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Analysts, Fitch say Move to Basel III Positive for Banking System Stability

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Analysts, Fitch rating have said that move to the third Basel Accord will be positive for banking system stability.

Experts stated that the shake off in the banking sector in the last two to three years was due to poor risk management and weak oversight.

Analysts are of the view that the move to adopt key elements of the third Basel accord by deposit money banks would gain momentum in 2020.

Isaac Okorafor, the Director of Communication at the Central Bank of Nigeria www.cbn.gov.ng told MarketForces that the apex is considering issuing guideline on Basel III liquidity standard.

This is coming just as analysts have stated to predicting that the apex bank would further raise regulatory bar to ensure a balance financial system.

In a report, Fitch Ratings notified that it expects banks to remain well capitalised, providing a good buffer against rising downside risks.

The rating agency mentioned that increased capital requirements and the move to Basel III in Nigeria are positive for banking system stability.

At the third quarter earnings calls, banks top official said operators are waiting for the CBN to formalise move to adopt the accord.

Okorafor said: “We have already taken up some aspects of Basel III such as minimum capital adequacy ratio and higher loss absorptive capacity for our banks”.

At analysts’ forum, experts said that financial sector stability holds the key to economic prosperity in every country all over the world.

Pundits are of the view that adoption of key aspects of the accord which is designed to strengthen supervision, regulation and risk management within the banking sector is gradual, albeit slow.

Financial experts at the forum recalled that the 2008/2009 shake off in the global financial system engendered the accord to ensure stability and provide necessary support points.

The Bank of International Settlement led other policy makers in the global financial sector to guide against similar occurrence in the future, the situation that gave birth to Basel III.

In March, 2019 CBN’s edition on guideline for stress testing on Nigerian Banks, the apex bank stated that it is cognizant of the changes introduced under Basel 3 capital framework.

It stated that the changes include measures aimed at increasing the level and quality of minimum capital requirements over time.

This also includes the prescription of additional capital buffers, introduction of leverage ratio as a supplement to the risk-based capital ratios.

“These changes have not been taken into consideration in the development of this guideline.

“This however should not prevent individual banks from early adoption of the full expectation of Basel 3 requirements and standards as part of their internal capital and liquidity management processes”, the report reads.

Access Bank Plc, the largest financial service by balance sheet size, said at its earnings call that it has started taken step towards full adoption.

Speaking at the earnings call with analysts, Gregory Jobome the Executive Director of Risk Management said the CBN has been encouraging banks for a number of years to begin to adopt the elements of Basel III into their systems.

“Several of us have been doing that”, Jobome said.

He stated that this includes things like liquidity coverage ratio, net stable funding ratio etc., which are meant to guide for the liquidity and quality of funding aspects of the bank’s operations.

Jobome hinted that some provisional guide was provided a couple of years ago, and more specific guidelines are still expected.

“I reckon we’ll have to look out for CBN to formalize this. But on our part, we’ve already invested in this for a good number of years now on all those key Basel III aspects, who have been internally operating them”, Jobome said.

The implementation, after the adoption of International Financial Reporting Standard 9 with expects credit losses provision, chugging Basel III would obviously demand that some lightweight banks to visit the market to raise capital.

At the end of financial year 2017, the Group of Central Bank Governors and Heads of Supervision, which is the Basel Committee’s oversight body, endorsed the finalisation of Basel III reforms that will take effect from 1 January 2022.

Written By Sam Atanbiyi and Oluwafemi Michael

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