The Central Bank of Nigeria (CBN) on Friday said it would commence a phased implementation of Basel III standards and revise the existing Basel II guidelines on Regulatory Capital and Supervisory Review Process in 2020/2021 fiscal years.
This is to reduce the risk of a build-up of excessive leverage in the banking system and provide a safeguard against excessive concentration.
Basel III standard is a global, voluntary regulatory framework on bank capital adequacy, stress testing, and market liquidity risk.
The standard is intended to strengthen bank capital requirements by increasing bank liquidity and decreasing bank leverage.
To this end, the apex bank would issue guidelines to cover the following standards, amongst others: Liquidity Coverage Ratio (LCR), Liquidity Risk Management (LRM) and Internal Liquidity Adequacy Assessment Process (ILAAP), Large Exposures and Regulatory Capital definition.
This was stated in the Monetary, Credit, Foreign Trade and Exchange Policy Guidelines For Fiscal Years 2020/2021, released on Friday by the CBN.
To determine its level of compliance with the Basel Core Principles for Effective Banking Supervision (BCPs) the CBN shall carry out a self-assessment of compliance with the BCPs preparatory to the Financial Sector Assessment Programme (FSAP).
Also, to further strengthen the regulation and supervision of cross-border banks, the CBN shall commence the conduct of country risk assessment in respect of banks embarking on cross-border expansion during the 2020/2021 fiscal years.
To this end, guidelines on country risk assessment shall be issued to the industry and all banks with international authorisation shall be required to comply.
The Guidelines aim at setting supervisory expectations regarding the management of country risk by banks and is applicable to all banks with international activities and exposure to country and transfer risk. The supervisory authority shall apply to this Guidelines based on the nature of a bank’s international activities and cross-border exposures, as well as the risk in countries where the bank has or plans to have operations.
The review of banks’ management of country risk by the CBN will be aimed at assessing the level of risk arising from their international activities and exposures and the effectiveness of their internal governance and controls for the management of exposure to country and transfer risk.
According to the CBN, interest rates in the 2020/2021 fiscal years shall continue to be market-driven. The CBN shall continue to influence interest rates indirectly, through the adjustment of its anchor rate, the MPR.
Accordingly, interest rates used by banks in the 2020/2021 fiscal years shall comply with the following guidelines:
a. Banks shall continue to pay negotiated interest rates on current account deposits at the instance of the customer.
b. Where special purpose deposits (such as deposits held as collateral or other similar deposits) are held, banks shall pay interest at a rate negotiated with the customer, subject to a minimum of 30.0 percent of MPR per annum for naira denominated deposits.
A special purpose deposit, as used in these Guidelines, is a deposit made by, on behalf of, or transferred from the customer’s account, which is not accessible to the customer, for more than seven days.
The 2020/2021 Monetary, Credit, Foreign Trade and Exchange Policy Guidelines reviews circulars issued from the 2018/2019 edition till end December 2019 to cover the period January 2020 to December 2021.
The document outlines the monetary, credit, foreign trade and exchange policy guidelines applicable to banks and other financial institutions supervised by the CBN in 2020/2021.
On account of new developments in the domestic and global economies in the period, the guidelines may be fine-tuned by the CBN without prior notice. Such amendments shall be communicated to the relevant institutions/stakeholders in supplementary circulars.
