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CBN foresees death of 9 banks

By Peter Egwuatu
The nation’s 24 banks may be pruned to 15 as the Central Bank of Nigeria (CBN), gets set to release the auditing of  banks not affected in the earlier exercise last month.

CBN’s Deputy Governor, (Operations), Mr. Tunde Lemo, yesterday, said:  ”Shrinking of banks operating in the country will depend on what happens to the economy. But after the second round of consolidation, the banks may be shrunk to 15 or less.”

Lemo, who was represented by Mr. T.A. Ikuyeju at the investors’ conference organised by CSL Stockbrokers Limited in Lagos, said CBN has no intention of shrinking banks operating in the country but the economy will determine what will happen as it is better to manage fewer banks than many banks that are not financially-strong.

According to him, “CBN’s aim is not to shrink the number of banks operating in the country as its responsibility is to ensure that banks are financially-sound, well-managed and depositors’ interest not threatened.”

Fielding questions on why banks are heavily regulated, Lemo said, “The CBN is there to ensure that depositors’ funds are protected and our banking supervisors’ task is not to guarantee that banks will not fail since we are not meant to make decisions for the management of the banks. The CBN is not meant to distort market competitiveness.”

According to him, “ The management of these banks are responsible to make decisions in terms of commercial risk and other related loans.”

He stressed that CBN’s  greatest challenge with the supervision of banks was the  issue of data integrity, and warned that it will sanction any bank found misreporting its finance.

CBN also disclosed that it has deployed resident examiners to all the banks  to checkmate misreporting of information just as the Financial Services Regulatory Coordinating Committee (FSRCC) has been revitalised  to take care of regulatory overlaps from other financial institutions other than banks.

The FSRCC comprise of members of all regulatory bodies in the financial industry whose responsibility is to harmonise regulation of the financial system.

While presenting a paper tagged “ Banking supervision, regulation and disclosure”, Lemo lamented that the apex bank  has been faced with information disclosure problem, saying “ Most banks present false and untimely data to the CBN. So it makes the supervisory work difficult, but we are taking this issue serious as any bank caught now will be severely death with.”

He stated that one of the core statutory responsibilities of the CBN was the promotion of monetary stability and sound financial system in Nigeria, adding that the Banks and Other Financial Institutions Act(BOFIA) 1991 and the CBN Act (2007) empowers the apex bank to supervise, regulate banks and other financial institutions in Nigeria.

According to him, “ The supervisory objectives of the CBN is to ascertain how much risk is undertaken. How much resources are available and how are the resources adequated  given the risks?”

Lemo stated that the key prudential guide lines given to banks to help in ensuring stability in the system was as follows : Capital  Adequacy; Liquidity; Asset Quality; Risk concentration, Corporate governance/management and System control.

On why banks failed, he said, “The immediate cause was on poor management, excessive growth, insider abuse, week lending policies, inadequate internal controls, inadequate supervision of staff, failure to identify problem loans, domineering chief executive.”

He explained that the problem with most of the banks was in the execution of liberal lending policies without collateral, reliance on large, volatile deposits and high non funding cost embarked upon .

Commenting on challenges facing the banks, the CBN Deputy Governor stated that there had been poor risk management, weak board oversight, low level of confidential data integrity, low level of information sharing among regulators in the financial system and skill gap on the part of regulators.

To this extent, he revealed that the apex bank has put in measures to forestall a re-occurrence as the FSRCC has been revitalised to help harmonise policies and regulation in the financial system.

“ We  would adopt risk base and consolidated supervision, signing of cross border Memorandum of Understandings (MoUs), zero tolerance of reporting ,continuous capacity building for regulators and sound and timely supervision and regulation of financial sector.” he added.


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