By Udeme Clement
Following the economic crisis as well as recession facing Nigeria and other countries within the sub-region, the College of Supervisors of West African Monetary Zone (WAMZ) has moved to curtail banks failure in the system. WAMZ is doing this by ensuring that only credible promoters are given license to operate a bank, in order to avoid liquidation and its adverse consequences on the economy.
A financial expert in the sub-region and current Adviser to the governor, Central Bank of Gambia, Mr, Ousman Sowe, made this known, while delivering a lecture on, ‘Bank licensing process; intermediate banking supervision’, at the regional course on banking supervision, organised by WAMZ in collaboration with West African Institute for Financial and Economic Management (WAIFEM), in Lagos.
According to him, “Within the sub-region, we have more of liquidation than license issuance, and it’s a major financial crisis because banks use depositors’ money to do business. So, proper evaluation of the financial position and sources of funds for banks must be carried out, in order to check money laundering. For instance, an investor can bring in N100billion and launder the money within few months, paving the way for bank failure.
Therefore, investors must meet the criteria before any license is issued for a new bank, because once bad elements enter the financial system, it is difficult for them to be rooted outs before the damage is done. The licensing authority has the power to set criteria and reject applications that do not meet such criteria. They must consider core principles like operating plan and financial projections including capital. Only banks with the capacity to operate successfully should be given licenses.”
In his remarks, the new Director, Financial Sector department, Mr. Paul Mendy, who represented the Director General of WAIFEM said, “The need for financial stability in economic management and overall welfare of people cannot be overemphasised.
The recent global financial crisis has fundamentally drawn attention to the need for efficient system anchored on sound regulatory framework. Over the last decade, the financial markets have become open and global, thus the use of administrative controls to restrict activities of financial intermediaries is imperative. Now, national capital markets are not insulated from capital flows and government must intervene to counteract undesired capital market development.”
He added, “Given the rapid technological advances, there is need to strengthen the internal discipline of capital and financial markets to ensure stability of the financial system. So, it is imperative for supervisors to promote prudent behaviour by financial intermediaries and other market participants.
A relatively new tool to deal effectively with the new challenges is risk-focused banking supervision, which entails maintenance of a dynamic supervisory plan that responds to organisation’s changing risks profile”.