The Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, has expressed concern over the rising volume of non-bank transactions which he says poses a major threat to financial stability in West Africa.
Cardoso stated this at the 10th meeting of the College of Supervisors for Non-Bank Financial Institutions of the West African Monetary Zone.
The CBN governor who was represented by the Apex bank’s acting Director of the Other Financial Institutions Department, Abayomi Arogundade, emphasized the critical need to monitor trends, risks, and innovations within the financial sector. He also commented on the rise in Fintech loans, alongside crypto and stablecoin assets.
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In his words,
“We reiterate the importance of monitoring trends, risks and innovations of NBFIs/(Non-Bank Financial Institutions or Other Financial Institutions) as their increasing transaction volumes pose major financial system stability risk. Fintech loans are one of the most commonly reported innovations. While overall this may appear small in relation to the size of credit by DMBs, some jurisdictions globally, have noted a growing trend in the volume of these loans.
“In many cases, fintech credit is provided via electronic platforms that connect lenders to borrowers in which case the platform takes the role of a financial auxiliary. In some cases, however, loans are taken on the balance sheet of these platforms (even if it is short-term), in which case the platforms are akin to new types of financial intermediaries.
“These entities are typically Fintech firms that offer applications, software, and other technologies to streamline mobile and online banking. In many jurisdictions, these digital firms have a banking license and are subject to prudential requirements or they may just be regulated as fintech payment service firms. Innovations linked to crypto or stablecoin assets were also reported by some jurisdictions”.
The governor further highlights the need for regulatory oversight of these Fintech firms, whether they hold banking licenses or operate as payment service providers, to mitigate potential risks.
While non-bank transactions and digital financial services offer significant benefits in terms of financial inclusion and convenience, he noted that they also introduce new risks that need to be properly managed to maintain financial stability in West Africa.
One of the primary concerns is the increased risk associated with non-bank financial institutions (NBFIs), which often operate with less regulatory oversight compared to traditional banks. This according to the IMF can lead to liquidity mismatches, inadequate risk management, and high levels of interconnectedness, potentially causing systemic risks during periods of financial stress.
In a bid to mitigate these challenges, the CBN has been working actively to develop frameworks that can effectively monitor and manage these risks. Also, stakeholders in the financial sector have emphasized the need for resilience in the industry, citing emerging risks such as climate-related risks, cyber threats, and digitization challenges.