Bank Directors Association of Nigeria (BDAN) on Wednesday rejected the payment of deposit insurance premium on the funds sterilised at the Central Bank of Nigeria (CBN) as Cash Reserve Ratio (CRR).
They made this rejection at the bank directors’ annual summit on Wednesday in Lagos, believing that such levies impact on the profitability of the banks.
The directors see the continued payment of deposit insurance levy by banks to the Asset Management Corporation of Nigeria (AMCON) and the Nigeria Deposit Insurance Corporation (NDIC), and some other regulations as a threat to the industry.
Mustafa Chike-Obi, president of BDAN called for an end to the huge sum paid to the regulators for money that have been sterilised by the CBN as CRR, adding that this could save banks close to N50 billion.
“Why do banks pay deposit insurance on money that has been sterilised at the CBN as CRR. If the cash reserve ratio has been sterilised by the CBN, there is no reason to insure it at a minimum, all discretionary normal CRR that are at CBN should not be subjected to the calculation of deposit insurance. This is a saving close to N50 billion,” he said, adding that BDAN is the forum to advocate and banks should take us seriously.”
Speaking on ‘Safeguarding Financial Stability in Nigeria – new perspective for banks directors and regulators’, Olabode Agusto, founding managing director, Agusto & Co, accused the regulators and the Federal Government of being the principal threats to the banking sector.
He sees the Federal Government as a big risk, saying that “Nigeria is on the road to Zimbabwe”.
Agusto said the politicians are on ground spending more than they earn, thereby causing interest rates in the domestic system to spike up.
He said it was urgent and important for regulators to have a rethink and help the banking sector enhance its capacity to generate capital from internally generated profits.
He charged the regulators that cash reserve requirement should not be more than 15 percent of deposits or pay interest on cash reserves in excess of 15 percent of deposits, as well as ensure that AMCON levy is not extended beyond the additional five years.
On her part, Aishah Ahmad, CBN’s deputy governor, financial system stability directorate, said, “We can work on these areas that are regulatory priority to ensure that the system remains resilient. We need to work on the single obligor limit and increase our FX risk exposure.
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“On managing credit risk I think we need to be proactive about reviewing portfolios on credit that may increase the interest rate. We need to strengthen financial sustainability because it is only profit that can absorb loss, help beef up capital and further investment in the kind of technology we need today for cyber security.
According to her, enhancing anti-money laundering processes is important particularly in the high network individual or politically exposed persons segment.
“We saw that was one of the real links in the recent fact checks evaluation for the country. The CBN is trying to strengthen regulation with respect to these areas,” she said.
She called for collaboration between operators and regulators to ensure financial stability. The bank directors called on the banking sector regulators to regulate the rising new banks to avoid failures.
The new banks are mostly digital and payment system banks.
“FinTech companies, mobile phone operators have entered the industry”, Agusto said at bank directors’ annual summit.
He said they are grabbing a share of the transaction money of the banking sector. Transaction money represents one of the principal sources of the banking sector’s profitability. Historically, it has provided the sector with a cheap source of stable deposits.
According to him, the new entrants have promised to settle their customers’ transactions efficiently; they don’t charge fees and are perceived as safe.
“Traditional banks are described as unreliable and expensive as they charge for these services. This means that the new entrants have differentiated themselves in a manner that is valuable to their current and potential customers.
“Are these new entrants going to change the structure of the banking sector in Nigeria significantly? They can certainly use technology to scale and customize products for their customers, Nigeria has a young population that will embrace their services, they are not burdened by the costs associated with brick and mortar but do they have the discipline and capacity to manage large businesses?”, he said.
Speaking with BusinessDay immediately after the summit, Ayodele Othihiwa, partner and head, financial services industry, KPMG Nigeria, said, “the first thing we need to understand is that there is a need for financial inclusion, because there is quite a number of people who do not have access to basic banking services”.
