CBN set to strengthen non-interest financial institutions

The Central Bank of Nigeria (CBN) is set to reposition Non-Interest Financial Institutions (NIFIs) in Nigeria.

This follows the release of separate guides to the operations of NIFIs last week.

They are: Guidance Notes on the Calculation of Capital Requirement for Market Risk for Non-Interest Financial Institutions; Final Guidelines on Islamic Financial Services Board Standards for Nigerian Non-Interest Financial Institutions; Guidance Notes on Disclosure Requirements to Promote Transparency & amp; Market Discipline for Non-Interest Financial Institutions.

Non-interest banks otherwise known as Islamic banks give no interest loans to their customer. That is, their loans do not attract any interest.

According to the apex bank,  all conventional, Deposit Money Banks (DMBs), that already have Islamic (products, investment) windows are required to establish a separate and self-accounting Islamic banking department.

The department, according to the bank, shall have designated management as contained in the CBN Guidelines for the Regulation and Supervision of Institutions Offering Non-Interest Financial Services in Nigeria.

This is part of the Guidance Notes on Regulatory Capital for NIFIs in Nigeria.

The apex banking sector regulator further stated that DMBs shall allocate a notional capital fund (not Share capital) for the operations of the Islamic Window.

According to the CBN, NIFIs are required to maintain a minimum regulatory CAR of 10 per cent or 15 per cent for banks with National or International licence respectively as may be determined by CBN from time to time.

This Guidance Notes (GN) on regulatory capital defines eligible capital for the purpose of computing Capital Adequacy Ratio (CAR) by NIFIs in Nigeria, while noting that the rules governing regulatory capital, its components and required deductions to the capital levels shall be applied by the NIFIs for assessment of qualifying capital.

Accordingly, CBN will consider prescribing a higher level of minimum capital ratio for each NIFI under the Islamic Financial Services Board (IFSB) IFSB-15 on the basis of their respective risk profiles and risk management processes.

Furthermore, in terms of the IFSB-15 requirements of the capital adequacy framework, NIFIs are expected to operate at a level well above the minimum requirement.

• Customs generates N311.2bn revenue in 3 months

The CBN noted that the objectives of this Guidance Notes are as follows: to assist the NIFIs in the implementation of a capital adequacy framework that will ensure effective coverage of risk exposures and allocation of appropriate capital to cover these risks, thus enhancing the resilience of the NIFIs; to provide guidance on the maintenance of high-quality regulatory capital components by NIFIs, which comply with Shari`ah rules and principles; to provide guidance on items that shall be deducted from NIFIs’ capital; and to adapt international best practices, as well as current and emerging standards relating to capital adequacy for NIFIs.