Sanusi Lamido Sanusi: Global financial meltdown and the reforms in the
Nigerian banking sector
Speech by Mr Sanusi Lamido Sanusi, Governor of the Central Bank of Nigeria, at a Public
Lecture delivered at the Convocation Square, Abubakar Tafawa Balewa University, Bauchi,
10 December 2010.
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1. Protocol
Distinguish Ladies and Gentlemen, let me begin by thanking the organizers for honouring me
with this invitation. First of all, I must thank the Vice-Chancellor, the Senate and Council of
the Abubakar Tafawa Balewa University (ATBU) for this wonderful privilege and for inviting
me to give this lecture titled
"Global Financial Meltdown and Reforms in the Nigerian
Banking Sector". I am aware that the highly regarded ATBU Public Lecture Series focuses
on developments on topical issues in our nation. Therefore, my invitation to this highly
regarded event in the ancient city of Bauchi, and the hometown of our great Prime Minister,
late Alhaji Abubakar Tafawa Balewa, is greatly appreciated.
As the International Monetary Fund, IMF observed, the extent and severity of the crisis that
began with the bursting of the housing bubble in the United States in August 2007 reflects
the confluence of myriad of factors some of which are familiar from previous crises, while
others are new. As in previous times of financial turmoil, the pre-crisis period was
characterized by (i) surging asset prices that proved unsustainable; (ii) a prolonged credit
expansion leading to accumulation of debt; (iii) the emergence of new types of synthetic
financial instruments; and (iv) regulatory failure. This time around the rapid expansion of
securitization (not itself a new phenomenon), which changed incentives for lenders and
lowered credit standards caused the crisis. Systems became fragile because balance sheets
became increasingly complex (further complicated by increased use of off-balance-sheet
instruments). Financial market players were highly leveraged and relied on wholesale
funding and external risk assessments. Cross-border spillovers intensified after the crisis
started because financial institutions and markets across borders were closely linked and
risks highly correlated.
No doubt, the world is inextricably linked by globalization. Thus, the economic and financial
crisis, which started in the United States, destabilized markets and economies (developed,
developing and underdeveloped) around the globe and, has continued to dominate
discussions on the global economy. These days one would hardly watch the television or
browse through national and international newspapers, magazines and journals without
stumbling upon headline news of how political leaders are scrambling for strategies to
mitigate the impact of the financial crisis on the domestic and global economy.
As rightly pointed out in several quarters, the global financial crisis has been a major
constraint to growth in most countries, a situation that has been aggravated by banking
system crisis. The theme of this lecture is, therefore, very pertinent as it provides opportunity
for the academia, researchers and policy makers to explore alternative policy and practical
steps that can be taken to stem the tide of recession, especially in developing countries like
Nigeria.
Carl Menger in his 1871 seminal work on economic principles opined that "All things are
subject to the law of cause and effect". It is imperative to argue here that, there is no
exception to this great principle in the light of the origin and cause(s) of the global financial
crisis and its consequences. As a corollary, we live today, in an era in which economic
liberalism and small governments is so much propagated, and in which, it is generally
expected that self regulation of markets is the best way of promoting competition,
productivity, efficiency and growth. An unarguable guide for lovers of freedom and adventure
is the fact that "freedom has responsibility". While the freedom to innovate has led to the
rapid development of the financial market in major industrialized countries and emerging
markets, it has become clear that there is an inherent danger in the manner the markets
were developing without proper supervision and moderation. Innovation has worked in the
financial markets and has contributed significantly to the process made possible by laissez
faire. deepened
However, the same innovation that the financial markets also accentuated
predatory, unsecured and irresponsible lending behaviour among financial institutions thus,
exacerbating the global meltdown.
The focus of this lecture is on the Nigerian experience. I believe that my audience at this
lecture today will share some perspectives on the subject, drawing from their individual
experiences. The critical challenge that Nigeria faces today as a nation is how to create
some irreducible minimum standards of financial system stability that will promote strong
financial institutions and the emergence of budding banking system, and hence ensure
sustained growth and development in Nigeria and indeed in the rest of Africa.
The lecture is intended to stimulate discussions, and enable policy makers to come up with
ways of identifying specific institutional arrangements and practical mechanisms that would
expand financial services to economic agents in Nigeria. The focus is on developing, over
time, an efficient and sustainable banking sector for economic activities to thrive. The vision
is for a system that integrates the domestic, foreign, short and long term sources, where
banks can exploit each others' comparative advantages in cost-effective financial services
delivery.
2. Global financial meltdown: nature and origin
Let me start with a discussion of the nature and origin of the global financial meltdown or
crisis. The term financial meltdown defines moments when financial networks and markets
suddenly become markedly unstable or strained to the point where it may collapse. It
features sudden change in expectations, speculative bubbles, falling prices and frequent
bankruptcies. The literature is replete with what constitute a crisis or financial meltdown, but
as related to the issues in discourse Eichengreen and Portes (1987) have defined crisis "as a
sharp change in asset prices that leads to distress among financial markets participants." As
Eichengreen (2004) noted, it is not very "clear where to draw the line between sharp and
moderate price changes or how to distinguish severe financial distress from financial
pressure." Commentaries on the origin of the crisis noted myriad causes including excessive
and corrupt practices of "sub prime mortgage lending" (that led to high mortgage default and
delinquency rates in the United States), massive funding of the "war on terrorism" and the
erroneous belief that "free market" principle is perfect, fair and efficient (The New York
Times, November 20, 2008). It is to be noted that because it was global, its consequences
affected national, regional and global markets and economies.
The financial instability and panics caused in part by the sub-prime mortgage lending
difficulties and consequent failure of the investment banking industry in the United States,
notably Lehman Brothers, Merrill Lynch, Morgan Stanley and JP Morgan-Chase, as well as
government-backed mortgage giants Fannie Mae and Freddie Mac are widely recognized to
be at the root of the current global financial meltdown. Most commentators agree that the
origin of the sub-prime crises is due to a constellation of factors notably:
(i) Low real interest rates in the US which was maintained for a long-time prior to the
crises thereby encouraging accommodating monetary policy;
(ii) Extreme confidence about the continued rise in housing prices and low volatility in
the US housing market. Between 1996 and 2005, US housing prices nationwide
went up about 90 per cent. They went up 60 per cent between 2000 and 2005, and
in the 30 year run-up to the crisis, rarely did housing prices fall.
(iii) A shift in mortgage lending toward the less creditworthy, marginal borrowers, or
subprime borrowers who do not qualify for prime mortgage. Also, in the sub-prime
market, more than half of the loans were made by independent mortgage brokers
who were not supervised at the federal level, unlike banks and thrift institutions.
(iv) Incentive problems associated with the securitization model for the mortgage loans
into mortgage backed securities. There were also incentive problems for the
socalled "independent" credit rating agencies, who were equally heavily involved in
developing the structured product they rated.
The sub-prime crises actually broke out in 2007; however its effect was not dramatic then
due to write-down of losses by the affected investment banks thereby eroding their capital.
The realized losses dramatically increased when the contagion spread to other
counterparties such as insurance companies, hedge funds, finance companies, and mutual
and pension funds that invested heavily in the structured products. The contagion became
globalized because the investors were not only US companies. European banks, and
emerging market institutions, in particular, bought just about as many as US banks, which led
to contagion around the globe.
Perhaps, a brief synopsis of the stages of the global financial meltdown would suffice in
explaining the origin of the global meltdown within an appropriate context. Historically, there
have been four major crises. These are The Great Depression, the crash of 1987, the crisis
of the 1990s and the 1987 Asian Financial Crisis. There was also the dot com crisis which
was a fall out of the crises of the 1990s. In August 2007, there were reported cases of
liquidity constraints as financial institutions faced difficulties raising funds in the United States
so much so that, by March 2008, there was an unprecedented credit contraction or credit
crunch as financial institutions tightened credit in the US. During this time, there were wide
spread cases of defaults in many markets which by July 2008 had spread to other
economies. By the last quarter of 2008, the US and European countries officially declared
that they were in economic recession. Consequently, the magnitude of distortions to national
economies became unprecedented in what was later referred to as the worst economic crisis
in human history.
Thus, from 2002 to early 2007, the decline in volatility in the global economy and financial
markets was reflected in lower measures of market risk, which encouraged firms to increase
their risk-taking. However, in September 2008, the economic downturn particularly in the
United States and a number of industrialized economies signaled the beginning of a
recession triggered by the credit crunch that resulted from the crisis.
In Nigeria, like in many developing countries particularly in Africa, the initial impact of the
crisis (the first round effect) was not felt because Nigeria was not a major player in the global
economy. The banking system was less integrated with the global financial market, and the
sound macroeconomic policies adopted by the country also helped to cushion the effect of
the crisis. In addition, the banking system operated with simple financial products but had
strong capitalization as a result of the recapitalization exercise of 2005. However, as the
recession in advanced countries deepened, Nigeria became affected with consequences for
the economy as a whole and the financial sector in particular.
3. Impact of the global financial meltdown on Nigeria
3.1 Impact on the Nigerian economy
It is by now very clear that Nigeria was not insulated from the crisis, especially the second
round effect. The crisis which manifested itself globally in the form of liquidity and credit
crunch, breakdown of confidence in the banking system, de-leveraging and banks inability to
improve capital adequacy, weak consumer demand, and fall in global output, affected Nigeria
through both the financial and real (trade, remittances and aid) channels. The undiversified
nature of the Nigerian economy and the high dependence on exports of crude oil as well as
foreign capital inflows compounded the impact of the external shock arising from the crisis. In
specific terms, Nigeria experienced low demand for its oil export due to recession in the
economies of her major trading partners. The Nigeria's Bonny Light Crude Oil Spot Price
FOB which was $95.16 per barrel in January 2008 rose to $146.15 in July 2008 before
declining to $76.24 per barrel by October 17 2008. Thus, within four months, it had lost 50%
of its peak price. This, coupled with the collapse in the international price of oil, led to severe
decline in foreign exchange receipts and consequently, government revenue contraction.
The low accretion to foreign exchange reserves and demand pressure in the foreign
exchange market led to volatility and substantial depreciation of the naira exchange rate.
Government resorted to Excess Crude Account drawdown and domestic borrowing to
finance its activities. Within the period, there was substantial decline in foreign capital inflows
(foreign direct investment, FDIs; portfolio investment, and remittances from Nigerians in
Diaspora) just as foreign trade finance reduced significantly for some banks while for others
credit lines literally dried-up. It is perhaps in the capital market that the greatest impact was
felt. The prolonged downturn in the capital market induced by significant divestment by
foreign investors and compounded by lingering liquidity tightness, waning public confidence,
and panic selling by domestic investors lead to significant losses by investors. The stock
market which remained bullish between December 2005 and March 2008, suddenly became
bearish in April 2008 and has remained nearly so since then with only marginal recovery. At
the height of the bull run in early March 11, 2008, equity market capitalization hit
N12.64 trillion while the Nigerian Stock Exchange All Share Index (ASI) which rose by
37.8 per cent in 2006 and 1.01 per cent in 2005 gained a record 74.73 per cent in 2007.
Between 31st December 2007 and the peak of the bull run in early March 2008, the market
gained 14.45 per cent. By year end 2008, the NSE All Share Index which gained 74.73 per
cent the previous year, had declined by 45.8 per cent while equity market capitalization
declined by 32.4 per cent from N10.3 trillion at year-end 2008 to N6.96 trillion at the close of
2008. Thus, between 2007 and 2008 the ASI declined by 42.5 per cent compared to 33.8 per
cent decline between 2008 and 2009. The corresponding figures for market capitalization
were 27.5 and 28.3 per cent, respectively. The capital market downturn also had negative
impact on the banks balance sheet through increased provisioning for bad debts and lower
profitability.
In spite of the debilitating impact of the crisis, Nigeria's growth trajectory was not significantly
impaired. The real Gross domestic Product (GDP) growth rate which averaged 6.29 per cent
between 2004 and 2007 declined marginally to 5.99 per cent in 2008 rising thereafter to
6.9 per cent in 2009. This is often attributed to the impressive performance of the non-oil
sector, particularly, agriculture and the continuous implementation of sound macroeconomic
policies. The external reserves was, however, still able to support at least 15 months of
imports.
3.2 Impact on the banking sector
Recall that in 2004, the Central Bank of Nigeria embarked on banking sector reform (Bank
Consolidation) which sought, among other things, to strengthen the banking system and
improve the operational efficiency of the Nigerian banks. At that time, the Nigerian banks
were generally weak and inefficient. CBN surveillance report as at end-March 2004 indicated
that 62 banks out of 89 were classified as sound/ satisfactory and 14 as marginal. The
number of unsound banks had risen from 9 as at end-December 2003 to 11 in May 2004.
There was serious over-dependence on public sector funds and CBN credits as well as
income from foreign exchange trading on the part of the banks. Besides being grossly
undercapitalized, the banking industry was characterized by several weaknesses including
poor corporate governance, poor asset quality, inaccurate reporting and non-compliance with
regulatory requirements, falling ethics and de-marketing of other banks in the industry, gross
insider abuses resulting in huge non-performing insider related credits, oligopolistic structure
with 10 of the 89 banks controlling more than 50 per cent of the industry assets and liabilities,
lack of capacity to support the real sector of the economy, and lack of competition by banks
in savings mobilization to boost the level of deposits. The situation was such that weak banks
were paying higher interest rates in a bid to attract more deposits. As at end-May 2004 banks
indebtedness to the CBN was about N71.36 billion. The bank consolidation exercise was
meant to address these weakness through recapitalization of banks with minimum paid-up
capital of N25 billion, ensuring minimal reliance on public sector for funds, adoption of risk
focused and rule-based regulatory framework; adoption of zero tolerance in regulatory
framework in data/information rendition/reporting and infractions; stricter enforcement of
corporate governance principles for banking; expeditious process for rendition of returns by
banks and other financial institutions through e-FASS; revision and updating of relevant laws
for effective corporate governance; ensuring greater transparency and accountability in the
implementation of banking laws and regulation; and the establishment of an asset
management company as an important element of distress resolution.
There is no doubt that the consolidation exercise had some positive impacts on the banking
sector. The banking system was transformed from 89 banks to 25 through regulatory merger
and acquisition and latter to 24 through market-induced merger and acquisition. Bank
branches grew from 2,900 in 2005 to almost 5,500 in mid-2009. Besides deepening of the
capital market, the banks were positioned to actively participate in a wider range of activities,
including financing of infrastructure and the oil sector.
However, while the consolidation exercise lasted, certain developments in the economy and
within the banking system itself put the banking sector at serious risk. Between 2004 and
2008, Nigeria enjoyed unprecedented increase in oil price which resulted in huge inflow of
foreign exchange and robust economic growth. This, coupled with appreciable level of
foreign direct investment inflows, resulted in huge liquidity in the economy which the real
sector of the economy could not absorb. The excess liquidity found its way into the stock
market as shown in the unprecedented rally in the stock prices on the Nigerian Stock
Exchange between 2006 and March 2008. The excess liquidity also allowed banks to raise
capital. Fresh capital raised between 2006 and first quarter of 2008 amounted to
N1,603 billion. The increase in capital supported banks' balance sheet growth with banking
sector assets as percentage of GDP increasing rapidly to 60 per cent from about 30 per cent
in 2004. With significant capital and greater liquidity, banks were increasingly under pressure
to create risk asset amidst limited product innovation and diversification. This, coupled with
poor risk management practices, ultimately led to a concentration of assets in certain areas,
in particular margin lending and oil trading/marketing. As at end-December 2008, banks' total
exposure to oil industry stood at over N754.0 billion, representing over 10.0 per cent of the
industry total and over 27.0 per cent of the shareholders' funds.
Thus, in mid-2008 when the global financial and economic crisis set in, the domestic financial
system was already engulfed by several interdependent factors that led to the re-emergence
of an extremely fragile financial system similar to pre-consolidation era. These factors
included macroeconomic instability caused by large and sudden capital inflows, major
failures in corporate governance at banks, lack of investor and consumer sophistication,
inadequate disclosure and transparency about financial position of banks, critical gaps in
regulatory framework and regulations, uneven supervision and enforcement, unstructured
governance and management processes at the CBN/weaknesses within the CBN, and
weaknesses in the business environment.
It is clear, therefore, that when the global crisis eventually hit Nigeria, the banking sector was
illequipped to weather the storm in spite of recapitalization. As we are all aware, the financial
crisis had an adverse effect on both the oil and gas sector and the capital market where the
Nigerian banks were exposed to the tune of N1.6 trillion as at December 2008. The result
was a sharp deterioration in the quality of banks' assets which immediately led to concerns
over banks' liquidity. In deed, the Nigerian banking sector was thrown into severe crisis as
many of the banks became distressed.
3.3 Remedial measures to mitigate the impact on the banking sector
The initial diagnosis of the distress in the banking system amplified by the global financial
crisis as a liquidity problem led to the introduction of several measures by the CBN between
2008 and 2009. These measures included, among others, the reduction in the Monetary
Policy Rate (MPR), cash reserve ratio (CRR) and liquidity Ratio (LR). The MPR was
gradually reduced from 10.25 per cent to 6 per cent to its present level between September
18, 2008 and July 7, 2009 and subsequently raised to 6.25 per cent on September 21, 2010.
Similarly, the cash reserve ratio was reduced from 4.0 per cent to 2.0 per cent and further to
1.0 per cent while the liquidity ratio was progressively reduced from 40 per cent to 25 per
cent. The CBN also issued directive to banks to restructure their margin loans up to 2009,
and expanded its discount window to allow additional instruments as well as allow banks to
borrow up to 360 days (currently suspended) in addition to stoppage of liquidity mopping-up.
Greater emphasis was placed on enforcement of the CBN Code of Corporate Governance to
promote transparency and accountability in banks as well as the review of contingency plan
for systemic distress in banks.
These measures did not fully resolve the problems as the system remained fragile. It was
discovered that nine banks were the main users of the Expanded Discount Window (EDW)
over a nine-month period ending June 2009. Accordingly, when the CBN eventually closed
the EDW in July 2009, and in its place, guaranteed interbank placements, it was observed
that these nine banks were the main net-takers under the guarantee arrangement. At this
point it was clear that the issue was far beyond the liquidity problem and if drastic actions
were not taken, the financial system could collapse.
4. Current banking sector reforms
4.1 Diagnosis and initial stabilization steps
Given the precarious state of the Nigerian banks, the CBN in June 2009, took a three
pronged approach to assess the financial condition of the 24 banks. The first was the special
examination exercise jointly conducted by the CBN and the Nigerian Deposit Insurance
Corporation (NDIC). This exercise highlighted inadequacies in capital asset ratios and
liquidity ratios as well as weaknesses in corporate governance and risk management
practices in 9 banks. These banks were found to be in a grave situation as a result of capital,
liquidity and corporate governance concerns. They failed to meet the minimum 10 per cent
capital adequacy ratio and 25 per cent minimum liquidity ratio. Apart from accumulating high
non-performing loans, these banks were seriously exposed to the oil and gas sector as well
as the capital markets. Poor risk management practices in the form of absence of necessary
controls measures were prevalent as the board and management of the banks had failed to
observe established controls. The remaining14 banks were found to be in a sound financial
state and did not require the CBN to take any action.
The second approach was to carry out diagnostic audit through independent consultants.
The report of the audit exercise revealed greater magnitude of weak financial condition of the
nine banks. All of them were "technically" insolvent with significant negative asset value. It
also exposed several illegal activities that had been taking place in five of the affected banks.
It was against this background that the CBN moved decisively to strengthen the industry,
protect depositors and creditors, restore public confidence and safeguard the integrity of the
Nigerian banking industry. The initial measures/initiative taken by the CBN in conjunction
with NDIC and the Federal Ministry of Finance (MOF) included injection of N620 billion into
the nine banks; the replacement of the chief executive /executive directors of eight of the
nine banks with competent managers with experience and integrity; reaffirmation of the
guarantee of the local interbank market to ensure continued liquidity for all banks; and
guaranteeing of foreign creditors and correspondent banks' credit lines to restore confidence
and maintain important correspondent banking relationships.
When the new management of the banks took office, it became necessary to also carry out
further detailed and independent assessment of the financial conditions of the banks. Thus,
the third approach was to carry out management account audit of the affected banks by their
new management. The outcome was very much in line with that of the audit report.
Consequently, the management took numerous actions under the CBN guidance to ensure
that the banks operated effectively with particular emphasis on improving transparency and
operations. To improve operations, the new management took steps to: (i) improve reporting
infrastructure, internal governance and risk management procedures; (ii) increase
transparency and disclosure; (iii) ensure effective and continuous communication with all
stakeholders; (iv) ensure weekly reporting between the MDs and the CBN on financial
performance, loan recoveries, and; (v) immediate report of any material developments to the
CBN. Measures taken to improve operations included continued focus on loan recovery to
improve NPL ratios; reducing cost to income ratio; avoiding unnecessary costs; focus on
derisking and de-leveraging the balance sheet and liquidity management.
There is no doubt that these initiatives enabled the nine banks to continue normal business
operations and prevented a total collapse of the banking sector.
4.2 Long term reforms measures
The focus of the Central Bank of Nigeria is first of all to ensure that there is financial sector
stability and, secondly, that the financial system assists in growing the real sector of the
economy. It is important to note that any economy that cannot create jobs on a continuous
basis, reduce poverty, and guarantee its citizens functional and qualitative education as well
as world class infrastructural facilities is not only unsustainable but would remain globally
uncompetitive. Attainment of this fit goes beyond short term palliative measures. It requires a
strategic medium to long term measures. This explains why the focus of the recent CBN
reforms is in the following four areas (pillars) namely: enhancing the quality of banks,
establishment of financial stability, enabling healthy financial sector evolution, and ensuring
that the financial sector contributes to the real economy. A brief discussion of each of these
pillars is very critical to an understanding of where we are going.
4.2.1 Enhancing the quality of banks
This consists of a five part programme to enhance the operations and quality of banks in
Nigeria. These are industry remedial programmes to fix the key causes of the crisis,
implementation of riskbased supervision (RBS), reforms to regulations and regulatory
framework, enhanced provisions for consumer protection, and internal transformation of the
CBN.
The industry remedial programmes include a set of initiatives to fix the key causes of the
crisis, namely, data quality, enforcement, governance, risk management and financial crime.
These initiatives are structured in such a manner that the banks do most of the work to
entrench new behaviours in the industry, with the CBN playing a cross-industry management
role. The focus is to ensure that governance best practices are embedded in the industry
including the CBN as well as ensuring that risk-based supervision (RBS) principles,
methodology and processes are established across the CBN and NDIC. Under the RBS, the
intention is to establish a programme management structure within the CBN to ensure that
there is a high level of communication with the industry, implementation quality is measured
and examiners acquire the necessary skills. A monitoring mechanism to measure the
programme's impact and ensure a high level of responsiveness to issues raised by the
industry will also be established.
The regulation and regulatory framework reform programme involves systematic review of
regulations and guidelines around the key causes of the crisis by industry regulators;
harmonization and raising to world-class standards of the supervision processes, technology
and people within the various financial regulators; and establishment of a centre of
competence for international financial Reporting Standard (IFRS) and N-GAAP+
implementation.
In the area of consumer protection, the aim is to ensure that consumers receive appropriate
protection with the CBN acting as the consumer's advocate, setting standards of customer
service for the industry and ensuring that customers are treated fairly in all their dealings with
the industry. Already, there is a Consumer Protection Unit in the newly created Financial
Policy and Regulation Department of the Bank. This Unit will work with supervisors to ensure
that appropriate rules and regulations are enforced by the banks.
Under the reform, the CBN will be transformed to ensure good corporate governance,
stronger information management system, people development, and enhanced disclosure to
levels expected in major investor countries such as the United States, the United Kingdom,
South Africa, China and India.
4.2.2 Establishing financial stability
The main thrust of this pillar is for the CBN to provide leadership in some areas and
championing some causes. The key features of this pillar centre around strengthening the
Financial Stability Committee within the CBN, establishment of macro-prudential rules,
development of directional economic policy and counter-cyclical fiscal policies by the
government and further development of capital markets as alternative to bank funding. The
creation of a new macro-prudential framework designed to ensure that monetary policy is not
only shaped by systemic risk trends but also consistent with the expanded goals for product
and asset stability is a major component of this pillar. This will be complemented by the
establishment of the Financial Stability Committee (FSC) which will work together with the
Monetary Policy Committee in achieving these objectives. It is the intention of the CBN to
champion the development of the capital market through the improvement of its depth and
accessibility as an alternative to bank funding as well as encourage implementation of
directional economic policy, particularly counter-cyclical fiscal policies, that will reduce
oilrelated volatility in the system. It is time to make better use of our oil endowment by
harnessing it for strategic investment and also ensure that lending and investment get to the
real economy, especially the priority sectors, instead of being used to inflate financial asset
bubbles.
4.2.3 Enabling healthy financial sector evolution
The focus here is on ensuring the emergence of a competitive banking industry structure;
provision of the required infrastructure for financial system such as the credit bureau and
registrars; improvement in the cost structure for banks through cost control and business
process outsourcing; reliable and secure payments system; reduction of the informal sector
and greater financial inclusion. Foreign bank participation would be encouraged in order to
improve and strengthen the financial system provided such entry does not affect the
development of the local banking sector. Market-based merger and acquisitions activities
that would create stronger banks would be supported while other banks that would drive
regional economic development will be licensed. In the area of infrastru