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Nigerian, Malaysian Central Banks: Upping the Ante in Cross-Border Regulation
- By John Uwe
- Published April 6th, 2010
- MoneyWorld
- Unrated
The CBN, a fortnight ago signed an MOU with the Bank Negara Malaysia, Malaysian Central Bank, for collaboration in various areas including exchange of information. JOHN UWE writes that Nigerian banks should be more thorough in their cross-border dealings to avoid being trapped in regulators’ net.
THE Central Bank of Nigeria (CBN) is working out a new consolidated supervisory framework for the Nigerian banking industry to put it on sound footing. The apex bank is not forgetting the fact that Nigerian banks are players in cross- border transactions hence its governor, Sanusi Lamido Sanusi is pushing for cross- border regulation. There is no doubt that the consolidation and recapitalization of Nigerian banks in 2006 brought them to lime light internationally as they became players in the global financial market. Many banks now have branches and regional offices outside the shores of Nigeria.
CBN efforts for cross-border regulation
Sanusi has said he met with African central bankers at the International Monetary Fund (IMF) conference held in Turkey last year to find a way to build a regulatory framework for the continent. “I am concerned that we have got banks that are spreading across different African counties and while we sign MoUs with other regulators we don’t have an African framework for cross-border supervision,” Sanusi said. “I think the Nigerians, the South Africans, the Ghanaians, the BCEAO (West African central bank), the Central African regulators can together build a framework that makes sure all banks that operate anywhere in Africa are closely regulated,” he added. According to him, such a framework would make it easier for Africa to deal with regulators such as Britain’s Financial Services Authority, the U.S. Federal Reserve and China’s central bank. “Nigerian banks have branches spread across Africa and that poses credit and market risks as well as risks to the reputation of the country’s banking industry as a whole”, Sanusi said.
CBN efforts on cross-border regulation yield results
The CBN and Bank Negara Malaysia (Central Bank of Malaysia) has signed a memorandum of understanding(MOU) to share expertise and exchange relevant information in the areas of Banking Supervision, Small and Medium Enterprises (SMEs),Microfinance, Islamic Finance, Monetary Policy, Development Finance Institutions,External Reserve Management. Other areas include; institutional arrangement for financial crisis management and resolution, Foreign Exchange Administration, Performance Management and Corporate Strategy, Leadership Development and Talent Management.
Mohammed Abdullahi, the CBN head of communications said, “The MoU was signed at the headquarters of the Bank Negara in Kuala Lumpur during a one-week study tour of Malaysian financial institutions by the board of directors of the CBN between the 22nd – 26th March, 2010. The study tour enabled the team to understudy the success of the Malaysian regulator in the area of financial crisis management which has direct contextual relevance to the Nigerian situation.
Malaysia is a developing country that has achieved widely acknowledged economic success and the Bank Negara has had an effective financial stability framework since the Asian financial crisis in the 1990s. The banking and financial reforms the country undertook successfully, provide a benchmark for the current banking reforms of the CBN.
Abdullahi listed other areas of interest to the CBN to include the stimulation of economic development through financing SMEs and effective supervisory framework for microfinance banks.
Nigerians speaks
Eferoghene Okoro, an economist said the signing of the MOU is a welcome development, the apex bank should put to practice what the directors learnt in Malaysia and stop the fire brigade approach in its reform of the banking sector. Okoro said the CBN should adopt some of the measures taken by the Malaysian bank that have made the economy of that country stable over the years.
A banker who spoke on the ground of anonymity wondered why the CBN should seek assistance in area of human expertise in running the financial sector, but lauded the move to exchange information as it will help in credit risk management.
International Banking Council opinion
The Central Bank of Nigeria (CBN) has been applauded by the International Retail Banking Council for its banking reforms and crusade for a Code of Conduct for central bank regulators, as well as for banks’ executive directors and top management.
Sanusi spoke in London recently of failures of regulation worldwide and said Nigeria was not an exception to this.
Michael Lafferty, chairman of Lafferty Group, the London based research and advisory house, recently endorsed statements made by Sanusi, regarding the need for a Code of Conduct for central bank regulators.
Many of Mr Sanusi‘s comments struck a chord with Mr Lafferty and echoed sentiments expressed at Lafferty Group’s International Retail Banking Council meetings, where key players in the international cards and payments and retail banking industries meet twice a year to network and brainstorm on current industry issues and share best practice.
“As Mr Sanusi has stated, there is a need to ensure a ‘Value System’ exists within the banking sector” said Mr Lafferty. “It is necessary to rebuild the trust that our retail banking systems depend,” he added.
At the Lafferty International Retail Banking Council held in Brussels in mid last year, it was concluded that, to treat customers fairly, retail banks should be proactive in developing an international code of conduct that is clear in its scope and which helps inform prospective national and international regulation.
The code being developed by the Council will focus on the need to operate with integrity and to build a reputation for fair trading. It will cover inter alia acceptable lending and funding approaches.
Basel Committee on cross-border banking resolutions
The Basel Committee on Banking Supervision has issued new report and recommendations on the cross-border bank resolutions operations. Mr Nout Wellink, chairman of the Basel Committee and the president of the Netherlands Bank said the recommendations will promote more orderly resolution of cross-border banks in order to reduce systemic risk and help banks to address the too-big-to- fail syndrome.
The report made 10 recommendations aimed at improving the failing of financial institutions that have cross-border activities. They fall into three categories-strengthening national resolution powers and their cross-border implementation, an indication that national authorities need to have powers to intervene sufficiently early.
Secondly, is firm-specific contingency plan, which means that banks as well as key home and host authorities should develop practical and credible plans to promote resilience in periods of severe financial distress and to facilitate necessary rapid resolution.
According to the report, the plan is expected to ensure access to relevant information in a crisis and assist authorities’ evaluate resolution options. One of the lessons from the crisis was that the enormous complexity of corporate structure makes resolutions difficult, costly and unpredictable.
Thirdly, the report recommends risk mitigation through mechanism such as netting arrangements collateralization practices and the use of regulated central counterparties should be strengthened to limit the impact on the market of a bank failure.
The Basel Committee on Banking Supervision is forum for cross fertilization of ideas by regulators of banks in various countries with the aim of coming up with a framework.
Conclusion
The MOU signed by the central bank of the two country is expected to enhance exchange of information between the two countries’ banking regulators, thereby limiting corruption and sharp practices by banks.
THE Central Bank of Nigeria (CBN) is working out a new consolidated supervisory framework for the Nigerian banking industry to put it on sound footing. The apex bank is not forgetting the fact that Nigerian banks are players in cross- border transactions hence its governor, Sanusi Lamido Sanusi is pushing for cross- border regulation. There is no doubt that the consolidation and recapitalization of Nigerian banks in 2006 brought them to lime light internationally as they became players in the global financial market. Many banks now have branches and regional offices outside the shores of Nigeria.
CBN efforts for cross-border regulation
Sanusi has said he met with African central bankers at the International Monetary Fund (IMF) conference held in Turkey last year to find a way to build a regulatory framework for the continent. “I am concerned that we have got banks that are spreading across different African counties and while we sign MoUs with other regulators we don’t have an African framework for cross-border supervision,” Sanusi said. “I think the Nigerians, the South Africans, the Ghanaians, the BCEAO (West African central bank), the Central African regulators can together build a framework that makes sure all banks that operate anywhere in Africa are closely regulated,” he added. According to him, such a framework would make it easier for Africa to deal with regulators such as Britain’s Financial Services Authority, the U.S. Federal Reserve and China’s central bank. “Nigerian banks have branches spread across Africa and that poses credit and market risks as well as risks to the reputation of the country’s banking industry as a whole”, Sanusi said.
CBN efforts on cross-border regulation yield results
The CBN and Bank Negara Malaysia (Central Bank of Malaysia) has signed a memorandum of understanding(MOU) to share expertise and exchange relevant information in the areas of Banking Supervision, Small and Medium Enterprises (SMEs),Microfinance, Islamic Finance, Monetary Policy, Development Finance Institutions,External Reserve Management. Other areas include; institutional arrangement for financial crisis management and resolution, Foreign Exchange Administration, Performance Management and Corporate Strategy, Leadership Development and Talent Management.
Mohammed Abdullahi, the CBN head of communications said, “The MoU was signed at the headquarters of the Bank Negara in Kuala Lumpur during a one-week study tour of Malaysian financial institutions by the board of directors of the CBN between the 22nd – 26th March, 2010. The study tour enabled the team to understudy the success of the Malaysian regulator in the area of financial crisis management which has direct contextual relevance to the Nigerian situation.
Malaysia is a developing country that has achieved widely acknowledged economic success and the Bank Negara has had an effective financial stability framework since the Asian financial crisis in the 1990s. The banking and financial reforms the country undertook successfully, provide a benchmark for the current banking reforms of the CBN.
Abdullahi listed other areas of interest to the CBN to include the stimulation of economic development through financing SMEs and effective supervisory framework for microfinance banks.
Nigerians speaks
Eferoghene Okoro, an economist said the signing of the MOU is a welcome development, the apex bank should put to practice what the directors learnt in Malaysia and stop the fire brigade approach in its reform of the banking sector. Okoro said the CBN should adopt some of the measures taken by the Malaysian bank that have made the economy of that country stable over the years.
A banker who spoke on the ground of anonymity wondered why the CBN should seek assistance in area of human expertise in running the financial sector, but lauded the move to exchange information as it will help in credit risk management.
International Banking Council opinion
The Central Bank of Nigeria (CBN) has been applauded by the International Retail Banking Council for its banking reforms and crusade for a Code of Conduct for central bank regulators, as well as for banks’ executive directors and top management.
Sanusi spoke in London recently of failures of regulation worldwide and said Nigeria was not an exception to this.
Michael Lafferty, chairman of Lafferty Group, the London based research and advisory house, recently endorsed statements made by Sanusi, regarding the need for a Code of Conduct for central bank regulators.
Many of Mr Sanusi‘s comments struck a chord with Mr Lafferty and echoed sentiments expressed at Lafferty Group’s International Retail Banking Council meetings, where key players in the international cards and payments and retail banking industries meet twice a year to network and brainstorm on current industry issues and share best practice.
“As Mr Sanusi has stated, there is a need to ensure a ‘Value System’ exists within the banking sector” said Mr Lafferty. “It is necessary to rebuild the trust that our retail banking systems depend,” he added.
At the Lafferty International Retail Banking Council held in Brussels in mid last year, it was concluded that, to treat customers fairly, retail banks should be proactive in developing an international code of conduct that is clear in its scope and which helps inform prospective national and international regulation.
The code being developed by the Council will focus on the need to operate with integrity and to build a reputation for fair trading. It will cover inter alia acceptable lending and funding approaches.
Basel Committee on cross-border banking resolutions
The Basel Committee on Banking Supervision has issued new report and recommendations on the cross-border bank resolutions operations. Mr Nout Wellink, chairman of the Basel Committee and the president of the Netherlands Bank said the recommendations will promote more orderly resolution of cross-border banks in order to reduce systemic risk and help banks to address the too-big-to- fail syndrome.
The report made 10 recommendations aimed at improving the failing of financial institutions that have cross-border activities. They fall into three categories-strengthening national resolution powers and their cross-border implementation, an indication that national authorities need to have powers to intervene sufficiently early.
Secondly, is firm-specific contingency plan, which means that banks as well as key home and host authorities should develop practical and credible plans to promote resilience in periods of severe financial distress and to facilitate necessary rapid resolution.
According to the report, the plan is expected to ensure access to relevant information in a crisis and assist authorities’ evaluate resolution options. One of the lessons from the crisis was that the enormous complexity of corporate structure makes resolutions difficult, costly and unpredictable.
Thirdly, the report recommends risk mitigation through mechanism such as netting arrangements collateralization practices and the use of regulated central counterparties should be strengthened to limit the impact on the market of a bank failure.
The Basel Committee on Banking Supervision is forum for cross fertilization of ideas by regulators of banks in various countries with the aim of coming up with a framework.
Conclusion
The MOU signed by the central bank of the two country is expected to enhance exchange of information between the two countries’ banking regulators, thereby limiting corruption and sharp practices by banks.
