The governor of the Central Bank of Nigeria, Yemi Cardoso, has expressed concern about the increasing transaction volumes of Non-Bank Financial Institutions and Other Financial Institutions, noting major threats to financial stability.
Cardoso, represented by the Acting Director of the CBN’s Other Financial Institutions Department, Abayomi Arogundade stated this on Monday at the 10th Meeting of the College of Supervisors for Non-Bank Financial Institutions (CSNBFI) in Abuja, according to Nairametrics.
A non-bank financial institution is a corporation that provides financial services but does not have a banking license and hence cannot take deposits.
The CBN governor also mentioned the rise in fintech loans, as well as cryptocurrency and stablecoin assets.
Cardoso said “We reiterate the importance of monitoring trends, risks and innovations of NBFIs/OFIs 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.”
He stressed that, while these innovations provide great prospects for financial inclusion and efficiency, they also pose serious threats to financial stability if not adequately controlled.
The CBN has been actively striving to create mechanisms for efficiently monitoring and managing these risks.
Meanwhile, the Director General of the West African Monetary Institute, Dr. Olorunsola Olowofeso, recognized severe financial challenges in West Africa, including a funding pressure.
He stressed the need to strengthen the financial sector’s resilience to rising risks such as climate change, internet disruptions, cyber attacks, and social media-driven volatility.
Olowofeso said “In the WAMI, 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 digitization of financial services.”
He emphasized the significance of having effective national cybersecurity policies and regulatory frameworks to handle new risks and increase the financial sector’s resilience.
Mobile money operators (MMOs) in Nigeria, including OPay, Palmpay, and others, saw a rise in transactions in the first quarter of 2024, totaling N17.2 trillion. This is according to data from the Nigeria Inter-Bank Settlement Systems (NIBSS).
The amount for mobile money transactions in Q1 2024 marks an 89% year-on-year increase when compared to the N9.1 trillion transactions recorded in the same period in 2023.
