Transcript Strengthening the Financial System Establishing an

Strengthening the Financial
System
Establishing an International
Financial Centre
Anthony R P Williams, ACIB
Where are we now ?
• The Banking Sector
• Successful consolidation to produce 25
well capitalised banks.
• BUT “post-consolidation risk” still a latent
threat.
• Greater competition, ”real” banking,
• New products, term lending, retail banking
• Too much capital ? ROE - “Goodwill” in the balance sheet
• Ratings – international investors want to invest in Nigerian banks
Regulation
• Risk Based supervision
• Basel 2 adopted
• FATF approved – (at last !)
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Are managements/CBN/NDIC up to the challenge ?
Role of EFCC ?
Global standards on Anti-money laundering and Financial crime
419s
Insurance/Pensions
• Reform of Insurance industry not yet
successfully concluded
• Pensions reform looking good –
• Pencom - PFCs and PFAs – outside investment not yet
permitted
Stock Market
• Well regulated – a guest of London Stock Exchange last
week, showcasing Nigerian banks.
• Custody Services – Nigerian banks now offering
custody services.
Foreign Exchange
• Market maturing –
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Oil and Gas exports dominate – CBN a prime mover.
Cash market – Bureaux de change, Travelex etc
Diaspora remittances – Western Union, Card offerings,
Cover for imports – Nigeria is world’s major user of LCs
– post shipment inspection – UCP 600.
Nigeria’s status
• New Government – widely accepted worldwide in spite
of poll irregularities.
• Important role in regional peacekeeping – Liberia, Sudan etc
• Country’s natural resources – particularly
hydrocarbons - in demand (USA, China, India etc).
• Huge market – 140m people
• Unrest in Niger Delta area an ongoing concern
The Way Ahead
• Reforms to continue
• Consolidate reforms – GOVERNANCE –
• Are Directors (Banks, Insurance companies, etc) up to the job ?
• Staff integrity, training – professional workforce
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Risks – operational, credit, reputational etc
Financial Crime – AML – (EFCC)
Regulatory Compliance – KYC,KYB – the “African way”
CBN Supervision – quality of examiners, A level playing field,
Communicate the objectives – top down – include ALL Nigerians –
Co-ordinate actions – all elements marching on the same path.
Tell the good news – “perception” is more powerful than “actuality”
Control of the Economy
• Allow the professionals to do their job
• Inflation, money supply, exchange rate etc
• Federal and State governments must know their place. Do not let
them interfere in the private sector!
• Punish Stealing of national wealth (Financial Responsibilities Act)
• Accurate statistics needed to run a sound economy.
• Allow the private sector to prosper – every Nigerian is a potential
entrepreneur.
• Give Business a chance – Corporates of all sizes must contribute.
• They must also behave (File accounts on time, pay taxes etc)
• Accountants – Audits – world standards ?
• Legal framework - court process too long – corrupt judiciary ?
Financial Products
• Financial institutions competing at last !
• Few foreign players (Indigenisation Decree) – Citibank,
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Stanbic
Nigeria catching up – ATMs, Credit/Debit cards,
Telephone/Internet banking,
Insurance products – Life
Islamic Banking
New systems – I/T, satellites etc, Security of staff and customers
Money market – CDs, Interbank, Corporate/Government debt
Forward FX. Hedging. Internationalise the naira.
Priorities
• Financial Responsibility
• State Governments
– Annual Balance sheets and Budgets –
– monthly P & L reports posted on the internet. These important entities
can then begin to play their proper role in the financial life of the nation.
Bond issues etc. No overseas borrowing without CBN approval !
• Fiscal responsibility
– if public are to pay taxes they must see what they are getting.
– Hospitals, Roads, Schools
• EDUCATION, EDUCATION, EDUCATION
Land Use Decree
• This Decree - promulgated in 1978 - confers ownership of State land
(in contrast to Federal or “parastatal” land) in the State Governor.
• Not only has this Decree caused many social problems it continues
to disrupt “normal” bank financings because the taking of land or
property as security (a fundamental banking activity) is made more
complex – if not impossible.
• Early repeal is recommended so that “mortgage” lending can be
developed and the rural community in particular can prosper.
• The efficiency of Land registration services, surveys and valuations
will also require improvement.
Infrastructure/Security
• Financial markets rely on secure, reliable
communications:
• Telecommunications, roads, railways, air travel, sea
transport.
• Electricity supply.
• Safe environment for the staff.
• Reliable infrastructure – water, sewage
Establishing an International
Financial Centre
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Why Nigeria ?
What’s the attraction ?
Special incentives
Huge potential – resources, infrastructure projects
Which model ?
• The idea is to entice the major global financial institutions to set up
in Nigeria.
• In 1975 BAHRAIN promulgated regulations for the creation of
Offshore Banking Units (OBUS) modelled on those operating in
Singapore.
• OBUS are branches of international banks exempted from foreignexchange controls, cash reserve requirements, no corporate or
personal taxes etc
• Minimum paid up capital of USD50m.
• OBUs pay an annual licence fee (about USD26,000)
• Prohibited from dealing with residents of Bahrain (except
Government, its agencies or licenced commercial banks)
• Cannot deal in Bahraini dinars – can provide services to nonresidents.
Bahrain’s success
• Since 1975 over 50 OBUs have been established – these are fully
staffed operations – not “brass-plates”.
• Initially the Lebanese civil war caused an exodus of international
banks to Bahrain. OBU numbers rose to over 75 in the early 1980s
but declining oil revenues and the first Gulf War caused a number of
international banks to withdraw.
• Burgeoning oil revenues of its neighbours, the causeway to Saudi
Arabia, the return of Arab capital to the region after 9/11, as well as
Bahrain’s emergence as the premier “Islamic banking” centre have
re-energised the country’s success.
• An ambitious “Financial Harbour” project is being built on (more)
reclaimed land in Manama (as is the World Financial Centre “twin
towers” project).
Regulation
• Bahrain’s success has been based on strict attention to good
governance from the very beginning.
• The first Director of the Bahrain Monetary Agency – Alan Moore –
(formerly with Williams and Glyns and later Treasurer of Lloyds
Bank) worked closely with the Bank of England. That relationship
continues with the FSA.
• His successor, Abdalla Saif, is now the Financial Adviser to the PM.
• Bahrain operates a “light-touch” control regime for OBUs (which are
branches of foreign banks) – they are required to provide the Central
Bank with monthly statistical information, quarterly prudential reports
and annual audited financial statements.
• Bahrain Law (decree of 2001) makes money laundering and
assisting in money laundering an offence punishable with
imprisonment.
Other Factors
• Strategic location, midway between east and west time zones
(permitting trading for a maximum number of hours – open Sundays)
• Excellent internal infrastructure and international air transport links
(road to Saudi Arabia and a causeway to Qatar planned)
• No Taxes. Sustained low rate of inflation
• 100% foreign ownership of most types of business – no restrictions
on repatriation of capital, dividends or profits.
• Sophisticated and reliable telecommunications network.
• A well educated workforce – 27years of OBU banking experience.
• World class legal and accountancy framework
• Modern, high standard of living – cosmopolitan liberal family
atmosphere. Good shopping. Entertainment
• Low crime, secure environment.
• Pleasant and healthy climate. Sports facilities – golf, marina, etc
The people
• Bahrainis, like Nigerians are amongst the
most polite and friendly people in the
world.