Rise in Disruptive Banking Technologies Disturbing, Says Nigeria Central Bank Chief Emefiele

The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele on Tuesday stressed that the rapid evolution of financial technology (fintech) companies has continued to alter the financial landscape globally.

He said developments have continued to disrupt traditional ways of offering financial services in the banking landscape, describing the disruptions as, “very disturbing.”

However, in an apparent response to the concern raised by Emefiele, the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, has challenged the financial sector regulators including the CBN and the Nigeria Deposit Insurance Corporation (NDIC) to sharpen their regulatory tool kits to enable them respond to any potential financial crisis arising from the activities of fintechs, among others.

Both the minister and the apex bank boss spoke at the opening of the International Association of Deposit Insurers (IADI) Africa Regional Committee (ARC) Technical Assistance Workshop with the theme: “Normality in Turbulent Periods: The Stabilising Role of Deposit Insurance’’, which was organised by the IADI-ARC and hosted by the NDIC in Abuja.

This was just as the World Bank on Tuesday stated that Nigeria’s growth prospect was being stifled by its underperforming oil sector which it noted was also creating fiscal imbalances for the country.

Nevertheless, the Washington-based multilateral institution also praised the direct interventions being carried out by the CBN in the agriculture and manufacturing sectors, stating that it provided some support to private investment which boosted economic activities.

Speaking further, Emefiele stressed the need for the banking industry regulator as well as supervisors to guard their loins to, “ensure that we are able to put in place strong regulatory framework and practices that should help nip in the bud, the unfortunate incident that may happen as we try to allow the growth of fintechs in Nigeria”.

Emefiele also said, several financial products were being provided by fintechs, including digital payments, international remittances, mobile money, peer-to-peer (P2P) lending platforms, among others.

He said the CBN had released a series of fintech-based policies and guidelines including the regulatory sandboxes, open banking and cybersecurity, among others, in its determination to ensure a robust regulatory landscape without stifling innovation.

The central bank governor, however, insisted that fintechs who want to be deposit-taking institutions, “should come forward and become a bank – bring N25 billion and be a bank.”

He said the CBN remained proud to be associated with the workshop because of its firm belief that it would provide a platform for brilliant ideas and experience-sharing, especially of the four-dimensional shocks shaping the current global economies and that of Nigeria with obvious linkages to the safety and soundness of the banking systems as well as the role of deposit insurance.

Emefiele maintained that early detection of problems in banks, timely intervention, contingency planning, crisis preparedness and management were not a particular country or agency’s affair, but requires strong and effective collaboration among the major stakeholders within a nation’s financial services industry and the government.

He added: “Our deposit insurance system (DIS), as a component of financial safety-net arrangement, is the risk-minimiser model and has been very effective in the discharge of its mandate. The CBN and NDIC represent key components of Nigeria’s financial safety-net arrangement.

“That partly explains why we have been able to successfully resolve the series of financial crises that confronted us with satisfying results.

“It is instructive to mention that the CBN and NDIC have been able to deal with the emerging crisis in the nation’s banking system. The 2009 banking crisis, 2004 banking consolidation exercise and their subsequent resolutions, provided a reference point of the benefit for effective collaboration between the central bank and deposit insurer.”

Emefiele, also challenged the IADI-ARC to increase its advocacy by reaching out to many countries in Africa to join the league of countries with DIS, adding that this would go a long way in strengthening the regional and continental financial systems for the benefit of all.

He said this became necessary as cross-border activities had resulted in the interconnectedness of financial systems and made it crucial for the systems to be on the same page, by putting in place mechanisms for safeguards against any contingencies.

In her presentation, Ahmed maintained that the challenges posed by disruptive technologies could not be swept under the carpet, urging regulators to install early warning signals that would help to take immediate measures in case of any crisis.

According to the minister, “We are living in very turbulent times; we are facing right now about three different types of crisis – the lingering effects of the COVID-19 pandemic, climate change, the Russia/Ukraine war, and also hyperinflation across the globe.

“And crisis is beginning to become normal; and what this means is that we should also be prepared to address the crisis. We also have disruptive technologies; This is a reality today and cannot be swept under the carpet.”

She added that, “fintech has come to stay and we have to deal with it.”

Ahmed said the theme of the workshop was particularly pertinent, in the light of recent socio-economic challenges that have continued to undermine the safety and stability of the financial system across the globe, accentuated by the lingering effects of COVID-19 pandemic, the Russian-Ukraine war, global supply disruptions and climate change challenges.

She added that these had posed myriads of challenges and risks to the safety and stability of the global financial system, pointing out that the banking sector remained pivotal in supporting the real economy through the provision of innovative products and services to all relevant stakeholders.

The minister, however, noted that the fiduciary nature of banking business, coupled with increased social-economic challenges across the globe, had increased the risk of banks’ failure, with significant implications for depositors’ losses and erosion of public confidence in the banking system.

She said the negative impact of the challenges on economic growth and financial sector stability in most economies of the world, raised a number of questions concerning the role of DIS in contributing to financial system stability.

According to her, this equally demonstrated the important role played by the deposit insurance system, as a component of financial safety-net arrangements in most jurisdictions across the globe, given that, depositor protection is a critical element necessary for maintaining and restoring financial stability.

She also pointed out that the Nigerian economy, like others, felt the brunt of the global economic distortion, having to go into recession twice in the space of five years.

Ahmed, however, noted that given the resilience of the nation’s financial system, Nigeria came out of the recession within months.

She said, “We also make bold to say that despite these economic challenges, no depositors’ fund was lost given the effectiveness of our agencies, most especially the CBN and the NDIC.”

On his part, the Managing Director/chief Executive, NDIC, Mr. Bello Hassan, said presently, economies globally are stressed, and some still recovering from the impact of COVID-19 pandemic and the spill-over effects of the Russia-Ukraine war.

He said, “As we are all aware, the fabric of global financial stability is constantly being threatened by one form of crisis or the other. The potential threats at present, include the Russia-Ukraine war, cyber threats posing increasing risks to financial institutions, slow growth, increasing inflation and tighter global financial conditions which may all exacerbate pre-existing vulnerabilities.”

He said growing financial inter-connectedness had also shown that banking crises can have contagion effects, adding that a system-wide approach to crisis management, involving collaborative efforts of the financial safety-net participants and regional deposit insurance systems remained highly imperative.

Hassan, noted that both the 2007 –2009 global financial crisis and the COVID19 pandemic had exposed the increasing relevance of deposit insurance in stabilising turbulent banking systems and as a buffer for financial system stability.

He said the crises further led to the review of some of the design features of explicit deposit insurance systems in many countries to accommodate emerging developments in the domestic and global financial system.

Also, in her remarks, the Chairman of NDIC, Mrs. Ronke Sokefun, noted that in a world where financial systems were inextricably linked, robust cooperation was required to ensure financial system stability, and by extension growth and stability of the global economy.

She said it was against the backdrop that the NDIC needed to keep working through forums like the IADI and other collaborating agencies to share experiences, strengthen our supervisory tools, monitor the effectiveness of insured institutions’ Contingency Planning and Crisis Management Framework as well as ensure our readiness for timely, and prompt intervention to engender financial system stability.

She added that it was noteworthy that the NDIC has for a long time since its establishment in 1988, collaborated with other international standard-setters and deposit insurers.

Sokefun said, “For instance, the NDIC has collaborated in capacity development with the IADI itself, the ARC members, the Financial Stability Institute, the US FDIC, the Islamic Financial Services Board and several other international agencies. Also, the Corporation has Memorandum of Understanding (MoU) to share information on capacity development with deposit insurance agencies of Ghana, Poland, South Korea, Taiwan and Uganda.

“It is in the spirit of such collaboration that this workshop was organised so as to serve as a forum to dissect pertinent issues, share experiences, compare notes and elevate our understanding of the role of deposit insurers in early detection and timely intervention; contingency planning and crisis management; crisis simulation to strengthen operational resilience; and contingency planning framework for a safer, and more resilient financial system, that is supportive of sustainable economic growth in each jurisdiction.”

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