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Expert faults CBN on abolition of universal banking

By  Michael Eboh
A financial expert, Mr.  John Osuoha has kicked against plans by the Central Bank of Nigeria (CBN) to abolish universal banking.

Osuoha, who is the Managing Partner, John Gift Consulting Limited, made this statement at the Third Fortnightly Policy Dialogue with the theme: ‘Critical Issues in the Nigerian Capital Market’, organised by ValueFronteira Limited, last week.

According to him, despite the fact that banks in Nigeria were practising universal banking, customers were able to discern that the banks and their subsidiaries were different from each other.

He noted that the current structure of Nigeria’ universal banking model is deficient and has a high tendency for abuse by practitioners.

He said, “I do not think Sanusi Lamido’s idea of abolishing universal banking is bad. But, categorically, the action is totally not correct, because, under the old system of universal baking model, investors/customers still understood that even though banks have all such subsidiaries, they are peculiar in their own way.

“For example, if you have a Toyota car and you are aware that several mechanics claim that they can repair all kinds of cars, you will not take your car to them but to the specialist. So investors/customers are fully aware to go for specific financial services and products of a specific bank.

“Something is equally very wrong with the universal banking model especially in our own kind of corrupted society. It has a very high potential to lead to abuse of corporate governance and other sharp practices in the system.

“For instance if a bank has sister companies headed by one person as a group Managing Director, his action(s) can influence the operation(s) of the head of the subsidiaries. So, it is very possible that the system can lead to abuse of corporate governance as well as encourages other unprofessional practices”.

Speaking further, Osuoha blamed operators and other stakeholders for the crisis faced by the Nigerian capital market over the years.

According to him,  the critical issues facing the capital market in Nigeria comprise poor corporate governance and corporate corruption, overvalued stock, abuse of related party transactions, speculative attack on the market  by inexperienced and momentum investors, and poor credit management system as well as abuse of margin loans.

He said, “Other behaviours exhibited by operators and stakeholders that have affected the market negatively include rent seeking —  a situation whereby interest groups tend to lobby for laws and regulations that provide them a guaranteed benefit; regulatory arbitrage — a situation whereby a  regulated institution takes advantage of the difference between its real or economic risk and regulatory position, global market effect through mono-cultural oriented economy such as crude oil export/exchange rates and effect of international price volatility on local market prices.”

He further stated that regulatory ordering has potential for mandating a particular solution at the expense of other options, some of which may be superior.

He decried the inactivity in the country’s bond market,blaming the situation on the low level of enlightenment of the populace on opportunities presented by investing in bonds.

He urged the Nigerian Government to be careful with their policies as government and corporate actions actually affect the capital market.
He further advised that on_going happenings within the NSE should not be seen as a crisis caused by the imminent leadership change.

“Although, a lot of controversy and mixed reactions have been generated by the retirement of the top officers of the stock exchange,” he said, “This is intended to bring about structural changes for the better NSE.

“The on_going restructuring in the stock exchange should rather be seen as a crucial step or turning point to enhance the operational performances of both the regulators and operators in the market. “Therefore, there is no need for investors’ panic since the due process is being followed.”


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