Monday, 14 September 2015

Nigeria’s Banking Sector Reforms - the Problems, the Achievements and the Key Challenges.

Problem: Nigeria’s banking sector was plagued by macroeconomic instability, lack of investor and consumer sophistication, major failures in corporate governance, weak supervision and enforcement, inadequate disclosure and a lack of transparency about the financial health of banks and low capital and liquidity. These ultimately led to a banking crisis in 2008.

Reform Actions:
  • Capital injection of ₦620 to shore up the capital of nine weak banks
  • Establishment of Macro-Prudential Framework and Market Infrastructure
  • New Banking Model
  • Establishment of the Asset Management Corporation of Nigeria (AMCON)
  • Establishment of a Consumer Protection Department at the Central Bank of Nigeria (CBN)
  • Financial Services Regulation Coordination Committee (FSRCC)
  • Promotion of Regional Information Sharing
  • Strengthening of Governance Mechanisms
  • Strengthened Prudential and Disclosure Requirements
  • treamlined Supervisory Processes
  • Repositioning and Restructuring of Other Financial Institutions
  • Payment System Reforms

    Main Achievements: Banking capitalisation has improved average capital adequacy ratio from 4% in 2009 to 18% in 2013, higher than global threshold of 10%. There is fall in non- performing loans ratio from 36.5% in 2010 to 3.7% in 2014. There has been better consumer protection leading to Central Bank of Nigeria (CBN) recovery of ₦8 billion illegally charged to customers by banks in the first quarter of 2013 alone. Cashless policy has made payments easier to track and will reduce corruption. Furthermore, the reforms have reduced unnecessary bureaucracy and red tape particularly in terms of time taken to complete financial transactions. The recapitalisation of eight banks with impaired capital was a major achievement without which the economy would have been adversely affected. Also, the value of payments using bankcards has grown from ₦38 million in 2012 to ₦24 billion in 2014.

    Key Challenges: 
    (a) sustainability of the reforms; 
    (b) weak legal and regulatory enforcement; and 
    (c) the need to strike a balance between stability and continuous reform. 

Reference:  Public Service Reforms in Nigeria (1999-2014) - A Comprehensive Review

Click to view Compendium 

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