CBN Gov. warns of financial system risk from non-bank institutions
By Opeyemi Abdulsalam
The Central Bank of Nigeria (CBN) Governor, Yemi Cardoso, has expressed concern over the growing transaction volumes of Non-Bank Financial Institutions (NBFIs) and Other Financial Institutions (OFIs).
He warned that this trend poses a significant risk to the stability of the financial system.
According to Cardoso, the increasing activities of NBFIs and OFIs have the potential to disrupt the entire financial system, and therefore, require close monitoring and regulation to mitigate this risk.
The CBN Governor’s warning highlighted the need for vigilance in the financial sector to ensure that the growing activities of these institutions do not compromise the stability of the financial system.
Cardoso, who was represented by Abayomi Arogundade, the Acting Director of the Other Financial Institutions Department at the CBN, gave the warning at the 10th Meeting of the College of Supervisors for Non-Bank Financial Institutions (CSNBFI) in Abuja on Monday.
“We must continue to push forward the agenda of strengthening the anti-money laundering practices; deepening supervisory capacity on cybersecurity and fintech regulation; and the implementation of risk-based supervisory approach,” Cardoso warned the gathering of West African central bankers.
The CBN Governor noted the rapid growth in fintech lending as a particular area of concern, noting that while the overall size of these loans may still be small compared to traditional banking, some jurisdictions have observed a worrying trend of increasing volumes.
“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,” Cardoso explained.
“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 fintech firms, which offer a range of applications, software, and other technologies to streamline mobile and online banking, are often regulated either as banking entities or as fintech payment service providers, depending on the jurisdiction.
Cardoso also highlighted the emergence of innovations linked to crypto or stablecoin assets as another area of concern that supervisors must closely monitor.
The concerns raised by the CBN Governor come at a time when the non-bank financial sector is playing an increasingly pivotal role in enhancing access to credit, offering cost-effective and reliable payment services, and supporting economic growth across the WAMZ region.
The Director General of the West African Monetary Institute (WAMI), Dr. Olorunsola Olowofeso, echoed the need to strengthen the resilience of the financial sector, particularly in the face of emerging risks such as climate-related issues, internet disruption, cyber threats, and social media-driven instability.
“To strengthen the resilience of the financial sector, Member States should develop an adequate national cybersecurity strategy and appropriate regulatory and supervisory frameworks,” Olowofeso said.
The technical sessions of the CSNBFI meeting this week are expected to focus on climate risk regulation, underscoring the importance of addressing these emerging threats to the stability of the financial system.
As the NBFI sector continues to grow in influence and importance, the central bank governors of the WAMZ region have a critical responsibility to ensure that regulatory requirements are tailored to foster compliance with international standards and mitigate the risks posed by the rapid digitalisation of financial services.
