Banks prepare for new monetary policy operations and regulations

Banks prepare for new monetary policy operations and regulations

• Mr. Cardoso takes on “housecleaning” responsibility and embarks on an extensive staff audit.
• Bank presidents say prepare for new era of supervision
• Most operators brought forward their capital restructuring plans.
• Adonri warns banks against taking long-term funding risks

The Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, officially launched a new era in banking supervision and monetary policy management after his speech at Bankers Night in Lagos over the weekend, The Guardian reported. . have been involved.

Already, bank chiefs lining up to win the governor’s favor have received a message from Cardoso, who is said to have spent a lot of time studying business processes, to “prepare for a new era in banking supervision.” It is said that Over the past two months, I have been responsible for the apex bank’s operations and consulted key stakeholders on concerns.

Sources said last week that some bank presidents had complained that the governor had refused their requests to meet with them, saying it was difficult for them to meet with them and that he was intentionally avoiding them.

Reliable sources familiar with the experiences of some bank executives and who have had the opportunity to interact with Cardoso told the Guardian that the CBN boss was described as calm, with a calm but firm approach to official matters. He said he was focused. I intentionally avoid “making compromising and distracting friends.”

“The most important thing is that he listens and asks for clarification. In the few interactions I had with him, I found him to be someone who values ​​knowledge and approaches problems with an open mind. He also understands that he is behind the times. Therefore, it is understandable if he does not respond to unnecessary and frivolous demands,” the source said.

It is said that the governor’s determination to stick to the path toward restoring uncompromising banking supervision has upset the industry mafia in the trenches. Sources say the relationship between regulators and operators is much more formal than before, and answers to questions are timely.

However, development economist Dr Chiwike Uba said: “It is clear that the capital base of most banks has already been eroded as a result of currency depreciation due to the currency crisis.” When the CBN raised the minimum capital base for banks to 25 billion naira, this was equivalent to over $187 million, which is now equivalent to about 187 billion naira. Still, considering the impact of inflation on the capital base means that any bank could require a minimum capital base of almost N240 billion. At present, how many existing banks have a minimum capital base of 240 billion naira?

“Second, raising the minimum capital base could encourage foreign investment and, in turn, lead to foreign capital inflows. This would ultimately moderate the current foreign exchange crisis. ”

The chief executive of a Tier One bank is said to have written to managing directors, department heads and other senior executives about the need to increase the level of compliance to prevent possible sanctions.

While some say the governor is concerned and doesn’t want to make a serious mistake, a banker who said he has known Cardoso for many years said: “He is rigorous and has high ethical standards.” , said his values ​​could make him an enemy for generations. Crooked bankers.

CBN departments are also concerned about what role the governor’s onboarding process will play and what kind of disruption the process could cause. The Guardian also compiled information over the weekend that the governor has begun the process of overhauling what an internal source described as “the human side of reform.” .

As part of that process, the apex bank is said to have launched an extensive human capacity audit aimed at upskilling and redeploying some employees for the new central banking era.

While the flaws in monetary policy are directly visible to the public, officials say the new leadership has identified gaps in banking supervision and other key sectors that must be filled for effective operation. .

A trusted official said the ongoing audit “goes beyond the routine” and aims to fix fundamental operational flaws that have been ignored so far.

“The scale of the exercise is evolving. But it is different from the normal process. The Governor came into this system at the most difficult time in the bank’s history. Therefore, if he continues with business as usual, is not expected,” the official said.

According to the information, the governor was said to be overseeing moral and ethical concerns with the Special Agent Jim Obagie Team, which was established to investigate banks and related entities. Therefore, while the possibility of dismissal is not ruled out, those charged may be delayed for some time as the CBN’s dismissal procedures are tedious and cumbersome.

“Even if it turns out we don’t have all the evidence we need to sanction you, the process of firing an employee who makes a mistake goes through about seven steps. They will be relieved of their positions and reassigned while they continue to respond to questions,” the official said.

Also receiving significant attention within the scope of the restructuring is the internal control system, which external special investigators have flagged as flawed and which bank officials have been forced to use to avoid sending unfavorable signals. It’s a word to avoid. The governor, as well as the board, is said to have adopted a process to strengthen the system’s internal control mechanisms to make collusion in financial fraud difficult.

Whether the ongoing process at the CBN is labeled as restructuring or not, what you get is not much different. A staff audit is underway. Just as internal processes are also being fine-tuned, reporting and supervisory software is also being updated to bring banks in line with the latest regulations.

“The governors seem to be taking full responsibility and are cooperating with it,” one insider said, alluding to a system audit and a “clean-up” promised by President Ahmed Tinubu. Cardoso hinted at the need for change in a speech at the annual Bankers’ Dinner over the weekend.

“The CBN is taking steps to strengthen its internal capacity to assist other banks that have yet to make progress in implementing sustainability principles,” he said. in close follow-up to a comprehensive review of Development of payment services and new regulatory and compliance frameworks for the technology-driven payment services sector.

Meanwhile, most operators may be ahead of the apex banks’ plans to increase the industry’s current capital requirements. Already many banks are thousands of miles ahead of current capital requirements, with assets exceeding his trillion naira.

Currently, Zenith Bank has a total net worth of 1.9 trillion naira. UBA has a net worth of about 1.7 trillion naira and FBN Holdings has a net worth of about 1.3 trillion naira. Even second-tier banks have built up huge financial war chests over the years. Therefore, even if current standards were doubled, no additional capital would be required to meet the new requirements.

This raises the question of what influenced the CBN’s determination to increase capital base requirements for banks. In a speech yesterday, investment banker and economist David Adonri warned against leaving banks to take on long-term funding risks, risks that are better handled by capital markets.

“Banks have sufficient capital. Banks that wish to expand their operations can take individual steps to expand their capital base. However, if long-term economic development is the objective of the federal government, , bank lending is not suitable for that purpose. Banks should not undertake the risks of long-term capital formation for which capital markets are established. Well-developed financial and capital markets provide sustainable It is the best source of funding for economic development,” he stressed.

He said the governor’s suggested increases in bank capital bases may not support the president’s projected $1 trillion in economic growth over seven years.

He said policies should directly target long-term capital flows into the productive economy through capital markets, as supply gaps plague the economy, and that the country had previously followed such a path. I advised him while remembering the tragic outcome.

However, Victor Ogiemwoni, another investment banker and former member of the Nigerian Stock Exchange Council (now NGX Group), said, “By preparing banks and raising new capital, we will We need to prepare for the Norwegian economy.” ”

The Guardian reported that the weak naira is eroding the real value of Nigeria’s banks’ capital base, while some experts say compliance with the Basel framework has made the situation worse, but the Basel framework has They dismiss it as a good standard but not necessarily a standard for measuring soundness. In the banking industry of any country.

Basel 3, the latest framework that builds on the provisions of Basel 2, sets banks’ capital requirements at 7% of their risk-weighted assets. However, there are other requirements as well, such as liquidity ratio requirements.


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