Flags governance, compliance risks for non-interest banks

THE Central Bank of Nigeria has raised concerns over governance and compliance risks in Nigeria’s expanding non-interest banking sector, warning that weak oversight could erode public confidence and threaten financial system stability.

The apex bank also cautioned state governments against excessive dependence on overdrafts and short-term borrowing, saying such fiscal practices could undermine Nigeria’s planned transition to an inflation-targeting monetary policy framework.

The warning to non-interest financial institutions followed the second annual interactive session between the CBN’s Financial Regulation Advisory Council of Experts and the Advisory Committees of Experts of non-interest financial institutions held in Abuja.

Speaking during the Director of the Financial Policy and Regulation Department, Rita Sike, the Deputy Governor in charge of Financial System Stability, Philip Ikeazor, said the rapid growth of the non-interest finance industry had increased exposure to operational and regulatory vulnerabilities.

He identified non-compliance risks, governance challenges, operational weaknesses and emerging technological threats as major concerns confronting the sector.

According to the CBN, failures to properly manage such risks could weaken financial stability and damage the credibility of Nigeria’s non-interest banking ecosystem.

The apex bank said the engagement formed part of ongoing efforts to strengthen Sharia governance, improve regulatory clarity and reinforce risk management standards within the industry.

The CBN also noted that non-interest financial institutions continue to support financial inclusion, small business financing and broader economic development through ethical and Sharia-compliant banking alternatives.

Similarly, in a separate statement issued on Sunday, the CBN said its Deputy Governor in charge of the Economic Policy Directorate, Muhammad Abdullahi, delivered a warning to state governments during an engagement with sub-national stakeholders organised through the Nigeria Governors’ Forum Secretariat.

Abdullahi urged state governments to reduce reliance on overdrafts and other short-term financing arrangements, stressing that borrowing decisions must align with debt sustainability thresholds.

He also advised states to improve budget realism and revenue forecasting, prioritise expenditure and align fiscal calendars with prevailing macroeconomic conditions.

According to him, state governments have a critical role to play in the success of Nigeria’s planned inflation-targeting regime, noting that price stability cannot be achieved through monetary policy alone.

He described inflation targeting as a more transparent, rule-based and forward-looking framework that requires fiscal discipline and coordination across all levels of government.

“While the CBN remains responsible for deploying monetary policy tools to control inflation, fiscal actions at the sub-national level significantly shape inflation outcomes in a federal system such as Nigeria,” Abdullahi said.

He explained that inflation targeting is largely about managing public expectations, warning that expansionary and uncoordinated fiscal behaviour by state governments could weaken the effectiveness of monetary policy signals.

The deputy governor identified several channels through which state governments influence inflation, including borrowing patterns, domestic debt accumulation, expenditure levels, wage obligations, capital project execution, salary arrears, contractor financing, overdrafts and weak coordination in the management of Federation Account Allocation Committee receipts and debt servicing.

“In an inflation-targeting regime, persistent, unpredictable or expansionary fiscal behaviour at the sub-national level can significantly undermine price stability,” he stated.

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