Analysts welcome CBN plan to withdraw as lender of last resort in payment system

The Central Bank of Nigeria (CBN)’s intention to cease its implicit role as lender of last resort to the payments system, and the adoption of “survivor pays” collateral management system, has been greeted with applauds from analysts.
In line with the national payments system strategy, the CBN is working on a programme that will ensure that collateral management for clearing and settlement in the payments system industry is contributory.
The implication is that in case of default in the payments system, the participating institutions will resolve the matter from a pool of liquidity rather than involving the CBN.
Razia Khan, managing director, Chief Economist, Africa Global Research, Standard Chartered Bank, London, said this could be very interesting in terms of potentially removing a moral hazard from the system.
Razia said banks would have an incentive to monitor other financial institutions in the payments system more closely, as they would be collectively liable in the case of a default.
“However, the question is still – how much influence do banks exert over other banks in the payments system, that they can police their behaviour adequately and control risks?” she added.
Currently, the payments system industry is operating a “defaulter plus CBN pay”, but this will soon change to “survivor pays “collateral management model, as the CBN withdraws from being the lender of last resort.
Godwin Emefiele, governor of the CBN made this known on the sideline of 10th Annual Banking and Finance Conference organised by the Chartered Institute of Bankers of Nigeria (CIBN) in Abuja.
“The CBN may be acting according to an earlier guidance under Lamido Sanusi, former governor of the apex bank, that by December 2016, the CBN would no longer be a lender of last resort,” said Tajudeen Ibrahim, head of macroeconomic research, Chapel Hill Denham, by phone.
This should be viewed as positive because it only calls for improved risk management framework by the banks,” Ibrahim added.
Concerned with the growing menace of cybercrime and electronic payments fraud in the payments industry, he said the CBN is collaborating with law enforcement agencies to set up a Dedicated Electronic Payments and Card Crime Unit in the Nigeria Police.
Furthermore, he said, consultations are ongoing for the establishment of an industry fraud risk intelligence bureau and a Security Operations Centre (SOC).
Emefiele disclosed that the CBN is facilitating the articulation of the framework for the adoption of “survivor pays “collateral management model, in line with the BIS/IOSCO Principles for Financial Market Infrastructure (PFMI).
“Nigeria is clear in its objective of being “internationally recognised” for its compliance with international best practice and standards, hence the payments infrastructure is subjected to annual PFMI compliance review”, he said at the conference.
While acknowledging that the speed of payments system innovations and innovators is challenging, he said Nigeria will have to manage the trade-off between innovation and risks to engender disruptive innovation with positive benefits of inclusiveness.
“We must continue to study development and enhance our regulations without being excessively prohibitive. The national payments system in Nigeria must continue to reinvent itself to facilitate economic activities, through safe and efficient systems which in turn will extend availability and encourage usage across sectors and geographies, banked and unbanked, while conforming to international standards”, Emefiele said.
In his welcome address, Segun Ajibola, president and chairman in council, CIBN, said the time is now for the banks to join hands in promoting financial inclusion policies and programmes as enunciated from time to time.
“I believe this is the time the financial services sector needs to play some catalystic roles to redirect the economy to the path of recovery, growth and development”, Ajibola said.
He said this year’s theme, ‘Innovations in the Financial Services Sector: Driving Nigeria’s New Economy’, has been crafted to x-ray the roles the sector must play towards a quick recovery of the economy.