but I dare say, will also call for a proactive, nimble and savvy NDIC as well as all other institutions constituting our financial safety net. And we must note this especially when those who should know like Mr. AIG Imoukhuede say without blinking that the regulatory infrastructure today belongs to yesterday, and we may not be prepared for the future. And that is as frightening as one could possibly have the facts, so there is a lot of work to be done.

Let me again congratulate the NDIC for thirty years of exemplary practice. You should be justly proud of your excellent history and antecedents, especially the firm shoulders of the pioneering leadership on which you now stand, you truly have every reason to celebrate.

We pray that the next thirty years will be more glorious for you as individuals and for the NDIC.

HAPPY BIRTHDAY, GOD BLESS YOU.