REFORMING AND
REVITALIZING THE NIGERIAN BANKING SECTOR
For
Broadcast on Saturday August 29, 2009
By Yinka Otoki
The last two weeks has
witnessed some fundamental reforms in the
financial sector of the Nigerian economy. On
August 14, 2009 the Central Bank of Nigeria,
(CBN), took over five commercial banks in the
country in a move to save them from imminent
collapse. The affected banks are: Afribank,
FinBank, Intercontinental Bank,
Oceanic Bank and Union Bank.
The CBN also sacked the
management of the banks and appointed new ones,
citing alleged financial and operational
misconduct against the former managements as
basis for its action. The apex bank also
published the names of individuals and
organizations that are indebted to the troubled
banks and sent the country’s anti-graft agency,
the Economic and Financial Crimes Commission
(EFCC), after them to recover non-performing
loans, which have been put at two point eight
trillion Naira.
The loans, according to the
CBN were fraudulently awarded by the banks’
chief executives to cronies and their companies.
The apex bank gave the debtors seven days within
which to pay up or risk prosecution and
confiscation of their property. At the last
count, 16 executives of the affected banks and
60 debtors were in EFCC custody and are due for
prosecution soon.
Having realized that the
change in the management of the banks alone will
not solve the distress in the industry, the CBN
injected four hundred and twenty billion Naira,
which is to be released over the next few months
to reinvigorate the ailing banks.
The measures taken by the
apex bank is already yielding dividends as many
debtors have paid up in order to beat the CBN
deadline and avert prosecution and seizure of
their property. As a result, more than 25
billion Naira has so far been recovered by the
banks in the last one week.
The central bank has not only
received the backing of President Umaru Musa
Yar’Adua and the country’s parliament in its
latest move to restore sanity to the financial
sector, it has also got the support and
commendation of depositors, shareholders and
other stakeholders.
Expectedly, the CBN reforms
took its initial toll on the financial sector.
Depositors lost confidence in the affected banks
resulting into panic withdrawal of funds. Also,
the Nigeria Stock Exchange reacted by
temporarily suspending the affected banks from
trading.
However, panic withdrawals
have since given way following government’s
injection of four hundred and twenty billion
Naira to the affected banks as well as
government’s directive to its Ministries and
Agencies not to move their funds from the banks.
Similarly, the Nigeria Stock Exchange has
promised to lift the temporary suspension of the
five banks from the stock exchange as soon as it
concludes its investigations.
It is heartwarming to note
that sanity is gradually returning to the
country’s banking sector as there has been
strict adherence to banking principles and
guidelines in the approval of loans by banks
since the CBN’s renewed its drive to reform the
sector.
The measures are coming
barely eight weeks after Mallam Sanusi Lamido
Sanusi, a consummate banker and expert in risk
management was appointed as the Governor of the
CBN.
The five-year tenure of the
immediate past CBN Governor, Professor Chukwuma
Soludo saw Nigerian banks being listed for the
first time among the first one thousand global
financial institutions.
Soludo painstakingly took the
country’s banking industry through a reform that
drastically reduced banks in the country from
ninety to twenty-five at the end of December
2006 as well as bank shareholders’ funds, branch
network and capital base rising to all time
high.
Even so, Nigerian banks will
continue to relapse into distress after every
reform, unless appropriate legislations that
would sustain the reforms are in place. The
Nigerian parliament should therefore expedite
action in passing the Bill on the reform of
banks and their regulatory institutions. The
Bill seeks to award stiffer sanctions on banks
and their staff for unprofessional practices as
well as regulatory institutions which aid or
abet unwholesome and unethical practices in the
sector.
The CBN whose investigation
into the operations of ten banks exposed the
unethical practices in the five banks has
promised to continue its investigation by
looking into the books of the fourteen remaining
ones to ascertain their state of health also.
The CBN should do this as regularly as possible
in order to keep banks in check, sustain
depositors’ confidence and get banks to play
their role as the critical determinant of the
vibrancy of the economy.
It is expected that stronger
and credible banks that will command the respect
and confidence of depositors and the
international community will emerge in the
country by the time the apex bank completes its
assignment.