Examining Issues of Corporate Governance in Nigerian Banks
By Muhammadu S. Bello
The Central Bank of Nigeria (CBN), 2014 defined Corporate Governance (CG) as ‘the rules, processes, or laws by which institutions are operated, regulated and governed’. In other terms, they are the set of rules and regulations in which every member of the family is required to abide by.
For effective and efficient running of a bank by the Board and Management, the Six (6) pillars of CG must be put in place. These consist of Rules of Law, Moral Integrity, Transparency, Participation, Responsibility and Accountability, Effectiveness and Efficiency. Some of the importance of CG in banks includes but not limited to Accountability, Reduction of Risk and Scandals, Corporate Performance, Investor confidence and combating corruption and fraud.
In Nigeria, discussions on CG have been at the forefront of number of issues facing Nigerian Banks. Right from 1990s, the Apex Bank has revoked the licences of Forty-Five (45) banks which were subsequently liquidated by the Nigeria Deposit Insurance Corporation (NDIC). Similarly, nine (9) Banks challenged the revocation of their licence in the Appeal court. Some have been either restored without going back to operations or are still at the Court awaiting Verdict.
One prominent CG issue in Nigerian Bank was in 1995. It was the joint examination of CBN/NDIC after due assessment of the books of First African Trust Bank (FATB), demanded the shareholders of the former bank to recapitalise same up to or more than the sum of N500 million. However, all efforts of the regulators to bring back the bank to full life went to no avail as the shareholders decided not to repay their loans and advances to the tune of N82.8 million.
The joint examination further revealed lack of commitment from FATB board and weak Management which resulted in the former bank’s inability to strictly adhere to supervisor’s corrective actions. More than N50 million was also mismanaged by the Board and Management appropriating in the name of Legal expenses.
Right from its inception in 1991, the board was characterised by squabbles because of ownership and shareholding. The case of FATB also signifies share greed in the part of the business owners as well as lax regulations from the supervisory authorities.
The defunct Lead Bank Plc was also one bank that its board failed to meet up with the new required capital base as prescribed by the Apex bank in July, 2004. The bank acquired a merchant bank license in 1989. By 2001, its operations expanded and therefore decided to acquire a universal banking license. In 2002, its shareholders had increased up to 166 which signifies increase in business and customer base.
Furthermore, some of the C G issues in former Lead Bank include, lack of clear separation between the ownership and control of the bank. Executive duality in which same individual would serve in the Board and Management of a bank also characterised the leadership of the defunct bank. This became possible due to non-existing agreement which spells out terms and conditions of the Board and Management on the part of the bank.
The defunct bank also lacked a clear strategic vision which should indicate its aims and objectives that will eventually drive its growth.
Lead Bank’s inability to enter into merger agreement with a viable bank finally became the last stroke that broke the camel’s back. On 13th January 2006, the Board and Management of the Bank was dissolved by the Apex Bank and subsequently replaced with an interim Management Committee. Finally, on 16th January, 2006, the licence of the bank was revoked by the CBN and handed over to the Deposit Insurer which eventually adopted a Purchase and Assumption option that gave the Afribank Plc the opportunity to take over deposit liabilities as well as the bank’s premises and other physical assets and continued to serve the customers.
Another mind-blowing CG crisis that rocked the banking industry was the issue of the erstwhile Skye bank Plc. In July 2016, the Apex bank dissolved and replaced the Board and Management of the former bank having failed to recapitalize the bank despite several warnings by the supervisors for the board and Management to turn around the fortunes of the bank. The CBN/NDIC, reports also revealed several C G issues with the bank such as insider loans, over sectorial loans to oil and Gas industry, poor CG, banking malpractices, manipulative/false accounting, non-disclosure of Directors interest and lending beyond single obligor limits. Earlier in July, 2016 and September 2018, the CBN and the Asset Management Company (AMCON) injected the sum of N350 billion and N780 billion respectively as intervention to the defunct bank which had saved over 6,000 jobs, 277 branches and depositors funds in the sum of N949 billion.
To this effect, it has become very clear that any financial institution that does not take the issues of CG important in the running of its operations is at great risk. It is only a matter of time when it will come crashing with devastating consequences. It is therefore imperative for the banks and other financial institutions, in the interest of shareholders and depositors to ensure strict adherences to the code of corporate governances issued by the regulators for steady growth, profitability and sustainability.
Muhammadu S. Bello a public Affairs Analyst wrote in from Abuja and can be reached on [email protected]