BY JONAH NWOKPOKU
The Central Bank of Nigeria (CBN) has warned bank directors that they would henceforth face the consequence of poor corporate governance in the banks.
CBN Governor, Mr. Godwin Emefiele gave this warning in a keynote address delivered at the CBN/FITC 2014 continuous education programme for directors of banks and other financial institutions in Lagos.
Represented by the Deputy Governor, Financial Systems Stability, Dr. Kingsley Moghalu, Emefiele said, “The level of corporate governance in banks can sometimes reflect the culture of governance in the system.
In the advanced countries, we found that the level of corporate governance in the banks before the global financial crisis was an extension of the larger governance culture in those countries. They were seen as private and profit making institutions and so the values of capitalism drove those institutions to the extreme and many of them collapsed.
“This is what we have to avoid. And the responsibility is on you as bank directors. We do not want the privatisation of profits and socialisation of losses. You don’t run your bank well and when it is about to collapse, you start looking for CBN for accommodation.”
The CBN boss further explained that, “The CBN under the previous administration reached a decision that no banks will be allowed to fail again. And it was a good decision. This was because; this country has gone through a very scarring and scary history of failed bank failures.
People have lost fortunes and as a result lost complete trust in the banks. But let’s not make it a habit. That is what I am saying. Going forward, do not count on the CBN, if you don’t run your banks well.”
Emefiele said effective corporate governance stemming from good risk governance is critical to stable financial system. He noted that the global financial crisis would have been averted if there were effective risk and corporate governance practice in the financial system.
He said: “Many of the bank directors don’t govern effectively the management of risks. If bank failure had not occurred, all those collateralised debt obligations and structured investment vehicles and other financial engineering which was an increase in the multiples of all the risks banks were taking, would not have taken place.
There are questions. And those who should be asking those questions are boards of directors of banks. So we believe that the failure of corporate governance, especially the failure of risk governance was a major cause of the global financial crisis.
“Corporate governance is not just about compliance, it is about governing to create value, governing to build enduring institutions. Corporate governance is a key factor in financial systems. However in an environment like Nigeria, it is even more critical because it is bound up in a number of wide cultural issues.
It is also bound up in a number of wider governance issues. It is the same as public governance. This is because, to make impact, you have to have the same issues of integrity, ethics, avoiding conflict of interest, respecting processes and avoiding insider dealing.
All these things are requirements for corporate governance.”
Earlier in a welcome address, the Managing Director/ Chief Executive Officer of FITC, Dr. Lucy Newman said the event was organised to take stock of the institutes’ journey since it was established thirty years ago.