Friday, January 21

Don’t Panic; No Nigerian Bank Is Distressed – Godwin Emefiele

As CBN comes hard on telcos extorting banks, customers with USSD Amaechi Ogbonna, and Juliana Taiwo Obalonye, Washington DC
Governor of the Central Bank of Nigeria ( CBN), Mr Godwin Emefiele, yesterday, allayed fears over speculated distress syndrome in Nigeria’s banking industry following seven banks failures to scale its recent stress tests.Emefiele who made the clarification at a briefing to roundoff the 2019 annual meetings of the International Monetary Fund and the World Bank in Washington DC, said the Nigerian banking industry still stands on a sound footing hence the widespread speculations about insolvency should be ignored by the banking community.The governor said “First, I will reiterate that the strategic health of the Nigerian banking industry remains very strong.

The Central Bank has as a matter of policy in 2015 tried to avoid being sensational about stress testing which has become part of our daily, normal routine in trying to check the strategic health of the Nigerian banking industry. So what you will find is that from time to time, maybe one bank fails one ratio, we advised that the bank should improve on that ratio, whether it is capital adequacy, liquidity or other forms of prudential ratio that we will prescribed to the banking industry.So the fact that you have read that seven banks failed stress test does not mean that those banks are weak.

”According to him, if for instance Bank A fails on liquidity, we will try to work with that bank to ensure it addresses its liquidity, and if another one fails capital adequacy which is also part of the stress testing parameters that we use, we also counsel it about the best ways of addressing the capital adequacy issue.Emefiele said that such alerts are all part of the bank’s regulatory functions and should not be seen as an indication of insolvency as it has nothing to do with the weakness of any bank in the industry that would warrant any panic or systemic crisis in the banking industry.The governor ‘s clarification came as the apex bank’s recent stress test showed that seven of Nigeria’s 24 banks were not adequately funded in 2018, according its latest financial stability report. The stress test is part of CBN’s efforts to significantly minimise the impact of risks on the Nigerian financial system.

Other highlights of the report showed a baseline capital adequacy ratio (CAR) for the banking industry at end-December 2018 was 15.26 per cent, indicating a 3.18 per cent points increase from the 12.08 per cent recorded at end-June 2018.
In a financial stability report published on its website on Thursday, October 17, the apex bank revealed that in less than 30-day period analysis, seven Nigerian banks were not adequately funded, while in the 31-90 day bucket, nine banks had funding gaps.Overall the cumulative position for the industry showed an excess of N4.8 trillion assets over liabilities Although the banking regulator did not mention the names of the seven of the banks, the entire industry has since been abuzz with wide speculations about institutions that could likely fit into the category.A stress test is used to test the resilience of financial institutions against any future situations. It is done to help check the level of a bank’s assets, as well as evaluate internal processes and control. The result also revealed that under 5-day and cumulative 30-day run scenarios on the banking industry, liquidity shortfalls declined to N1.58 trillion and N1.98 trillion respectively.

Meanwhile, the Central Bank of Nigeria ( CBN ) has ordered commercial banks to immediately reject telecommunications companies whose USSD transactions come at inflated costs. CBN Governor Godwin Emefiele, who gave the advice in Washington DC, said he had already told bank chief executives to move their businesses and traffic to telecom companies that are ready to provide USSD services at the lowest possible, if not zero cost, in line with the bank’s objective to raise the nation’s financial inclusion target to about 80 per cent by2020.He said the controversial issue of USSD came up at a meeting with the telecommunications companies a few months ago where he appealed to them to lower their charges. He however regretted that some of the mobile operators are still charging high rates which prompted the latest directive to banks.USSD (Unstructured Supplementary Service Data) is a Global System for Mobile(GSM) communication technology used to send text between a mobile phone and an application programme in the network. He said, “ On USSD, that is a very important one. About five months ago, you are aware that there was a drive for us to deepen financial inclusion in Nigeria. I had even made my commitment to Bill Gate Foundation and Queen Maxima that we will deepen financial inclusion and that by the end of 2020, the rate of financial inclusion would have been increased by 80 percent. At this time we are close to about 65 percent. We moved from 42 to about 65 percent in about 18 months. And we believe that we can achieve this 80 percent if everybody, including the banks and the telecom companies cooperate with us.About five, four months ago, I held a meeting with some telecom companies as well as the leading banks in Nigeria at Central Bank Lagos. The issue of the cost of USSD came up, it is not actually N4 I hear is about N1,500 per minute. And at that time, we came to a conclusion that the use of USSD is a sunk cost. What we mean by a sunk cost is that it is not an additional cost on the infrastructure of the telecom company. But the telecom companies disagreed with us, they said it is an additional investment on infrastructure and for that reason they needed to impose it.

I appealed to them that they should please review this downward but they refused. I understand almost about three four weeks ago, rather than even reducing they went ahead and increased it from N1,500 to N4,500, that is 300 percent. I opposed it. And I have told the banks that we will not allow this to happen.The banks are the people who give this business to the telecom companies and I leave the banks and the telecom companies to engage. I have told the banks that they have to move their business, move their traffic to a telecom company that is ready to provide it at the lowest possible if not zero cost. And that is where we stand and we must achieve it.
Meanwhile, in its reaction to text messages on N4 per second charge on USSD, from October 21, the Minister of Communications, Dr Isa Ali Pantami the Federal Ministry of Communications said his ministry is unaware of the development and has hereby directed the sector regulator, the Nigerian Communications Commission (NCC) to ensure the operator suspends such plans until he is fully and properly briefed.

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