CBN Governor Warns of Financial Stability Risks From Rising NBFI and Fintech Transactions

The Governor of the Central Bank of Nigeria (CBN), Yemi Cardoso, has expressed concerns over the increasing transaction volumes of Non-Bank Financial Institutions (NBFIs) and Other Financial Institutions (OFIs), highlighting significant risks to financial stability.

This was disclosed by Abayomi Arogundade, Acting Director of the Other Financial Institutions Department at the CBN, who represented the CBN Governor at the 10th Meeting of the College of Supervisors for Non-Bank Financial Institutions (CSNBFI) held in Abuja on Monday.

The CBN governor said that NBFIs, which include entities offering financial services without banking licenses, have been growing in transaction volume. These institutions are however unable to accept deposits, differentiating them from traditional banks.

In his words,

“We reiterate the importance of monitoring trends, risks and innovations of NBFIs/OFIs as their increasing transaction volumes pose major financial system stability risk. 

“Fintech loans are one of the most commonly reported innovations. While overall this may appear small in relation to the size of credit by DMBs, some jurisdictions globally, have noted a growing trend in the volume of these loans. In many cases, fintech credit is provided via electronic platforms that connect lenders to borrowers in which case the platform takes the role of a financial auxiliary. 

“In some cases, however, loans are taken on the balance sheet of these platforms (even if it is short-term), in which case the platforms are akin to new types of financial intermediaries. These entities are typically fintech firms that offer applications, software, and other technologies to streamline mobile and online banking. 

“In many jurisdictions, these digital firms have a banking license and are subject to prudential requirements or they may just be regulated as Fintech payment service firms. Innovations linked to crypto or stablecoin assets were also reported by some jurisdictions.” 

He however stressed that while these innovations present significant opportunities for enhancing financial inclusion and efficiency, they also bring considerable risks to financial stability if not adequately regulated.

In a bid to address this, the CBN has been proactively developing frameworks to effectively monitor and manage these emerging risks.

Source: Nairametrics