Connect with us


Money Laundering Watchlist: Nigeria Risks Banking, Economic Dangers



Money Laundering Watchlist: Nigeria Risks Banking, Economic Dangers

Economic and financial experts at S&P Global Ratings have hinted that Nigeria’s inclusion in the Financial Action Task Force’s (FATF’s) grey list on money laundering could portend dangers for the country’s financial sector and the entire economy.

It said the development could raise financial transaction and compliance costs for the Nigerian banking sector and exacerbate already severe foreign currency shortages.

These risks are largely captured within S&P’s existing ratings on the sovereign and Nigerian financial institutions.

Business Metrics reported that in the latest review, Nigeria and South Africa had been included in the Financial Action Task Force’s (FATF) money laundering grey list.

The FATF’s grey listing reflects deficiencies identified in Nigeria’s framework for tackling money laundering and combating the financing of terrorism.

Experts said while Nigerian authorities have committed to improving legislative and regulatory gaps, the expectation with the latest development is that not only financial institutions, but also designated nonfinancial businesses and professionals such as accountants and lawyers, will need to demonstrate their ability to identify and address money-laundering risks.

What the Experts are saying: 

“We believe that the protracted militant insurgency in the North of Nigeria, tensions in the Niger Delta, issues in neighboring countries, and the large informal sector exacerbate risks of illicit domestic and cross-border transactions.

“Nigeria’s financial system is also highly reliant on cash transactions due to the large informal sector.

“These factors threaten the country’s anti-money laundering/combating the financing of terrorism (AML/CFT) regime.

“Our ‘B-‘ long-term rating on the sovereign and the negative outlook are partly influenced by significant regulatory and governance shortcomings.”

Bank’s Cost: According to the experts, banks’ costs will likely be affected by the grey listing.

It said, “Based on our observations in other African countries on the grey list, we expect Nigerian banks to manage to maintain their correspondent banking relationships, but due diligence, compliance, and transactions costs will likely increase.”

While Nigerian banks have historically been exposed to external refinancing risk, the sector recorded a net external asset position in 2021. Banks grew their foreign assets by 30%, while their liabilities declined by 2%. We expect the sector’s external position to remain broadly stable in 2023.

Despite some reputational risk and potentially higher cost of compliance, the implications of grey listing for Nigeria’s banking sector are likely to be contained, S&P said.

Digital Banking to the Rescue:

The Nigerian banking sector has come a long way since the 2009 crisis. Banks’ digital capabilities could help facilitate the identification and reporting of AML/CFT gaps in their risk-management frameworks.

The banking sector’s digital transformation has led to the strengthening of client onboarding and traceability over time.

This was further underpinned by the mandatory issuance of a national identification number to citizens in 2015; this is used, for example, to open a bank account.

However, adoption has been slow in the country despite its large size, which has an estimated population of over 200 million.

“Despite the Central Bank of Nigeria (CBN’s) efforts to reduce cash transactions, banking intermediation is low,” the Ratings agency noted.

Meanwhile, aspects of ownership, management, and governance of rated banks have improved thanks to the 2010 banking reform.

It however noted that governance deficiencies and lack of transparency in the broader economy continue to affect the banking sector, adding that such gaps could create systemic risks, given the generally high single-name and sector concentration.

“The banking sector has benefited from significant reform momentum, with the CBN issuing guidance on emerging risks such as sustainable banking and cyber risks.

“Nevertheless, disparities in information technology and human resources persist across the sector. In addition, the CBN’s adoption of global best practices has been lagging. For example, full adoption of Basel III’s capital buffers remain elusive, given the persisting scarcity of foreign currency in the banking sector and the weakening naira.

What you should know:

  • Listing of Nigeria on the Financial Action Task Force’s grey list puts the image of the country in jeopardy in the face of global investors and financial institutions.
  • BusinessMetrics noted that Being added to the list can impact a country’s global financial reputation and, in the long term, can reduce its chance of obtaining funding from development institutions.
  • Lack of transparency and decisive action against the scourge lower the chances of the country to attract foreign direct investments (FDI) and foreign portfolio investments (FPI).

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published.

Advertisement Enter ad code here