Expert: SVB run poses a risk to seven major Nigerian banks
An economist named Kazeem Bello has suggested that “seven large banks in Nigeria” may be hit by the “wave of storm that would sweep banks and other financial institutions in the U.S. as it manifests” in response to the recent failure of the Silicon Valley Bank (SVB) in the United States of America.
The American authorities recently closed down another significant regional bank, Signature Bank, on March 13.
The governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, has requested that the African central banks tighten their regulatory frameworks in order to prevent the impending crisis.
Emefiele raised the alert at the opening of the 2023 African Central Bank Conference held at the Global Leadership Center, Johannesburg, South Africa, on Wednesday, March 15.
He warned that African central banks and other financial sector regulators needed to draw lessons from the SVB collapse by playing their regulatory and supervisory roles effectively to forestall any run on banks in their respective jurisdictions.
The SVB’s astonishing fall began on Friday, March 10, when its customers rushed to draw down their accounts all at once in a destabilising event known as a bank run.
According to a report by the Cable News Network (CNN), SVB provided financing for almost half of the United States venture-backed technology and health care companies. This is the largest failure of a U.S. bank since Washington Mutual in 2008, during the Great Recession.
Bello, who is the chief executive officer and principal partner at Afrique Capital and Equity Funds Limited in New York, told The ICIR that “about seven major Nigerian banks already known in the global banking terrain or financial circles are running seriously below their distress parity lines.”
Bello, a global development economist, did not disclose the banks but stressed, “They are technically distressed, and they are just floating, waiting to be buried as we speak.”
He believed that the scorching naira redesign policy of the CBN would eventually expose the banks once depositors were able to pull their money out when the current abnormal financial landscape subsides.
“Those banks and others will see a massive deposit run,” he said, as he explained that customers would, in both the short and medium terms, resort to holding cash at home or outside of the traditional banking system.
“We shall see more Naira being held outside the banking industry on a massive scale never before due to the usual phobia people are nurturing that when something happens in Nigeria, there is always a tendency that it will happen again.”
“More traders and rural population people will resort to holding more cash until we are able to see confidence built in the system by the CBN and the banking system,” Bello added.
A lecturer at the Department of Finance, University of Lagos, Abu Noruwa, also told The ICIR that there was a need to regulate the Nigerian banking system for effective and efficient performance.
Noruwa argued that “tightening the regulations” was not the best word, but a good regulatory framework to ensure total compliance.
“The regulatory frameworks or the laws are already in place, but there is the need to ensure full compliance,” he said, adding, “When the rules of the game or regulatory frameworks are not followed or complied with, the end result is devastating to both the banking industry or individual, and the economy generally.”
There are so many consequences for not following the regulations, rules, and procedures of the system, the lecturer warned.