Cardoso: Increasing transaction volumes of non-bank financial firms threatens system stability

Olayemi Cardoso, governor of the Central Bank of Nigeria (CBN), says increasing transaction volumes of non-bank financial institutions threatens the stability of Africa’s financial system.

Cardoso spoke on Monday while addressing the College of Supervisors for Non-Bank Financial Institutions (CSNBFI) at its 10th meeting in Abuja.

According to NAN, the CBN governor was represented by Arogundade Abayomi, the regulator’s acting director of financial institutions department.

He said the transactions of non-bank financial institutions could expose the system to risks, calling for the monitoring of the trends and innovations of the category of organisations.

According to the CBN, some NBFIs include bureaux de change (BDcs), primary mortgage institutions (PMIs), development finance institutions (DFIs), and insurance companies.

“We reiterate the importance of monitoring trends, risks and innovations of NBFIs/OFIs as their increasing transaction volumes pose major financial system stability risk,” Cardoso said.

“Fintech loans are one of the most commonly reported innovations.

“While overall, this may appear small in relation to the size of credit by Deposit Money Banks (DMBs), some jurisdictions, globally, have noted a growing trend in the volume of these loans.”

Cardoso said fintech credit is typically offered through electronic platforms that link lenders with borrowers, making the platform act as a financial intermediary.

The economist said in some instances, loans are recorded on the balance sheets of these platforms — even if they are short-term — making them similar to new types of financial intermediaries.

He urged NBFIs in the West African monetary zone (WAMZ) to strengthen anti-money laundering and cybersecurity measures.

“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,” he said.

The CBN governor commended the college for focusing on climate risk regulation during the meeting’s technical sessions.

Olorunsola Olowofeso, director-general of the West African Monetary Institute (WAMI), identified funding squeeze as a major financial issue in West Africa.

He further emphasised the need to bolster the financial sector’s resilience against emerging risks like climate-related issues, internet disruptions, cyber threats, and social media-driven instability.

“As we all continue to anticipate the soft landing of global inflation to pre-pandemic levels, let us continue to monitor policy actions and spillovers to ensure the financial system is resilient,” Olowofeso said.

“In the WAMZ, after turbulent years, the outlook is gradually improving.

“However, the funding squeeze persists as governments continue to grapple with financing shortages, high borrowing costs and impending debt repayments.

“Emerging risks to the financial system include climate-related risks, internet disruption, cyber and social media threats arising from the digitisation of financial services.”

To strengthen the resilience of the financial sector, he said member states need to develop comprehensive national cybersecurity strategies and establish appropriate regulatory and supervisory frameworks.