Cardoso: Non-Bank Financial Institutions Key to Regional Integration, Economic Stability

•Declares increasing transaction volumes by fintechs pose major risks to financial system

James Emejo in Abuja

Governor of the Central Bank of Nigeria (CBN), Mr. Olayemi Cardoso, yesterday, said Non-Bank Financial Institutions (NBFIs) of the West African Monetary Zone (WAMZ) presented a unique opportunity to quicken regional integration and shared economic prosperity.

While he acknowledged the importance of monitoring trends, risks and innovations of NBFIs/Other Financial Institutions (OFIs), Cardoso said their increasing transaction volumes posed major financial system stability risk.

Speaking at the opening of the 10th meeting of the College of Supervisors for Non-Bank Financial Institutions (CSNBFI) of WAMZ in Abuja, Cardoso said NBFIs, which included Fintech companies, were crucial in ensuring both financial stability and the specialised financial intermediation the institutions were licensed to perform.

He stated that though the NBFIs might be small in number compared to conventional banks, that “should not be a crutch to excuse them from global best practices”.

Represented by CBN acting Director, Other Financial Institutions Department (OFID), Mr. Abayomi Orogundade, the CBN governor, said supervisors must ensure that fintech regulatory requirements were tailor-made to foster compliance with international standards.

He stressed the need to strengthen the anti-money laundering practices, deepen supervisory capacity on cybersecurity and fintech regulation, and implement risk based supervisory approach over NBFIs.

He said, “While we celebrate the milestones that the CSNBFI has achieved, I implore you not to rest on your oars. There is still a lot to be done. We must continue to push forward the agenda of strengthening the anti-money laundering practices; deepening supervisory capacity on cybersecurity and fintech regulation; and the implementation of risk based supervisory approach.

“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 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.”

Cardoso said, “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.

“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.”

He said, “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.”

Director, West African Monetary Institute (WAMI), Dr. Olorunshola Olowofeso, said after turbulent years, the outlook was gradually improving in WAMZ.

However, Olowofeso said the funding squeeze persisted, as governments continued to grapple with financing shortages, high borrowing costs, and impending debt repayments.

According to him, the emerging risks to the financial system include climate-related risks, internet disruption, cyber and social media threats arising from the digitisation of financial services.

He said to strengthen the resilience of the financial sector, member states should develop an adequate national cybersecurity strategy and appropriate regulatory and supervisory frameworks.

Olowofeso said the meeting presented another opportunity to review developments in the non-bank financial institutions sub-sector within the zone for the second half of 2023 and the first quarter of 2024, assess the regulatory and supervisory challenges of member states, and share experiences to mitigate emerging risks to the financial system of WAMZ.

He said the meeting will specifically focus on identifying, assessing, and monitoring emerging risks, vulnerabilities, and early warning signals in the NBFI sector of WAMZ member countries, and provide relevant recommendations to the Committee of Governors of WAMZ.

He acknowledged the pivotal role of NBFIs in the financial system, including enhancing access to credit, offering inexpensive and reliable ways of making payments, and supporting economic growth.

Olowofeso said, “This underscores the need to strengthen the resilience of the NBFI sector to ensure a more stable provision of financing and reliable payments services.”