By Babajide Komolafe
While announcing the sack of the five banksâ€™ chief executives officers, the Central bank of Nigeria (CBN) accused them of a plethora of unethical and unprofessional practices. Babajide Komolafe writes that this also implies regulatory failure on the part of the apex bank and puts a question mark on the integrity and effectiveness of its banking supervision department.
On Friday August 7th, the Central Bank Governor, Mallam Sanusi Lamido Sanusi, announced the removal of the Chief Executives and Executive directors of five banks namely Afribank PLC, Finbank PLC, Intercontinental Bank Plc, Oceanic Bank Plc and Union Bank Plc. The affected chief executives were Mr, Sebastin Adigwe (Afribank), Mr. Okey Nwosu (Finbank), Dr. Erastus Akingbola (Intercontinental Bank), Dr. (Mrs.) Cecilia Ibru (Oceanic Bank), and Dr. Bath Ebong.
Sanusi said that the removal of the CEOs followed a special examination of the five banks by a joint team of CBN and NDIC officials. The CBN, he said observed that the banks were heavily dependent on interbank money market and the expanded discount window of the CBN for liquidity. This observation, he said prompted the special examination of the banks.
The special examination, he noted, revealed, â€œExcessively high level of non-performing loans in the five banks which was attributable to poor corporate governance practices, lax credit administration processes and the absence or non-adherence to the bankâ€™s credit risk management practices. Thus the percentage of non-performing loans to total loans ranged from 19 per cent to 48 per cent. The five banks will therefore need to make additional provision of N539.09 billion.
The above findings, he said show that these five institutions are in a grave situation and that their management has acted in a manner detrimental to the interest of their depositors and creditorsâ€. In simple language, the CBN said the banksâ€™ CEOs ran their banks recklessly and illegally.
Apart from the affected CEOs and probably the top management staffs of the banks, there has been little or no disagreement with the findings of the CBN special examination. But the mood in the industry, among banks, staff and analysts, is that such unethical practices could not have occurred or existed to the point of putting the banks in grave situation except the CBN through its banking supervision did not do its work properly or that its officials assisted the banksâ€™ CEOs to cover up the true financial conditions of the banks. Consequently, they said the CBN is as guilty as the banksâ€™ CEOs and that the Governor should probe the banking supervision especially the examiners who have examined the banks in recent times.
Speaking on behalf of banksâ€™ staff, President, Association of Senior Staff of Banks, Insurance and Financial Institutions (ASSBIFI), Comrade Sunday Salako,Â Â stated, â€œIt is imperative that we specifically call the attention of the regulatory body to do a soul searching of the activities of its own house because it has conducted several routine and special examinations of these banks and gave them clean bill in recent years, yet the rot in these banks have been on-going for years.
In most cases, officials of CBN sent to the banks spend not less than six months after which they give these banks clean bill of health. In fact, it is not more than three months ago that the auditors from the CBN gave these banks clean bill of health. What has happened within this short period that all these are happening? How come these CBN officials did not discover all these toxic loans or assets? Even the external auditors to these banks also have questions to answer because they also gave these banks clean bill of health.â€
Similarly, Chief Executive Officer, Thaddeus Investment Advisors & Research Ltd, Mr. Jude Fejokwu stated, â€œThe transgressions that led to the dismissal of the bank chief executives, did not take place overnight. What was the CBN doing earlier: creating its own fantasy during the five-year tenure of Prof. Soludo? The deputies that served with him are still in office; they should resign due to lack of proper oversight and withholding of pertinent information from the concerned public.â€
In an article sent to Financial Vanguard, Chief Research Analyst, Stakes Capital Limited, Mr. Sanyaolu Kehinde said, â€œThe CBN is supposed to have representatives in all these banks. The CBN conducts routine surveillance on these banks and yet would do nothing until now when the situation needs critical rescue.â€
But is the CBN and Nigeria Deposit Insurance Corporation (NDIC) as the regulatory bodies for the industry culpable? Or to what extent can we blame the regulators for indirectly abetting the festering of these unethical practices? In response to the above, a former top NDIC official who had also worked in the Corporationâ€™s examination department said the CBN not the NDIC has a case to answer. He said, â€œCBN ought to have screened the banksâ€™ accounts thoroughly before approving them. NDIC does not have powers. It is not a regulator but a mere supervisor on account of duties as deposit insurer.
External auditors are not culpable. Their duty is to audit books of account and records kept by the bank being audited to ensure it meets generally accepted auditing/accounting standards. They (CBN) allowed the lapses to continue. They have the Capital Adequacy tools the rules governing loan/loss provision but did not apply them. Why they did not until now is the question Nigerians should ask.â€
Interestingly a top CBN source, who spoke on condition of anonymity confirmed this position, the source however puts the blame on the banking supervision department. According to the source the department is corrupt to the top. â€œThere have been examination reports revealing the unethical practices but the report were swept under the carpet. We expect that the new Governor would soon probe the department flush out the bad eggs in itâ€.
Another top CBN official when asked about possibility that previous CBN examinations i.e. routine, resident examiners etc did not indicate the rot in these banks or were the report swept under the carpet, or the CBN examiners were comprised hence they assisted the banks to cover up, he replied, â€œWe have no evidence to suggest that but canâ€™t rule it out eitherâ€
The implication of the above is that the special examination been conducted on the banks should be extended to the CBN, especially its banking supervision department and those found culpable or have assisted the banks in covering up their acts should be punished.
It would be recalled that this is not the first time that the banking supervision of the CBN has been accused of corruption. In 2007, Reverend Agbetuyi, the erstwhile chairman of Spring Bank who was sacked by the CBN, accused the Banking Supervision department of the CBN of complicity in aiding fraud in the bank but his allegations were dismissed with a wave of the hand. In a widely advertised letter to the then CBN governor, Professor Charles Soludo, he said that having the right amount of money, you could get any letter out of the CBNâ€™s banking surveillance department because of the level of corruption exhibited by the departmentâ€™s staff members.
In fact a bank staff corroborated this, saying that the day these examiners arrive for their examinations, the bank opens a special account for each of them in which N1 million is deposited. Another bank staff said that the examiners are treated like demigods when they are around. The management goes to extra length to pamper them, they eat like kings and their taste is very high.
Perhaps that is why the banksâ€™ CEOs persisted in unethical practice for long. They knew they can buy the examiners or better still those they report to at the CBN and NDIC. It is for this reason industry operators are calling for an internal probe of the CBN. It is believed that until the regulatory bodies probe its supervision and examination officials, the industry would not stop experiencing seasonal crisis, bank failure and mass sack of banksâ€™ CEOs and executive directors.