CBN Governor Flags Risks Posed by Non-Bank Financial Transactions

The Governor of the Central Bank of Nigeria, Yemi Cardoso, has expressed concerns over the escalating volume of financial transactions conducted by non-bank financial institutions (NBFIs) and other financial entities, highlighting the potential risks these activities pose to the stability of the West African financial system.

Addressing the 10th meeting of the College of Supervisors for Non-Bank Financial Institutions (CSNBFI) in Abuja on Monday, Cardoso acknowledged the critical role of NBFIs in fostering financial growth and inclusion within the West African Monetary Zone (WAMZ). He noted that these institutions provide essential financial services to underserved populations, including small and medium-sized enterprises (SMEs).

“NBFIs play a pivotal role in offering financial services that commercial banks do not, especially to sectors that are traditionally underserved,” Cardoso stated.

However, he warned that the increasing transaction volumes handled by these entities could pose significant risks to the overall financial stability of the region. “We reiterate the importance of monitoring trends, risks, and innovations within NBFIs and OFIs, as their growing transaction volumes present major stability risks,” he added.

Cardoso commended the CSNBFI for advancing regulatory frameworks, particularly the recent adoption of the Model Act for Non-Bank Financial Institutions and Non-Bank Financial Holding Companies across the WAMZ. Approved in March 2024, this legislative milestone aims to harmonise supervisory practices and enhance the resilience of the financial sector.

The governor also addressed the impact of fintech innovations, such as the rise of fintech loans, cryptocurrencies, and stablecoins, on financial stability. He urged supervisors to strengthen their cybersecurity frameworks and adopt risk-based supervisory approaches to mitigate associated risks.

“Fintech loans and digital platforms are reshaping financial intermediation. While these innovations offer significant opportunities for financial inclusion and efficiency, they also pose substantial risks to financial stability if not properly regulated,” Cardoso remarked.

He highlighted that in many jurisdictions, fintech firms are either regulated as fintech payment service firms or have obtained banking licenses, subjecting them to prudential requirements. “These entities often offer applications, software, and other technologies to streamline mobile and online banking, sometimes even acting as new types of financial intermediaries,” he noted.

Cardoso’s sentiments were echoed by Yaw Sapong, Chairman of the College, who underscored the importance of NBFIs in promoting financial inclusion and economic growth. Sapong highlighted the college’s achievements, including harmonised regulatory frameworks and the automation of supervisory processes.

“We must continue to work together to build a resilient and inclusive financial sector that supports sustainable economic growth in our region,” Sapong urged.

Dr Olorunsola Olowofeso, Director General of WAMI, also emphasised the need for enhanced resilience in the financial sector, pointing to emerging risks such as climate-related threats, cyber threats, and challenges posed by digitisation. “We must continue to monitor policy actions and spillovers to ensure the financial system is resilient,” he stated.

Both Cardoso and Olowofeso stressed the commitment to implementing the WAMZ integration agenda, ensuring that the region’s financial system remains robust and capable of supporting sustainable economic growth.