Basel III: We are considering issuing guideline on liquidity standard -CBN
Godwin Emefiele -CBN Governor

Basel III: We are considering issuing guideline on liquidity standard -CBN

The Central Bank of Nigeria has said that it is considering issuing guideline on Basel III liquidity standard.

The CBN said this in reaction to MarketForces enquiry about the implementation of the Basel III accord by deposit money banks (DMBs).

The apex bank, in reaction to MarketForces question about statements made at third quarter earnings calls that banks are awaiting CBN to formalise move to adopt the accord, said we have already taken up some aspects on the Basel III accord.

In message, Isaac Okoroafor 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 MarketForces Analysts forum in the week, analysts posited that financial sector stability holds the key to economic prosperity in every country all over the world.

Analysts 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.

Basel III: We are considering issuing guideline on liquidity standard -CBN
Godwin Emefiele -CBN Governor

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.

The Central Bank of Nigeria, while responding to MarketForces enquiry on Basel III position as at date, said it is considering issuing guidelines on liquidity aspect of the accord.

Financial experts however reckoned that regulation has intrinsic cost embedded in application on every system, and that has caused delay in full adoption in the Nigerian Banking system.

However, MarketForces enquiry into the adoption of Basel III by individual banks shows some mix reactions.

Banks with capital adequacy ratio that are at risk of falling below apex bank guideline dodge the enquiry made.

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 which 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 on adoption of Basel III, Gregory Jobome the Executive Director of Risk Management said the Central Bank 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.

Analysts said it is not clear if failure to adapt fully to guideline under the latest accord attract penalties.

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.

The third Basel accord requirements are instituted by the Bank of International Settlement (BIS) which is owned by 60 central banks.

Some banks are grappling with inadequate capital as shown in their results.

Pressure is also mounting on base capital as result of the need to meet the CBN’s loans to deposits ratio for December, 2019.

Analysts observed that many of the banks that did not meet 60% loan to deposits ratio (LDR) target in September may needs capital buffer to stretch forth towards meeting the 65% LDR set by the apex bank.

Reacting to questions on how far Zenith Bank has gone with the issued guideline, Marcel Eguabor said, “Implementation is in phases, as all banks are adopting the Basel III”.

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.

Read Also: CBN Rationalises Policies to Prevent Imminent Recession

Basel III: We are considering issuing guideline on liquidity standard -CBN


VIAJulius Alagbe, Economic/Financial Analyst
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