Abolition of Universal Banking in Nigeria - Implication for Nigerian Banks
BASEL III AND ABOLITION OF UNIVERSAL BANKING MODEL – IMPLICATION FOR NIGERIAN BANKS
Introduction:
In the aftermath of the economic recession which pulled down many global banks and exposed multiple weaknesses in regulation and banking structures, the Basel Committee on Banking Supervision agreed to new rules on the minimum level (capital ratio) and composite structure of Banks capital on the 12th of September, 2010. Broadly speaking, the new rules which are widely referred to as Basel III (and are mainly Basel II plus new regulations based on lessons from the market crisis), still stipulate a minimum Total Capital Ratio of 8%. However, in addition to increasing the portion of the 8% requirement that is Core Tier 1 Capital (from 2% to 4.5%), it requires Banks to reserve more common equity under what it calls Capital Conservation Buffer (2.5%), which in many respects is a modification of the IMF proposed ‘Bank Tax’. Thus, with this new buffer, Banks’ Total Capital Ratios would rise to a minimum 10.50%. However, these new capital requirements will be progressively implemented over an 8-year span, with full implementation taking effect by January 1, 2019 (BIS, 2010). Furthermore, following the final assent to the Basel Committee’s proposals at the Seoul G-20 Leaders Summit in November 2010, member countries of the Bank for International Settlement (BIS) are currently domesticating the proposal and making further amendment in line with the peculiarities of their country’s financial system.
In apparent response to the developments in global financial community especially the new Basel III, the Central Bank of Nigeria in a Circular No. BSD/DIR/GEN/UBM/03/025 dated September 7, 2010 gave hint to abolishing the operation of the 10-year old universal banking concept. Some of the reasons proffered by the regulatory body for the abolition include the enhancement of the quality of banks, financial system stability and evolution of a healthy financial sector, ensuring the
Introduction:
In the aftermath of the economic recession which pulled down many global banks and exposed multiple weaknesses in regulation and banking structures, the Basel Committee on Banking Supervision agreed to new rules on the minimum level (capital ratio) and composite structure of Banks capital on the 12th of September, 2010. Broadly speaking, the new rules which are widely referred to as Basel III (and are mainly Basel II plus new regulations based on lessons from the market crisis), still stipulate a minimum Total Capital Ratio of 8%. However, in addition to increasing the portion of the 8% requirement that is Core Tier 1 Capital (from 2% to 4.5%), it requires Banks to reserve more common equity under what it calls Capital Conservation Buffer (2.5%), which in many respects is a modification of the IMF proposed ‘Bank Tax’. Thus, with this new buffer, Banks’ Total Capital Ratios would rise to a minimum 10.50%. However, these new capital requirements will be progressively implemented over an 8-year span, with full implementation taking effect by January 1, 2019 (BIS, 2010). Furthermore, following the final assent to the Basel Committee’s proposals at the Seoul G-20 Leaders Summit in November 2010, member countries of the Bank for International Settlement (BIS) are currently domesticating the proposal and making further amendment in line with the peculiarities of their country’s financial system.
In apparent response to the developments in global financial community especially the new Basel III, the Central Bank of Nigeria in a Circular No. BSD/DIR/GEN/UBM/03/025 dated September 7, 2010 gave hint to abolishing the operation of the 10-year old universal banking concept. Some of the reasons proffered by the regulatory body for the abolition include the enhancement of the quality of banks, financial system stability and evolution of a healthy financial sector, ensuring the
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