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Africa Economic Institute

Nigeria's Financial Reforms Proposed by the Presidential Steering Committee

  Nigeria's head of the Presidential Steering Committee on the Global Financial Crisis has proposed some far reaching measures in order to restore confidence in the banking industry and the financial services sector. President Umaru Musa Yar'Adua, last week, approved the measures. A few of the measures include establishing a…

Nigeria’s head of the Presidential Steering Committee on the Global Financial Crisis has proposed  some far reaching measures in order to restore confidence in the banking industry and the financial services sector. President Umaru Musa Yar’Adua, last week, approved the measures. A few of the  measures include establishing a Financial Service Regulatory Committee and government revisiting the idea of establishing an Asset Management Company.

The aim of the immediate establishment of a Financial Service Regulatory committee, which has to meet monthly, is to review and monitor developments in the financial system and respond accordingly. The committee will be comprised of members for the Central Bank of Nigeria (CBN), Securities and Exchange Commission (SEC), National Deposit Insurance Commission (NDIC), National Insurance Commission (NIC), and any other regulator that is critical to the financial system.

Another key element of the reform plan, announced by Manshur Muhtar, the Finance Minister,  is the establishment of an Asset Management Company.  The company will be held accountable for taking over the toxic assets, primarily margin loans and facilities extended to oil marketing companies. The Asset Management Company was first tabled in 2004 by CBN’s Governor Chukwuma Soluda due to consolidation at the time. The Asset Management Company will be similar to what the US government is currently doing with bad loans or a ‘bad bank’. Unlike usual ‘bad banks’ that stop existing after assets have been liquidated, the Asset Management Company will continue to exist. But the company will also be allowed to acquire both toxic and non-toxic assets on behalf of the government. To speed up the establishment of the Asset Management Company, the Presidential Committee has asked the original bill to be revived and sent to the office of the Attorney-General and Justice Minister.

The Presidential Steering Committee is looking to quickly pass the law for the establishment of an Asset Management Company. If such a company does eventually exist, it will alter the ownership structure of banks where the government will hence forth own part of the bank. However, the government will only hold shares for a specified or pre-determined period. Afterwards, shares shall be publicly traded on the Nigerian Stock Exchange (NSE).

The urgency of establishing an Asset Management Company comes after the global financial crisis. The health of Nigeria’s banking system is of utmost importance, since it accounts for almost two-thirds of market capitalization in the equity market. In 2008, the equity market recorded its worst decline,  falling 45 percent.

Other reform measures proposed by the Presidential Steering Committee include that the Central Bank of Nigeria should make it mandatory for commercial banks to adopt International Financial Reporting Standards (IFRS) effective immediately. The change in reporting standards would be administered by the Nigerian Accounting Standard Board and other stakeholders. The push to adhere to international standards will allow for Nigeria’s commercial banks and banking sector to become competitive in the global market.

The Steering cCmmittee also further endorsed an earlier proposal by the CBN and the Bankers’ Committee to adopt a standard year end for financial reports for commercial banks. The Steering Committee has asked for the Banker’s Committee to discuss this matter within its members and set their own common year end date. CBN had introduced a common year end last year but due to out of control interests and the falling stock market banks were forced to abandon the policy. But the CBN has stated that the Banker’s Committee can defer setting a common year end until December 2010 if it is not economically feasible at the moment.

The Steering Committee is also looking to change the financial landscape of the Nigerian banking system by getting rid of CBN’s banking supervision. The committee looks to the executive or presidential candidate to send a bill to the National Assembly that will result in the review, amendment and repeal of all laws governing the financial services and sector and its operation. The bill will also include the establishment of an independent oversight body specifically geared towards overlooking the financial sectors , which include the banking sector, insurance sector, pension funds, clearing houses, and capital market operations. The aim is to lessen the responsibility of the Central Bank of Nigeria so that it can focus more on monetary policy implementation and inflation.

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