Registrar/Chief Executive, Chartered Institute of Bankers of Nigeria (CIBN), Dr. Uju Ogubunka  says  it is possible for bank customers to safeguard their money in a bank against distress and he explains how this can be achieved.

” The losses that some members of the public have sustained in the banking system as a result of institutional distress have had the effect of sensitizing the public about the need for circumspection and careful choice of institutions to patronize” Ebhodaghe J.U.

Before you Open Account in a bank, what must you do?
That bank you want to open account in, how much do you know about it? Are you just opening your account there because it is the nearest to your residence or office? The nearest may not necessarily be the safest. Perhaps, you are opening the account because your brother, sister or friend, etc maintains account there. May be your father started operating in that bank before you were even born. Again, in these days of aggressive deposit marketing, the bank’s staff ‘sweet-tongued’ you into commencing the account relationship.

Be informed that none of the above or similar reasons is sufficient to lure you into opening a bank account. If you rely on such records alone, you may be stepping into distress.

Indeed, experience during the last bank distress period showed that while some existing customers were fighting to get their trapped deposits, some people were opening new accounts in the distressed banks. In the event, the deposits of the unwary new customers were used to pay those putting pressure on the bank staff. Later, when the new depositors discovered what had happened (entrapment of their deposits) they lamented that it was Mr. X or Mrs. Y (friend/brother/husband/wife) that introduced them to the bank.

This book is not saying that being introduced to a bank is wrong. Infact, it is an obvious means through which banks get new customers. But what knowledge does your introducer have about the bank? That is the issue. Provided it is not the case of one blind person leading another, it is welcome, since none of them will fall into a pit. Should it be the reverse? You may lose your money simply as a result of your relying on ill-informed introduction.

You ask, what must I do then? Good question! You must know the bank. Just as the banks are always required to know their customer -who he is, what he does, where he lives, his integrity, etc-before opening account for him, so should a potential bank customer know his bank-Directors, Management, business integrity, capital base, relationship with regulatory/supervisory authorities, etc. Using a phrase, which the current privatization regime has made popular, you must conduct Due Diligence on the bank. This will enable you to know the bank better before you decide whether or not your money will be safe there.

Just in case you do not know or have forgotten, despite the cut-throat competition for deposits bedeviling the Nigerian banking industry, it is not everybody with money that banks want to open account for. For instance, banks are prohibited from receiving deposits arising from Money Laundering. Similarly, it must not be every bank that customers should operate account with.

Apotential customer, for example, who knows that a bank is over-trading, should have no good reason for going to such bank to ‘save’ his money. Similarly, if a bank does not maintain the minimum regulated capital funds, a customer had better stay away from it.

Due Diligence provides bank customers opportunity to know their banks reasonably and aids them in making decisions to either open, continue or close their accounts.

Let me state that it is not an easy thing for a customer to know his bank, especially in a society where the level of literacy and awareness as well as information availability is very low. Consequently, to achieve some informed deep knowledge about the bank you want to relate with, you can either sample opinion of a number of knowledgeable people of distinct backgrounds operating with the bank or you speak to any reputable banking/financial consultant. If the bank is quoted on the Stock Exchange, a good stockbroker can be approached for advice. If you are literate enough, try to access researches on bank ratings. Such ratings are usually available at major libraries.

Perhaps, I should mention that whereas you may approach a bank to offer you advice on various businesses, financial and investment issues and you may get objective response, it is doubtful whether if you approach a bank to offer opinion on the health of another or indeed of itself, that you would receive the most objective answer. You may be faced with the usual Nigerian approach of answering questions with questions. For example, they may respond, why do you want to know? Why don’t you open your account with us? These will be of little assistance to you.

It is therefore, considered better for you to ask sources outside banks for opinion on any particular bank. Bankers, especially those under the employment of banks, are under ethical and professional obligations not to disrepute their kin. Avoid seeking distress-related information from banks. You will definitely not get the best response. It is better for you to ask sources outside banks for opinion on any particular bank of interest to you.

The chances of getting an unbiased response are higher with them than with employees of banks. Even the regulatory/ supervisory authorities will not be of help to you because they will like to avoid creating panic in the system.

We earlier mentioned knowing about Directors and Management of banks.  Why is this necessary?  Very simple! The primary responsibility of steering a bank rests on the Board of Directors and top management.

The Board sets the objectives and  policies while management develops appropriate   strategies and implements them in accordance to        with rules and regulations for the attainment of  set objectives.   Fundamentally therefore, the success or failure of a bank lies on these two main organs.   Additionally, because the business of banking deals with money as raw material, it is not everybody that can be entrusted with other peoples’ money for safekeeping.

Furthermore, experience has shown that poor management has been a major bank distress causative factor. Consequently, there is the need to ascertain the type of Board and Management members a bank has. Directors and managers of banks ought to be “fit and proper persons” possessing characteristics which include, honesty, integrity, and competence. Even our law books specify clearly people who cannot or ought not to be appointed directors of banks.

These include:  Any person who is or at anytime has been adjudged bankrupt or has suspended payment to or has compounded with his creditors;    Any person who is or has been convicted by a court for an offence involving fraud or dishonesty, or professional misconduct (BOFIA, Sec, 19 (1) a).

In addition to these legal provisions, the Central Bank of Nigeria set some pre-qualifications for the appointment to Board and top management positions in Nigerian banks. The conditions are majorly in the areas of educational qualifications and, experience in banking.

Can you now appreciate why you should be interested in those who occupy the Board and top management positions in the bank you wish to or you already have account relationship with? They can make or unmake a bank.

They can keep safe or lose your money. (See Appendix 3 for evidence of non-repaid credit facilities of owners and directors in some distressed banks). So, you have a duty to yourself to have a fair understanding of the competence and integrity of those managing your bank.

Let me say that, there is no limit to what you can or ought to do (except unlawful and unethical things) to ensure that you are thoroughly convinced that the bank you intend to put your money in is the ‘correct one’.

Correct bank? What is it? Well, see it this way: banking started with the basic and primary function of safekeeping of money and valuables. All other functions of banks, for example, lending and transfer of money from one person/place to another are secondary. Therefore, the ‘correct bank’ is that which the money/valuable kept in it is safe and the owner gets it back without delay (the bankers say, on demand) or as earlier contracted.

It is important to emphasize that the steps you take or fail to take before depositing your money with any bank could be the beginning of the safety or loss of your money. Indeed, the first successful steps in safeguarding money against bank distress are taken before money is actually deposited in a bank. And they must be taken at that right time, that is, before you deposit the money. Once the money is deposited prior to asking and obtaining convincing answers to vital questions about the bank, you may have taken the first dangerous and forward step towards losing your money to bank distress.

The secret revealed in the foregoing discussion is that you should get satisfactory answers about the bank you intend to entrust the safety of your money prior to establishing the relationship. You may not be able to obtain all the necessary answers by yourself alone. You can seek information and advice/help from knowledgeable and unbiased sources in the business of banking, even if it involves the payment of a small fee. That fee may save your millions of Naira from loss; it is worth the sacrifice, if sacrifice is the right word.

To be continued next week