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Central Bank tasks banks on sustainable business models

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Deputy Governor, Financial System Stability, Central Bank of Nigeria (CBN), Aishah Ahmad, has urged financial services providers to commit to sustainability in designing their business models.

This will enable them to manage disruptions, and make a positive environmental and social impact in their quest to deliver value to their stakeholders.
 
According to her, banks and other financial institutions can only survive disruptions if they fully embraced sustainability principles, which have become more critical given the significant impact of the COVID-19 pandemic ravaging the world.

 
Ahmad made the call during her remarks at a Webinar, organised by the Centre for Financial Studies (CFS), of The Chartered Institute of Bankers of Nigeria (CIBN), aimed at ensuring Enhanced Sustainable Banking (ESB) Model for the banking sector in the event of major economic and business disruptions caused by the Coronavirus (COVID-19) pandemic.
 
She noted that although COVID-19 is primarily a health crisis, its negative spillover effects on businesses and Nigeria’s economy are complex and pervasive, and have considerably slowed economic activities in most countries. 
 
She maintained that prior to COVID-19, the financial services sector was undergoing significant evolution, stressing the need for banks to modify their business models to address changes caused by innovation, digitalisation, new entrants by Fintechs, increasing regulation, and the changing needs and behavioural patterns of customers.  
 
Her words: “These developments have triggered very aggressive changes in the financial services industry, introducing significant dynamism into the industry’s value chain, changing the mode of production, delivery, and consumption of financial products and services.”
 
To this end, she said the CBN’s Nigerian Sustainable Banking Principles (NSBP), has formally been adopted by the CBN and 33 banks, discount houses, and Development Finance Institutions (DFIs).
 
Also speaking, Vice Chairman, FMDQ Group, Jibril Aku, said the Nigerian economy is at the risk of another recession, and projected a new financial order post-COVID-19.
 
He maintained that to stimulate economic growth and opportunities, policymakers, banks, and capital markets must take urgent critical steps.
 
While the current situation is an opportunity for digital transformation and growth in e-banking offerings, Aku stressed the need for increased investments in ethical hackers and cybersecurity to cushion the rising rate of cyber threats, as many organisations have adopted digital platforms for service delivery.
 
He admonished the banking sector to ensure the effective implementation of sustainable banking principles with a focus on economic, social, environmental, and governance issues to boost reputation and investor confidence. 
  
Contributing, former Chairman, Access Bank Plc, Mosun Belo-Olusoga, said COVID-19 would lead to higher inflation, the decline in investment such as Foreign Portfolio Investments (FPI), and Foreign Direct Investments (FDI), contraction in forex income, and Gross Domestic Product (GDP), which would, in turn, lead to a fall in the value of the Naira.
 
Speaking on the effect of COVID-19 on the banking sector, she said this would lead to restrain on banks’ financial performance, migration of businesses to digital space, fall in Capital Adequacy Ratio (CAR) below the regulatory limit, decline in cash flow from loan repayment, and increase in fraud and cyber threats as a result of relaxed internal control.
 
Belo-Olusoga said: “Globally, 80 per cent of revenues from international earnings have gone down. A lot of banks are going to see a decline in their revenues. Most banks have released their First Quarter (Q1) records and some looked okay, while some looked flat.”

“Production companies have to find a way to mitigate the effect of the pandemic on the oil sector, and the government needs to also keep the international airports shut to mitigate the spread of COVID-19.

“There would be undue pressure on the bank customers, as the telecommunication infrastructure in the country is still where it used to be, though most businesses have gone online, and a lot of banks may not meet the capital ratio prescribed by CBN, because there were no businesses and no monies were made.”
 
Meanwhile, the Coordinator, ERSM Nigeria Programme, International Finance Corporation (IFC), Ibrahim Salau, said banks are currently faced with COVID-19 era risk, which has escalated credit risk, reputational risk, and liability risk.
 
However, he said environmental and social opportunities like access to new investor’s funds and climate finance, increased operational efficiency, cost savings, and enhanced corporate resilience are available for the banks.
 
He noted that stakeholders have become agitated and impatient, due to the pandemic pressure, and urged banks to build stakeholders trust, in order to achieve resilience.


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