Osinbajo Urges Financial Regulators to Beef up Safety Guards

Current regulatory infrastructure outdated, says Aig-Imoukhuede

James Emejo in Abuja

Vice President Yemi Osinbajo yesterday called on the financial regulatory authorities to be proactive towards the opportunities and challenges posed by emerging technologies in the banking industry in order to forestall another crisis in the sector.

He said given the anticipated increase in number of bank depositors in the near future through the various ongoing initiatives of government to boost financial inclusion as well as the impact of financial technology companies (Fintechs), domestic deposit insurance institutions and other sister institutions in the continent must rise to curtail emerging threats.

Speaking at a public lecture and book presentation at the 30th anniversary of the Nigeria Deposit Insurance Corporation (NDIC), the vice president also aligned with suggestions that the country’s current regulatory infrastructure may not yet be prepared for the future.

“My perceptions on some of the dynamics of engaging the future of our financial safety systems. First is the number of institutions and the implicit and explicit tools in our safety system and their sustainability.

“One of the significant challenges in the financial system was that banking crisis in 2009, going by the manner of the resolution, it appears that the preferred option was the establishment of AMCON, an option that cost something in the order of about N5 trillion of money at that time.”

“Since then, we have also seen the use of a mixture of bailouts and bridge banks. The problem for me of course, is that most of the reliable studies that we have seen show that an overtly generous financial safety 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.

“And I think reference was made to the fact that we may not have the option of the AMCON type of bailout given the sheer enormity of the amount of money that would be involved.

“The other issue of course is coping with the implications for banking if the disruptive technologies that are quickly changing the landscape of financing services. “It seems to me that fintechs will continue to be the most profound force change both for growth and one must say ill as well.

He added that it was crucial for regulatory instructions to invest in training to meet the required compliance.

He also noted that with the signing of the African Continental Free Trade Area (AfCTA) agreement, the country was bound to witness greater opportunities especially for the banks whose footprints are already firmly all over the continent.

“Again, these opportunities plus technology present their own issues both for the NDIC, domestic deposit insurance institutions in sister African countries and of course, the regional deposit insurance bodies. So, the future is without a doubt exciting- but I dare say, it also calls for proactive, nimble and a savvy NDIC as well as all other institutions constituting our financial safety net.”

He urged the corporation not to be complacent with its achievements as there is still a lot to be done.

“One of the disincentives to greater glory is past glory. Sometimes, the status quo is so comfortable that preparing for and taking on new challenges may not gain adequate attention.”

Also speaking, a former Managing Director of Access Bank, Mr. Aigboje Aig-Imoukhuede, who delivered the guest lecture titled, ‘Emerging Risks and Corporate Governance Issues in Banking’, said corporate governance and risk management were crucial for the stability of the banking system.

He added that lack of coordination between both could lead to banking system failure.

He said while there had been fair compliance with corporate governance code in the industry, risk management still remained fragile.

He also said a new regulatory system was required for a robust banking system of the future, adding that the present regulatory infrastructure had been outdated by technological innovations.

“Our banking system is a huge highly flammable asset, which is unfortunately in close proximity to several challenges capable of igniting a fire and we must take proactive steps to insulate this asset from the risks around us.

“My concern now is, what happens if there is bank operational failure? A run on a bank can no longer be controlled using traditional means if people can move money electronically or with USSD, what is our response to systemic risk of an electronic/digital dimension.

“The regulatory capacity to oversee our sector was built to address the risks of the sector as we saw them in 2008. We have to evolve that capacity to meet the needs of 2020. We need to bring in new risk management talent in the banks as an urgent imperative to suit the evolving nature of banking, the stakes have gone up and we must respond appropriately.”

“I am confident that the industry and its regulators have evolved significantly and matured in the last decade, but if you ask me whether I consider the corporate governance and risk management that exists in the Nigerian banking sector today as fit for purpose for our future banking sector, then my answer is a loud no.”

Meanwhile, President of the Senate, Dr. Ahmed Lawan, yesterday promised that the National Assembly will give top priority to the NDIC Act Amendment Bill, which is before both chambers.

Nothing that the role of the corporation was critical to the stability and safety of the banking system, he said the bill would be granted expedited hearing when lawmakers resume plenary.

Speaking at the NDIC 30th anniversary, he noted both chambers are currently occupied with the 2020 budget defence session to ensure that the appropriation is passed before December as well as return the country to the January to December budget cycle.

However, Managing Director/Chief Executive, Nigeria Deposit Insurance Corporation (NDIC), Alhaji Umaru Ibrahim said the corporation had delivered on its mandate over the last 30 years, adding that the book presentation documents the corporations modest beginnings and achievements over the period.