By
IMF MD, Christine Lagarde and World Bank President, Robert Zoelick
The World Bank and the International Monetary Fund (IMF) are to assess the stability of Nigeria’s financial sector. The test will be carried out before the end of this year, The Nation has learnt.
The motive for the test, according to a top official of the Finance Ministry, is to examine the strength of the country’s financial system and guide against vulnerability to shocks as experienced in 2009.
The exercise, which falls under the Financial Sector Assessment Programme (FSAP), established in 1999, is a comprehensive and in-depth analysis of a country’s financial sector. FSAP assessments are the joint responsibility of the IMF and World Bank in developing and emerging market countries and of the Fund alone in advanced economies, and include two major components: a financial stability assessment, which is the responsibility of the Fund and, in developing and emerging market countries, a financial development assessment, the responsibility of the World Bank.
The focus of FSAP assessments is twofold: to gauge the stability of the financial sector and to assess its potential contribution to growth and development.
The FSAP teams examine the soundness of the banking and other financial sectors; conduct stress tests; rate the quality of bank, insurance, and financial market supervision against accepted international standards; and evaluate the ability of supervisors, policymakers, and financial safety nets to respond effectively in case of systemic stress. While FSAPs do not evaluate the health of individual financial institutions and cannot predict or prevent financial crises, they identify the main vulnerabilities that could trigger one.
Already, the Central Bank of Nigeria (CBN) has given banks templates on how the test will be done to enable them to make the necessary preparations.
The test may also have been necessitated by the decision of the Federal Government to borrow $7.9 billion from the World Bank, African Development Bank (ADB), Islamic Development Bank, EXIM Bank of China and Indian lines of credit.
The funds are to be used to cover pipeline projects in the 2012-2014 External Borrowing Plan.
Under the plan, the government will borrow $2.64 billion yearly.
Apart from the test, the global financial institutions are also expected to re-appraise the banking sector reform initiated by the CBN Governor, Sanusi Lamido Sanusi, in 2009.
Essentially, the test is to ensure that the banking industry is stable, said a top CBN official, who does not want his name in print because of the sensitive nature of the matter.
Barely a month after Sanusi assumed office in 2009, he said he was alarmed by the fact that the total amount outstanding for banks at the Expanded Discount Window (EDW) was N256.571 billion, most of which was owed by five banks.
He said a review of the activity in the EDW showed that four banks had been almost locked in as borrowers and were clearly unable to repay their obligations.
A fifth bank, he added, had been a very frequent borrower when its profile ordinarily should have placed it among the net placers of funds in the market.
To get to the root of the matter, the Governor ordered a joint examination of 10 banks by the CBN and the Nigeria Deposit Insurance Corporation (NDIC).
By the result of the examination, which was made public on August 14, 2009, the CBN found five institutions in a ‘grave situation’.
The banking watchdog pointed out that the management of the banks were found to have also acted in a manner detrimental to the interest of their depositors and creditors. The apex bank later started the audit of the remaining 14 banks.
After a review of the findings of the Special Examination of the 14 banks, the CBN announced on October 2, 2009 that nine banks had adequate capital and liquidity to support the level of their current operations and future growth.
The 10th bank was adjudged to have insufficient capital but not in grave situation because it had a healthy liquidity position.
The remaining four banks were found to be in a ‘grave situation’, but two were spared because there were no indication of poor corporate governance practices. They only lacked liquidity.
The CBN subsequently injected N200 billion as liquidity support and long-term loans in the three banks - bringing its financial intervention in the industry at the time to N620 billion.
The banking watchdog has since revoked the licences of Afribank, Springbank and Bank PHB because it said they did not show the necessary capacity to recapitalise.
The apex bank set up “bridge banks”to acquire the assets and liabilities of the trio, which were then sold to Asset Management Company of Nigeria (AMCON).
The banks that sprang from the defunct banks are MainStreet Bank Limited (Afribank Plc; Keystone Bank Limited ( Bank PHB) and Enterprise Bank Limited (Spring Bank).
AMCON has injected N679 billion into the new banks via bonds. MainStreet Bank received N285 billion; Keystone Bank secure N283 billion while Enterprise Bank was given N111 billion.
The Managing of AMCON, Mr Mustapha Chike-Obi, said the three banks will be sold before the end of 2013.
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