IMF Warns About Looming Financial Market Risks

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The world central banks have been urged by the International Monetary Fund (IMF) to monitor the improving financial system during the 2017 Global Financial Stability Report in Washington DC yesterday. The IMF warns about looming dangers in the form of rising financial risks as one-third of globally systematically important banks is estimated to have assets worth $17 trillion that will continue to struggle to achieve sustainable profit.

About five banks in Nigeria are systematically crucial and by the nature of their asset base and global reach with international financial institutions, the Central Bank of Nigeria will have new monitoring task. The central banks are to plan a well communicated programme towards 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 Counselor, IMF, Tobias Adrian.

“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.