As economies across the world? tackle the aftermath of the global economic crisis,? international rating agency Standard and Poor’s (S&P) has attributed growth in financial system in sub-Saharan Africa to the ongoing reforms in Nigeria’s financial sector? initiated by the Sanusi Lamido Sanusi-led Central Bank of Nigeria.? Standard and Poor’s (S&P) also noted that commercial banks in Nigeria were now engaging the domestic economy.
In its report entitled “Strong Regulatory Action Proves Its Worth for the Nigerian Banking System”, it said Nigeria has now fewer, but larger banks, with better corporate governance and regulatory oversight.
It recalled that, in 2009, eight of the country's 24 banks had to be rescued after weak risk management and corporate governance lapses caused nonperforming loans (NPLs) to rise to more than a third of total loans across the banking system.
S&P said the Central Bank of Nigeria (CBN) responded strongly, removing executive teams from failed banks, fully guaranteeing the interbank market, and setting up the Asset Management Company of Nigeria to purchase a large proportion of nonperforming loans from Nigerian banks.
It also set up sizable intervention funds to support credits to the real economy.
“Finally, it is facilitating a series of mergers between failed banks and their stronger competitors,” it said.
S&P adds that “as a result of the CBN's efforts, the industry and its regulation have improved significantly. Fewer, larger institutions have emerged following a succession of mergers triggered by the sharp rise in non-performing loans (NPLs).
“In our opinion, risk management – particularly in higher-risk lending such as foreign currency loans and retail – and access to low-cost funding will be the key differentiators affecting banks' performance going forward”.
Nonetheless, it said, “In Standard & Poor's Ratings Services' view, however, the sector needs a longer regulatory track record before we stop considering corporate governance and regulatory oversight to be among its key risks.
“In our view, long-term success for Nigerian banks will chiefly depend on them enhancing their risk management, improving their governance, diversifying their loan portfolios, and securing their funding profiles.”
Commenting on the report, spokesman of the CBN Mr. Mohammed Abdulahi said: “We are satisfied with the report which confirmed the gains of the reforms embarked upon by the CBN.
We will continue to sustain our efforts at improving corporate governance and risk management in the industry, while we build on the gains so far achieved.”