The International Monetary Fund has urged Nigerian regulators to tighten controls on banks following the recent recapitalisation exercise, warning that stronger capital bases alone cannot guarantee financial stability.
The Fund called for closer monitoring of banks’ exposure to government debt, adequate cash reserves to meet obligations and faster identification of bad loans to prevent risks from building up in the financial system.
The Assistant Director in the IMF’s Monetary and Capital Markets Department, Jason Wu, advised during a briefing on the Fund’s Financial Stability Report at the ongoing IMF and World Bank annual meetings in Bangkok, Thailand.
Wu said emerging economies needed appropriate regulations after recapitalisation to ensure that risks did not accumulate within their banking systems.
He identified adequate capital and liquidity requirements, early recognition of credit losses and non-performing loans, and closer monitoring of banks’ exposure to government debt as important measures for protecting the sector.
He noted that the link between government borrowing and banking sector stability was particularly important in Africa, where regulators needed to understand how much risk banks faced through their investments in government debt.
The IMF’s warning comes after Nigeria’s banking sector recapitalisation exercise, which was designed to strengthen lenders’ financial positions and improve their ability to support businesses and economic growth.
While the exercise increased banks’ capital, the Fund stressed that effective supervision and sound risk management were necessary to ensure that stronger balance sheets translated into lasting financial stability.
It also called for sustained compliance with regulatory standards to prevent vulnerabilities that could threaten financial institutions.
Separately, Athanasios Vamvakidis, Deputy Director in the IMF’s Monetary and Capital Markets Department, warned that emerging markets could face fresh financial pressure if global borrowing costs rise.
He said emerging economies had benefited from relatively favourable market conditions, including historically low risk spreads, supported by sound domestic policies and economic fundamentals.
However, he warned that the combination of high yields and narrow risk spreads was unusual and could change as developments in advanced economies and fresh energy price shocks push borrowing costs higher.
Vamvakidis said even countries with strong economic fundamentals needed to prepare for less favourable global financial conditions.
He added that external shocks could make it more expensive for emerging economies to borrow from international markets, underscoring the need for sound domestic policies and stronger financial safeguards.
The IMF official also highlighted debt transparency as essential to maintaining investor confidence and ensuring continued access to international financing.
He said clear disclosure of governments’ outstanding debt obligations could reassure investors and help countries, including those in Africa, retain access to foreign-currency borrowing.
The Fund’s position highlights the need for Nigeria to sustain banking sector reforms by strengthening supervision, improving liquidity management, identifying bad loans promptly and keeping banks’ exposure to government debt under close watch.
It said these measures would help protect the financial system from domestic weaknesses and external shocks.
