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IMF warns central banks of rising financial market risks - THE GUARDIAN

OCTOBER 12, 2017

By Clara Nwachukwu and Chijioke Nelson, Washington DC

 

As Nigerian big banks join global peers in profit crisis

The International Monetary Fund (IMF) has asked the global central banks to keep watch over the improving financial system across the world, as there are looming dangers in the form of rising financial risks.

The warning came, as there were estimated one-third of globally systematically important banks with assets worth $17 trillion that will continue to struggle to achieve sustainable profit.

Nigeria already has no less than five systematically important banks, which by the nature of their asset base and global engagement with other international financial institutions, may give rise to a new task for the Central Bank of Nigeria (CBN).

The IMF, while unveiling its 2017 Global Financial Stability Report in Washington DC yesterday, urged the central banks to now plan a well communicated programme for unwinding unconventional policies to ward off market turbulence.

“The risks are unsustainable level of non-performing loans (NPLs) across major banks, although majority are recapitalising; increased borrowing by governments, particularly emerging and low income countries like Nigeria; and the risk of poor implementation of the borrowed funds.

“Portfolio inflows to emerging economies are on track to $300 billion in 2017, more than twice the totals over the past two years. But this greater reliance on foreign borrowing may at a point become a vulnerability, particularly for low income countries if they are not put to good use,” said the Financial Counsellor, IMF, Tobias Adrian.

Adrian said borrowings by governments, households and companies, excluding banks, in the Group of 20 (G-20) economies, for which Nigeria is aspiring to join, has exceeded $135 trillion, equivalent to about 235 per cent of their combined Gross Domestic Product (GDP).

“Despite low interest rates, debt servicing burdens have risen in several economies. And while borrowing has helped the recovery, it has also created new financial risks, accompanied by an underlying deterioration of debt burdens as measured by the debt service ratio.

“Major central banks should focus more on the business models of banks to ensure sustainable profitability. This is not the time for complacency. The time to act is now. Otherwise, future growth could be at risk,” he added.

In Nigeria, a recent data from the Nigerian Bureau of Statistics (NBS) put the country’s total debt as at June 30, 2017, at N19 trillion, while the servicing is put at more than N1.7 trillion in the national budget.

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