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Bank Failure: W/African Monetary Zone Warns On Systemic Crises

W African Monetary Zone Warns On Systemic Crises

Following incessant cases of bank failure within the West African sub-region, regulators have been trained on new techniques for examining banks on risks associated with credit/default risk, foreign exchange risk, interest rate risk and liquidity risk to fit into the current trend in the dynamic financial environment.

Speaking at the training organised by College of Supervisors of the West African Monetary Zone (WAMZ) in collaboration with West African Institute of Financial and Economic Management (WAIFEM), a senior Economist, Mr. Kemoh Mansaray, from West African Monetary Institute (WAMI) explained that lack of adequate supervision is part of the reasons there is bank failure in the sub-region.

“The training was designed to enhance efficiency in examining banks to ensure stability of financial institutions within the region. The training drew supervisors from the Central Banks of Gambia, Ghana, Liberia, Nigeria and Sierra Leone because strengthening the supervisory framework in Nigeria alone will not cover the entire region.

For instance, we have Zenith Bank and other Nigerian banks with subsidiaries in countries within the sub-region. So, bringing supervisors from the sub-region became imperative to boost the entire West African sub-region”, he said. Also speaking, the Director, Administration and Finance, WAIFEM, Mr. Euraclyn Williams, said, “Risk-focused banking supervision (RFBS) entails development of a supervisory plan that is relevant to the organisation’s changing risk profile. The risk of bank failure snowballing into contagion that might culminate in eventual collapse of an economy necessitates the need to put in place a robust banking regulatory framework to avoid systemic risk.

This requires overhauling the  financial oversight frameworks and changes in the supervisory frameworks of countries in the sub-region. We need the existence of rule of law that ensures enforceability of contracts, existence of regulatory agencies, which must be operationally independent and sufficiently funded to carry out their duties.   Others include the need for banking and other financial sector supervisors to work closely to achieve co-ordinated supervision through timely information flows, facilitated by enhance information technology.

He went on, “The significant supervisory challenges presented by the growing number of financial conglomerates, as different agencies are responsible for each traditional segment of the financial industry. Hence, an effective mechanism should be put in place to co-ordinate supervision of such conglomerates.

Capital adequacy is vital because capital serves as a risk-absorbing buffer to enable banks be prudent in risk taking. So, it is essential for supervisors to monitor the level of bank capital consistent with risk exposure in banks. We must establish explicit deposit insurance schemes in our sub-region to mitigate deleterious consequences associated with systemic crises. We should build capacity of supervisory agencies in credit analysis and risk management in banking organisations”.

Categories: BANKING
Haruna Magaji: Haruna Magaji is a journalist, foreign policy expert and closet musician. He is a graduate of ABU Zaria and a member of the Nigerian union of journalists. JSA, as he is fondly called, resides in Suleja, Abuja. email him at - harunamagaji@financialwatchngr.com
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