Non-Interest Banks in Nigeria, Need More Instruments to Improve Liquidity under Basel III

Proshare

Friday, June 18, 2021 / 1:00PM / Bukola Akinyele-Yisau for WebTV / Header Image Credit: WebTV


Proshare Nigeria Pvt. Ltd.


Non-interest banks in Nigeria, need more instruments to improve liquidity under the Basel III requirements of the global banking system. Mr. Abdulwaheed Shitta, a banking and finance expert made this point while speaking on "Opportunities and Challenges of Islamic Banking and Treasury Management in Nigeria".


According to him, the Basel III Accord was initiated by the Basel Committee on banking supervision to address the global financial crisis of 2007-2008 to strengthen the banking sector across the globe and emphasized capital, liquidity management of banks, and other segments in the financial market. 


He said "Liquidity is the ability of financial inflation to balance inflows and outflows for the institution to be liquid. Liquidity risk can occur when there is a mismatch between liabilities and assets. The committee also developed two minimum standards to ensure the liquidity of banks within the short-term and NSFR(Net stable funding ratio) to ensure liquidity at the medium to long-term".


Global financial analysts have concluded that the impact of Basel III on Islamic banks is relatively smaller compared to the conventional financial institutions, considering the model of non-interest banking that does not support non-Shariah-compliant securities or derivative products.


He said in Nigeria, one common short-term money market instrument is the treasury bills which is not shariah-compliant. This is a reason for limited liquidity for non-interest banks under Basel III.


He concluded that Islamic liquidity instruments in the financial markets were less effective and less liquid than conventional market assets. 


Speaking further, Shitta described treasury management as the management of funds or revenue within a banking system. The treasury function of an Islamic finance institution is to manage depositors and shareholders' funds.


Shitta in explaining Islamic financial products as it concerns treasury activities said that the treasury function of an Islamic bank, was the management of strategic and liquid reserves amongst other liabilities.


In respect of risk management, Shitta explained that risk management in finance was critical and should be addressed squarely as typical banking operations involve a variety of risks.


He said Hadith teaches that man should diversify assets and not put all his eggs in a basket. This is to adopt general measures against risk.


Islamic Financial instructions face performance risk due to their mode of operations such as equity investment risks- Musharaka and Mudarabah, Islamic banks may also face risks that emanate from Salam and Ijarah contracts.


Ways Risk Can be Mitigated

  1. Contracts should be properly documented, he noted that:

 

  • The terms and conditions should be clearly stated between both parties
  • There should be proper internal control by the people, legal department, and the Shariah-compliant board
  • Islamic banks can take guarantees particularly when it comes to non-performing contracts
  • Another way that lmoIslamic banks can mitigate their risk is to take ownership of goods- Taking of Takaful. i.e. Islamic insurance

 

  1.   Regarding Credit risk

 

  • Collateral seeking financial assistance must come up with funds which the banks can hold on to if default in making payments.

 

Prospects for the growth of Islamic Banking in Nigeria and Africa

Shitta shared his thoughts on the prospect for the growth of Islamic Banking in Nigeria and Africa and the Key Drivers According to him include;

  • The oversubscription in the FGN Sukuk is a potential for the Islamic finance market in the nation as a federal government plan to issue another Sukuk it will bring more developmental fund.
  • Another prospect is that Islamic banks continue to grow globally.
  • It can assist mainstream the unbanked to be financially excluded.
  • There is public confidence in the Islamic banking system in Nigeria and across the globe
  • Islamic Banks develop micro-credit schemes for the teeming population in Nigeria and reduce unemployment and poverty.


Key Drivers for Growth

  • The demographics factor is available and we have fast and young growing Nigerian that are financially educated and want to invest their money in ethical finances
  • Economy growth will create traction for investors 


Related Video

Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.


Related News 

1.   SEC Nigeria Restates Commitment to Development of the Non-Interest Capital Market

2.  Sukuk: DMO Plans to Expand the Investor Base in Nigeria with Future Issuances

3.  Nigerian Pension Funds Have Invested N85.07bn in 3 Ijarah Sukuk issued by FGN

4.  Understanding the Importance of Regulated Halal Funds in Nigeria

5.  WebTV To Host Maiden Islamic Finance Weekly Webinar on June 16th, 2021

6.  Popoola Headlines Islamic Finance News Nigeria Roadshow 2021

7.  How Islamic Economics Encourages the Financing of Asset-Backed Transactions and Risk Sharing

8. Increased Awareness, Availability of Investment Platforms May Deepen Takaful In Nigeria

9.  Wills, Trusts And Investments From An Islamic Finance Perspective - Abimbola Ajinibi

10. Understanding Zakat, Financial Inclusion and Economic Empowerment in Nigeria


Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

READ MORE:
Related News
SCROLL TO TOP