Non interest banks to improve liquidity under Basel III Islamic finance -Expert

Non-interest banks in Nigeria, need more instruments to improve liquidity under the Basel III
requirements of the global banking system.

Mr. Abdulwaheed Shitta, a financial analyst made this statement while speaking on”Opportunities and Challenges of Islamic Banking and Treasury Management in Nigeria”. According to him, the Basel III Accord was initiated by the Basel Committee on banking supervision to address the global financial crisis of 2007-2008 to strengthen the banking sector
across the globe and emphasized capital, liquidity management of banks, and other segments in
the financial market.

He said “Liquidity is the ability of financial inflation to balance inflows and outflows for the
institution to be liquid. Liquidity risk can occur when there is a mismatch between liabilities and
assets. The committee also developed two minimum standards to ensure the liquidity of banks
within the short-term and NSFR(Net stable funding ratio) to ensure liquidity at the medium to
Global financial analysts have concluded that the impact of Basel III on Islamic banks is
relatively smaller compared to the conventional financial institutions, considering the model of
non-interest banking that does not support non-Shariah-compliant securities or derivative

He said in Nigeria, one common short-term money market instrument is the treasury bills which
is not shariah-compliant. This is a reason for limited liquidity for non-interest banks under Basel
He said that Islamic liquidity instruments in the financial markets were less effective and less
liquid than conventional market assets. Speaking further, Shitta described treasury management as the management of funds or revenue within a banking system. The treasury function of an Islamic finance institution is to manage
depositors and shareholders’ funds.