Minister of Finance, Budget, and National Planning, Zainab Shamsuna Ahmed, has said that the fiduciary nature of banking business alongside increased social-economic challenges has increased the risk of banks failure, with significant implications for depositors’ losses and erosion of public confidence in the banking system.
She said this on Tuesday at the opening ceremony of the 2022 International Association of Deposit Insurers(IADI) Africa Regional Committee workshop, which was held in Abuja.
Speaking as a keynote speaker at the workshop themed: “Normality in Turbulent Periods: The Stabilizing Role of Deposit Insurance”, she said the banking industry remains pivotal in supporting the real economy through the provision of innovative products and services to all relevant stakeholders.
What the minister is saying
Speaking further, the minister said the negative impact of the socio-economic challenges raised a number of questions concerning the role of the deposit insurance system (DIS) in contributing to financial system stability.
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She said “I consider the theme of this workshop very pertinent, in the light of recent socio-economic challenges that have continued to undermine the safety and stability of the financial system across the globe, accentuated by the lingering effects of COVID-19 Pandemic, Russian-Ukraine war, global supply disruptions, and climate change challenges. These have posed myriads of challenges and risks to the safety and stability of the global financial system.
“Indeed, the banking sector remains pivotal in supporting the real economy through the provision of innovative products and services to all relevant stakeholders. However, the fiduciary nature of the banking business, coupled with increased social-economic challenges across the globe, has increased the risk of banks’ failure, with significant implications for depositors’ losses and erosion of public confidence in the banking system.
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“The negative impact of these challenges on economic growth and financial sector stability in most economies of the world raised a number of questions concerning the role of DIS in contributing to financial system stability. It has equally demonstrated the important role played by the deposit insurance system, as a component of financial safety-net arrangements in most jurisdictions across the globe, given that depositor protection is a critical element necessary for maintaining and restoring financial stability.
Speaking on the Nigerian economy she said “The Nigerian economy, like others, felt the brunt of the global economic distortion, having to go into recession twice in the space of five years. However, given the resilience of the nation’s financial system, we came out within months. We also make bold to say that despite these economic challenges, no depositors’ funds were lost given the effectiveness of our agencies, most especially the CBN and the NDIC.
“It is well known that DIS, thus provides a financial guarantee to protect depositors in the event of bank failure and therefore forms a critical component of the financial safety-net arrangement. This guarantee offered by DIS plays a major role in strengthening depositor confidence in the financial system during a crisis.
The minister noted that the deposit insurers play an effective role during the crisis by way of performing the roles and responsibilities as stipulated in their mandates.
She said “ The NDIC, which was established in 1989, with a mandate of a risk minimizer, has since inception and most especially during critical times been able to allay the fears of depositors through; its wide array of public enlightenment/education programs, collaboration with the CBN in the efficient supervision of insured institutions to promote sound risk management which reduces the likelihood of failure and effective resolution of failing banks. All these have helped to improve public confidence, protect depositors and promote the stability of the Nigerian financial system.
She revealed that the ministry, under her watch implemented a set of difficult but necessary reforms to help the country navigate an extremely challenging economic environment.
She said “That to a great deal, in collaboration with the CBN, NDIC, and other agencies explain why the country’s GDP rose to 3.54% year-on-year in the second quarter of 2022. The GDP growth marks the seventh consecutive quarter of GDP growth, since the recession recorded in Q3 2020, the minister said.
She added that the Nigerian economy has so far shown signs of resilience in the face of economic headwinds like the conflict between Russia and Ukraine, which affected the global economy.
What you should know
The workshop was hosted by the Nigeria Deposit Insurance Corporation (NDIC).
The workshop being held in Abuja is slated for September 4th through to 7th.