Nigerian Banks Urged to Adopt Digital Assets as Crypto Market Surges 25%
LTB Nigerian Banks Urged to Embrace Digital Assets Amid Regulatory Shifts
Nigeria’s digital asset market is booming, yet banks are lagging behind due to regulatory concerns. A recent KPMG report, in collaboration with Chainalysis, urges Nigerian banks to step up and embrace digital assets to stay competitive.
- 25% increase in digital asset value received in Nigeria.
- Nigerian banks hesitant due to CBN’s strict regulatory stance.
- New government showing signs of crypto acceptance.
- KPMG urges banks to balance risk and opportunity.
Nigeria’s digital asset landscape has seen a remarkable resurgence, with a 25% increase in value received last year. This growth amounts to $59 billion in the year ending June 2024, representing nearly 50% of Sub-Saharan Africa’s total of $125 billion. This surge highlights Nigeria’s pivotal role in the region’s cryptocurrency market. Interestingly, 85% of this value consists of small denominations used primarily by retail traders for cross-border value transfers, showcasing the grassroots nature of Nigeria’s crypto economy.
Despite this growth, Nigerian banks are dragging their feet when it comes to embracing digital assets. The Central Bank of Nigeria (CBN) has historically been anti-bitcoin, fining six banks N1.31 billion ($3.155 million) in 2022 for servicing crypto-related customers. The CBN’s strict stance could give Fort Knox a run for its money in terms of security. However, the winds of change are blowing under President Bola Tinubu’s administration.
The new government shows signs of a more welcoming stance toward cryptocurrencies. This shift is evident in the issuance of the first two Virtual Asset Service Provider (VASP) licenses to local exchanges Busha and Quidax. Blockchain is a digital ledger of all cryptocurrency transactions, allowing secure and transparent exchanges without a central authority. KPMG’s report underscores that this change in policy could pave the way for banks to use cryptocurrencies, urging them to strategically manage their exposure to these new financial instruments.
KPMG emphasizes the importance of risk management due to the unique challenges posed by digital assets.
“The question, therefore, is not about whether or not banks should engage with crypto, but rather it is about how they should manage their crypto exposure, while leveraging the opportunities therein,”
states the report. Pseudonymity, or transactions that are not directly linked to real-world identities, along with the speed of on-chain transactions and the varying degrees of regulatory oversight among intermediaries, complicate conventional risk assessment and monitoring. KPMG highlights:
“Pseudonymity, the speed of on-chain transactions, and the use of intermediaries with varying degrees of regulatory oversight make conventional risk assessment and monitoring inadequate.”
Yet, the report also highlights the potential benefits of blockchain technology for Nigerian banks. By integrating blockchain, banks can
“enhance their ability to detect illicit finance, expand into new financial services, and position themselves at the forefront of an increasingly digital financial system.”
The transparency and immutability of blockchain offer real-time visibility into the flow of funds, a feature not available in legacy financial systems. This could be a game-changer for Nigeria, where financial inclusion is a major goal.
Nigeria’s relationship with global crypto platforms like Binance remains contentious. The country is currently suing Binance for tax evasion and lax oversight. Recently, it was revealed that Binance offered to pay $5 million as a down payment for its tax obligations to secure the release of its detained official, Tigran Gambaryan, who has since been released following a deal between the Nigerian and American governments.
Looking ahead, the Nigerian Securities and Exchange Commission (SEC) plans to expand the scope of VASP licensing to include more firms in 2025. There is also a proposed bill to tax cryptocurrency transactions, expected to generate significant revenue similar to Kenya’s $78 million collected in the 2023-24 financial year. The SEC’s crackdown on offshore exchanges like KuCoin, Coinbase, and Binance in 2024, leading to their shutdown in Nigeria, highlights the government’s efforts to steer traders toward regulated platforms. This regulatory shift aims to formalize the digital asset market, potentially enhancing financial inclusion by providing real-time visibility into fund flows and enabling new financial services.
As Nigerian banks navigate this evolving landscape, they stand at a crossroads. Embracing digital assets and blockchain technology could position them as leaders in an increasingly digital financial world, but it requires a delicate balance of opportunity and risk management. Will Nigerian banks rise to the challenge of the digital age, or will they remain on the sidelines as the world moves forward?
Key Questions and Takeaways
- What is the current state of digital asset adoption in Nigeria?
Nigeria has seen a significant rebound in digital asset adoption, with the total value received increasing by 25% year-over-year in the year ending June 2024, accounting for nearly 50% of Sub-Saharan Africa’s total.
- Why are Nigerian banks hesitant to adopt digital assets?
Nigerian banks are hesitant due to regulatory concerns and past actions by the Central Bank of Nigeria (CBN), which has been anti-bitcoin and fined banks for servicing crypto-related customers. The unique risks posed by digital assets also contribute to this hesitation.
- How has the Nigerian government’s stance on cryptocurrencies changed under President Bola Tinubu?
Under President Bola Tinubu, the Nigerian government has shown a more welcoming stance toward cryptocurrencies, evidenced by the issuance of the first two VASP licenses to local exchanges Busha and Quidax.
- What risks do digital assets pose to Nigerian banks according to KPMG?
KPMG highlights risks such as pseudonymity, the speed of on-chain transactions, and the use of intermediaries with varying degrees of regulatory oversight, which make conventional risk assessment inadequate.
- How can Nigerian banks benefit from integrating blockchain technology?
By integrating blockchain, Nigerian banks can enhance their ability to detect illicit finance, expand into new financial services, and position themselves at the forefront of an increasingly digital financial system.
- What is the current situation with Binance in Nigeria?
Nigeria is currently suing Binance for tax evasion and lax oversight. Binance offered $5 million as a down payment for its tax obligations to secure the release of Tigran Gambaryan, who has since been released following a deal between the Nigerian and American governments.
