By PETER EGWUATU

Corporate governance is  now becoming a major indicator in assessing the openness and management practices adopted in managing corporate entities.

Lack of good corporate governance was one of the lapses discovered recently by financial regulators that contributed to the crisis and loss of confidence in both the Nigerian capital market and banking sector.

The resultant bank crises led to the implementation of the 2009 banking reform in which the Central Bank of Nigeria (CBN) fired eight chief executives of the country’s 24 banks and set up the Asset Management Corporation of Nigeria (AMCON) to stabilise the sector.

A cursory review of the Financial Transparency Index (FTI ) 2010 conducted by Source Capital Research, in collaboration with BusinessDay Media clearly shows that most banks in Nigeria are still putting their corporate governance practices and risk management together while few others which once were leaders in disclosure of corporate governance practices in their annual reports have reduced their level of disclosure.

The annual report remains the most accessible tool for the discerning investors to access how their company is being managed, as poor disclosure could mean that management is not managing the company in the best interest of all stakeholders.

However, a high level of  disclosure is not a guarantee that management will follow all that is stated in the report, but it will help hold management accountable and create room for questioning when Annual General Meetings (AGMs) are held by companies either quoted or unquoted, which may lead to corrections or revelations of wrong management practices that may be in place.

So it becomes necessary for banks and other quoted companies to embrace corporate governance and risk management issues in totality, as high level of disclosures becomes even more important now that companies have been mandated by both CBN and Securities and Exchange Commission (SEC) to adopt the International Financial Reporting Standards (IFRS) from 2012.

Meanwhile, the FTI  report had shown that five banks quoted on the Nigerian Stock Exchange (NSE) emerged top on the 2001 Financial Transparency Index (FTI) .

The report made available to Vanguard shows that Access Bank Plc topped the FTI based on combined risk management and corporate governance disclosures in their financial reports for the year 2010.

Stanbic IBTC came second in the report, which shows how much information the banks provide to the public in both risk management and corporate governance practices.

Fourteen listed banks were analysed by the research team at Source Capital, and when a combination of the overall level of corporate Governance and Risk Management disclosure by the banks were analysed and ranked, the top five transparent banks were Access Bank with a score of (4.64) out of 5, Stanbic IBTC (4.5), First City Monument Bank (FCMB) (3.37), EcoBank (2.98), and Guaranty Trust Bank (GTB) (2.86).

Others on the list include:  Diamond Bank (2.75), Zenith Bank (2.45), Fidelity (2.31), and Skye Bank (2.29). Wema Bank (2.03), First Bank of Nigeria (FBN) (1.94), Sterling Bank (1.91), Unity Bank (1.07), and United Bank for Africa (UBA) (1.01).

In the specific areas of Risk Management disclosures, Access Bank was the most transparent. It was followed by Stanbic IBTC, Ecobank, FCMB, and GTB in that order, while Sterling Bank, Skye Bank, Unity, FBN and UBA, provided the least risk management disclosures in their 2010 financial reports.

In terms of Corporate  Governance disclosure alone, Stanbic IBTC came out top and was followed by Diamond Bank, Access Bank, FBN, and GTB, in that order. Wema Bank, Fidelity, Sterling, Ecobank and Unity Bank were in the bottom of the pack in terms of information disclosed that are related to corporate governance.

Some of the issues looked at by the research team while compiling the report include: how much disclosure is given by the banks in the areas of remuneration for executive directors, compensation policy for proprietary traders and how it may undermine banks’ risk management checks and balances, individual whistle- blowing policy, interest rate risk management, concentration risk on trading books, and the independence of the internal control function.

Access Bank, although topped the index, was found not to have disclosed information such as the compensation policy of the bank as regards its proprietary traders, the level of training its directors have on risk management, concentration risk, and trading portfolio Value at Risk (VAR).

Significantly, some banks such as UBA offered no disclosure whatsoever in terms of risk management in their 2010 annual report, for others like Stanbic IBTC, there was a lot of information in the area of corporate governance disclosure, except with regards to whistle- blowing policy or the level of compliance with International Financial Reporting Standards (IFRS).