Welcome review of BOFIA
A new bill, Banks and Other Financial Institutions Act (BOFIA) (Repeal and Re-enactment) Bill 2020, which is intended to update the existing Act and bring it in line with global best practices, had passed the Second Reading in the Senate last Tuesday. With that development, it is now disposed for the critical stage of a public […]
A new bill, Banks and Other Financial Institutions Act (BOFIA) (Repeal and Re-enactment) Bill 2020, which is intended to update the existing Act and bring it in line with global best practices, had passed the Second Reading in the Senate last Tuesday.
With that development, it is now disposed for the critical stage of a public hearing for the purpose of harnessing the contributions from the wider society towards its eventual provisions. According to its sponsor, Senator Uba Sani (APC Kaduna Central), the bill is intended to improve on the provisions of the 29-year-old BOFIA, which has proved to be grossly inadequate for the banking challenges facing Nigeria today, and which in turn have been exacerbated by the incidence of COVID-19.
Although before the advent of the pandemic, the country’s banking sector was witnessing a complement of structural and institutional shortcomings as well as threats, the massive scale of destabilisation of Nigeria’s and the global economies by it, has thrown up some scary, doomsday scenarios, which are of strategic significance both during its run, as well as after it may have been caged. And given the critical role of the banking sector in determining the health of a modern economy, the review of the BOFIA which personifies the regulatory environment, remains justified.
According to Senator Sani, beyond the traditional provisions of the BOFIA, the introduction of the Bill is to address the better clarification of and accurate delineation of the regulatory functions of the Central Bank of Nigeria (CBN), as well as provide for new areas such as the micro finance banks and the Financial Technology Companies (FINTECHs), which were not in their contemporary status when the BOFIA was first enacted in 1991 as the Banks and other Financial Institutions Decree (BOFID).
Although the law has been amended several times (1997, 1998, 1999, and its transformation to BOFIA in 2002), contemporary developments and the recent dispensation of COVID-19, have dictated its review. With respect to the COVID-19 dispensation, the sponsor identified the need to enhance the stability of the financial and banking systems. Meanwhile, in the context of the developing status of the Nigerian economy, the MSMEs remain the primary engine of economic growth, with their role in that respect assuming a more critical dimension post COVID-19.
With a growing concern that post COVID-19 period may be traumatic for the Nigerian economy as it is expected to slide into another round of economic recession, the need for a new deal for the banks towards enhancing their increasing support for the real sector and MSMEs remains critical.
According to the International Monetary Fund (IMF), Nigeria’s economy is expected to contract by as much as 3.4%, in 2020 – perhaps the worst in over three decades, largely due to COVID-19. Even the Minister of Finance and Budget, Zainab Ahmed, has similarly expressed fears of an impending recession in the Nigerian economy, but added the caveat that the dispensation may be averted if the government’s economic stimulus plan works out.
According to her, due to the down turn in the global economy as a result of the COVID-19 pandemic and associated loss of oil markets for Nigeria, the country has already lost the sum of N125.5 billion in oil revenue, representing 31% of expected revenue from that source in the first quarter of 2020. Ahmed’s prognosis took a more disturbing dimension when she warned that the economy could contract by between 4.5% – 8% if the economic impulse plan does not work, and 0.5% if it works.
Given that none of the scenarios projected for the economy spells good news, the situation dictates the urgent review of any factor that will keep the country’s economy afloat, with the safety, stability and viability of the banking sector taking precedence. Banks remain the primary agents of economic growth in any economy when they are properly regulated. In the context of the foregoing, the banking sector will remain critical to the success of whatever economic stimulus plan the government envisages for post-COVID-19.
The foregoing amply accentuates the timeliness of the review of the BOFIA, just as the National Assembly is expected to be guided in its processes for the Bill, by the urgency which its subject matter attracts.