Current reforms may not hedge banks against future crisis, says NDIC

Current reforms may not hedge banks against future crisis, says NDIC

December 5, 2011

THE Nigeria Deposit Insurance Corporation has cautioned managers of the existing banks in the country from engaging in practices that could undermine the recent gains of the ongoing reform in the sector, saying that to do otherwise may expose the financial system to any crisis that might be triggered by unforeseen ugly developments in the global economic system in the future.

The Managing Director of the NDIC, Alhaji Ibrahim Umaru, who gave the warning in his opening remarks at the ongoing two-day Workshop for Business Editors and Finance Correspondents Association of Nigeria held in Dutse, Jigawa State, said recent developments in the global economy have continued to show that domestic remedial measures alone may not completely hedge banks from any unforeseen shocks arising from economic depression in the global economic order, hence the need for operators to act in strict compliance with the operational guidelines of the sector.

Ibrahim, who spoke on the increasing importance of corporate governance, efficient risk management  system and other prudential guidelines  to the current drive for stability in the financial services sector, noted that there was the need for managers of the banks to be much more cautious in their business decisions with a view to ensuring that shareholders’ funds are invested safely in all aspects of their operations.

“When we are talking of banking crisis, we should not isolate it from developments in the global system. So, nobody can predict with certainty what will happen in the next few years in the global financial system.

“This is why managers of the banks in the country must always observe the guidelines, entrench corporate governance, create mechanisms that can help further in strengthening internal control and risk management as a way of ensuring security of their shareholders investments.

“The current reform has provided the platform for sustainable growth and stability of the banking sector but it cannot alone guarantee the stability of the system. Operators must constantly ensure that their actions do not expose their banks to future risks that might arise from developments in the global financial system”, Ibrahim said.

“In other words, banking reforms do not by any means constitute an antidote to or elixir of bank failure. For this singular reason, the role of deposit insurance system (DIS) in banking reforms cannot be over-emphasised”, he added.

As a demonstration of the corporation’s resolve to achieve the above, Ibrahim said steps were being taken by the management to support key initiatives to strengthen the banking system, by amongst others, collaborating with all relevant Regulatory Authorities to develop a framework for integrated deposit insurance system as well as the framework for effective resolution of significantly important financial institutions (SIFIs).

The NDIC boss also canvassed the licensing of more micro- finance banks, particularly in the rural areas, as a strategic option of enhancing financial inclusion and boosting the nation’s productivity.

Source: Guardian



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