Kingsley Moghalu gives his view on economic crisis and the banking reform
Efforts by financial institutions in Nigeria to achieve stability during the current financial crisis must rest on four pillars, a former official of the Central Bank of Nigeria (CBN) has said.
Kingsley Moghalu, a former CBN Deputy Governor on Financial System Stability, who spoke on “the global redesign of banking; the stake for Nigeria,” at a public lecture recently in Lagos, said the first pillar to attempt global stability is macroeconomic environment.
“It has been established that there is a big connection between the macroeconomic environment and financial stability. We’ve seen it not just globally but also in Nigeria,” Mr. Moghalu said.
He said one of the major causes of the crisis that faces some of Nigerian banks was macroeconomic in nature; in terms of the shock that came from the crash in the price of oil and the shock from the global financial crisis. “People literally sucked capital out of the capital market and that led to the collapse of the Nigerian Stock Exchange years ago. And since Nigerian banks were hugely exposed to both oil trading and the capital market, it was just a matter of time before they went into a deep crisis.”
The second pillar according to Mr. Moghalu is a revisit of business models. “A lot of the world began to go into universal banking over the last few decades. And this was introduced in Nigeria in 2001. But when you have financial supermarket (universal banking), it increases leverage and that is a huge exposure to risk.”
The third point is risk management; which is not just a question of downsides but understanding where opportunities lie and how to manage those opportunities without excessive exposure of the survival of the business. The last pillar of which the global respond will stand is enhanced regulations and supervision of banks around the world.
Making Choices
The Ex. CBN deputy governor said concise policies and leadership are about choices, “and every choice we make has a consequence. One of the challenges of leadership in Nigeria is vision. You need to have clear vision and understand the consequences of any choice you make and to follow it through.” Mr. Moghalu said people should not to shy away from making choices “because you will get the consequences of the choices you make or do not make.”
He said following the Central Bank choices on some banks during the reform, “the criticism we have had is only coming from a vocal minority,” who probably are not well informed about the reform. He added that the ultimate goal of the Nigerian banking reform is to ensure that the nation’s financial system contribute to the real economy.
