Effective assets, liabilities management critical in promoting banking stability — NDIC
By Matthew Denis
The Chief Executive Officer and Managing Director of the Nigeria Deposit Insurance Corporation (NDIC), Mr. Hassan Bello has disclosed that Effective management of assets and liabilities is critical in promoting stability of the banking operation.
The MD of NDIC made this known at the two days SEC Nigeria-IFSB international Forum held in Abuja on Thursday.
He said, “For the Nigeria Deposit Insurance Corporation (NDIC), our mandate includes deposit guarantee, bank supervision, failure resolution and bank Liquidation.
“This mandate is principally geared at ensuring depositors’ confidence and financial system stability. However, financial system stability is a collective responsibility of the regulators, supervisors and operators.
“While the operators have the duty to play their game according to the rules, the supervisors and regulators on the other hand have the responsibility to provide the enabling framework and guiding principles within which the operators are expected to operate.”
Mr Hassan explained that the NDIC as a deposit insurer and banking supervisor is significantly affected by the activities of the banks particularly in the area of risk management practices.
“Risk management must be comprehensive and should cover all aspects of risks including but not limited to operational, market, credit and liquidity risks.”
According to him, their regular reviews of the banks’ risk management practices showed significant improvement since the adoption of Risk Based Supervision (RBS) Framework by the CBN/NDIC.
He stressed that effective management of assets and liabilities is critical in promoting stability of the banking operation as significant maturity mismatch can prevent banks from meeting obligations, including its ability to respond to depositors’ demand.
“This challenge largely arises as a result of the significant mismatch between the tenors of the available funding to the banks and the tenors required by the seekers of funds. Typically, while the primary source of funds for our banks is short term in nature, the demand side on the other hand is significantly medium to long term.
“This, therefore, results in maturity mismatch causing high vulnerability to risks and by extension safety and stability of the banking sector.
“As regulators and supervisors within the financial sector, our concern would surely be beyond managing the above risks. We must deeply think on how to create enabling policies and frameworks that will support the supply side for our banks.
“In this regard, deposit liabilities that are predominantly short term will not be adequate in providing the required portfolio of funding for the banks to support the real economy with its long term funding needs.
“The question we must therefore ask ourselves, is, how and where should the long term funding be sourced? Non-interest Capital market (NICM) plays a greater role in the provision of long-term financing for the real economy including developmental and infrastructure projects.
“Robust NICM provides products in equity markets, sukuk markets and pooled investment vehicles that provide practical solutions to challenges identified in the financing of real sector and infrastructure projects.”
The MD revealed the NDIC is therefore proud to be associated with the SEC on this giant initiative.
”It is our firm belief that, this Roundtable, would provide a platform for brilliant ideas and experience-sharing, that will open our financial system to foreign direct investments and foreign portfolio investments that will provide both the required long term financing need for our banks, the real economy as well as support foreign exchange liquidity thereby promoting the stability of the financial system not only in the short term but in the medium to long term, in line with the Renewed Hope Agenda of the President.”
He noted that the role of an effective, liquid and well-functioning capital market, cannot be overemphasised in promoting capital formation and economic growth.
Backing this up, he said, “Studies have indicated strong correlation between capital market and economic growth. Broad and deep capital market plays a significant role in supporting and promoting savings mobilisation, resource allocation and diverse sources of funding to the real-economy, thereby facilitating better diversification and management of risk.
“It is instructive to note that a robust capital market is a result of deliberate efforts by the relevant stakeholders. There must be a thoughtful determination by the policy makers to create the enabling environment that allows capital market development to thrive.
“I would like to appreciate the foresight of the SEC’s Management Team for organising this international roundtable targeted at further deepening and broadening our capital market. The global opportunities offered by the non-interest capital market are enormous and can only be fully harnessed if and only when we are able to address some of the challenges inhibiting its growth.
“The Commission as the national regulator of the capital market has commendably done so much in this regard as more still needs to be done in conjunction with relevant stakeholders at both national and regional levels particularly in the area of regional regulatory and policy coordination.”
