Stories by Amaka Ifeakandu
Lagos
The regulatory and supervisory authorities in the financial industry has been urged to be proactively positioned to forestall any systemic problems that would arise in the banking system as result of economic recession being experienced in the country. Director, Research and International Relations Department, Nigeria Deposit Insurance Corporation, Mohammed. Y. Umar who made this state at workshop said that during recession there is the possibility of some banks experiencing liquidity problems, which in extreme cases could result in threats to their continued existence. This he said will require the regulatory and supervisory authorities including NDIC to be proactive to prevent any problem that would occur from recession. Umar said
that the direction of monetary policy as a response strategy for the current recession has tendency to affect the earnings from the Corporation’s investment either negatively or positively depending on the decision of the monetary authorities.
Speaking further he said “if rates on Treasury Bills are pushed down, this will affect the returns on the Corporations investments and vice versa. He said that as recession bits harder, operators in the financial system who are in business to make profit, may start seeking ways to reduce or avoid costs in order to remain profitable. Apart from overheads, he said banks may seek for a reduction in their cost of funds such as insurance premium payments to the NDIC, adding that as the financial institutions begin to clamour for a cut in premiums payable, it would affect the funding of the Deposit Insurance Scheme (DIS).
He said in order to address the likely issues of reduced collection of premium payable by the insured institutions and by extension the growth of its insurance funds as a result of economic downturn and the fluctuations in the treasury bills rates, the NDIC needs to begin to explore other investment avenues in which to invest its funds.
On the other hand he said “governments needs to remain focused on its efforts at diversifying the economy and other policies put in place to ensure quick recovery from the current recession. When that is done, the economic environment will be conducive for the banks to operate safely which reduces the risk of failure and hence conseqencies on the NDIC.
