Implications and Challenges of Basel II Implementation in the Nigerian Banking System

Abstract

Globalisation necessitates drastic changes in the banking sector across countries. The regulation of banking in the developed industrial countries has increasingly focused on attaining financial stability. The Basel Committee on Banking Supervision provides a platform for regular cooperation on banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide. Basel I focus more on credit risks, not on operational risks, by establishing a direct link between capital of a bank and its credit risk. The risk identified by Basel I does not express the multiple risks banks can be faced. Basel II addresses the gap by establishing rigorous risk and capital management requirements designed to ensure that a bank maintains capital reserves appropriate to its risk exposures. The Nigerian financial sector has performed well in Basel I implementation. Nigeria is set to implement the Basel II to ensure that better risk management is adopted in the nation's banking system. The study examines Basel II Accord implementation in Nigeria, explores its implications for the Nigeria banking system and issues with the Accord, and highlights recommendations for implementation of the Accord in Nigeria.