‘Future Of Banking Hinges On Liquidity, Capital Adequacy’ | Independent Newspapers Limited
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‘Future Of Banking Hinges On Liquidity, Capital Adequacy’

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Posted: Apr 7, 2016 at 3:00 am   /   by   /   comments (0)



The future of banking in sub-Sahara Africa will be characterised by regulation with an eye on liquidity and capital adequacy, according to KPMG, a global management-consulting firm.

Regulators in the sub-continent must also consider customers, markets, governance and supervision to help shape the emerging landscape.

The consulting firm drew a sketch of the banking industry of the future in a recent study, ‘Evolving Banking Regulation Sub-Saharan Africa.’

According the firm, the study portrays the ‘African bank of the future’ that “seeks to define what the African banking landscape of the future will look like as well as the responses and preparations that leading banks will need to make to retain their leadership positions”.

“Our view is that these regulations will typically be around the following critical areas required for banks’ continued survival and performance – liquidity and capital adequacy, customer and markets, and governance and supervision.

“While different jurisdictions in sub-Saharan Africa (SSA) are at different stages of regulatory sophistication, the liquidity and capital adequacy considerations will be covered by the implementation of Basle 2 and 3 standards within the short to medium term, as well as a focus on the requirements and preparation for the roll-out of Basle 4 in the longer term.

Privacy rules will come to the fore in the new dispensation, the firm says, while pointing that regulators will protect users of derivatives and other complex products.

“In the customer and markets arena, privacy rules (which are virtually non- existent in most of Africa) and consumer protection mandates will dominate. In addition to these, we also foresee major focus on the definition of regulations on the use and sale of complex and semi-complex products like derivatives and other related products. Given their important role in the increase in leverage and the peculiarities in measuring their risks, the time for regulators to make conscious attempts at designing rules that will work for SSA is now.”

“Governance and supervision is a key area of improvement as capacity building among regulators is further adversely compounded by the fact that regulators usually have tool and infrastructural limitations. However, some African regulators are beginning to place more emphasis on recruiting industry veterans who have the requisite skill for effective supervision. This will ultimately raise the standards of regulatory supervision and oversight within the industry and put banks to task, as they must up-skill to comply.”

The study has become necessary, the firm says, because across various parts of sub-Saharan Africa, many changes are taking place in banks, their markets and regulatory environments. These changes, driven by both regulation and extraneous structural events like technology and demographics, have ignited a series of changes to financial stability landscapes, structures, culture and governance.

In the same study, the firm had given thumbs up to Nigeria’s central bank for averting a probable capital adequacy crisis amidst dwindling oil prices.

The report says countries like Nigeria are able to stave off capital adequacy concerns from strong exposure to the oil industry because of effective implementation of the Basel 2 accord.

“The Central Bank of Nigeria appears adequately prepared to address capital adequacy concerns of banks as a result of strong oil industry exposures only because the regulator had transitioned its banks towards Basel 2 standards”, the report says.

Describing the Nigeria’s regulator’s action as a relevant case study, the report went on to say: “In Nigeria’s case, the recent fall in crude oil prices and the resultant effect on the vulnerability of the economy, its currency and its commercial banks is a relevant case study”.