Risk-based regulation: the future of Nigerian banking industry

Abstract

Purpose

This paper aims to argue that the Nigerian banking industry needs to adopt a risk-based regulation as a future regulatory model in the industry. The frequent distress and failures in the industry have shown that reliance on recapitalisation and on credit rating information by the supervisors and investors to determine the health of the financial institutions is less than satisfactory. This is more so when agency ratings suffer accountability deficits.

Design/methodology/approach

This paper posits that while the regulation of the credit ratings is necessary for institutional accountability, it is never a substitute for oversight functions and due diligence exercise for both the supervisors and investors in the industry. This exploratory research paper is structured to cover the origin of banking regulation in Nigeria, the recapitalised efforts by the regulators, the problem with the agency ratings and why the future of Nigerian banking regulation should be risk-based.

Findings

This research paper posits that while reliance on recapitalisation strategy and agency rating publications is relevant in banks, the future of Nigerian banking regulation should be risk-based.

Originality/value

The Nigerian banking industry should develop effective risk-management structures in line with the international regulatory framework.

Citation

Ajibo, K.I. (2015), "Risk-based regulation: the future of Nigerian banking industry", International Journal of Law and Management, Vol. 57 No. 3, pp. 201-216. https://doi.org/10.1108/IJLMA-02-2014-0014