The success or failure of an economy depends a lot on policy formulation and implementation. With the Nigerian economy not doing well, it is important that 2019 gives a huge sense of urgency in looking deeper and more critically at putting to bed, certain issues that arose in 2018. Economics run by happenings and events rather than mere years. Chief amongst these issues is the current reality of the Nigerian banking sector and how banks are being managed and regulated. While I can go on with the inadequacy of the will power of the political class, the Central Bank of Nigeria (CBN) is in the dock now.
There is a real need to charge the directors of corporate bodies who are saddled with the duty of properly managing the Banks and the monies of investors. As the court stated in Adeyemi v. Lan & Baker Nig. Ltd:
“There is nothing sacrosanct about the veil of incorporation of a company. Thus if it is discovered from the materials before a court that a company is a creature of a biological person be he a managing director or a director and that company is a devise or a sham or mask which he holds before his face in an attempt to avoid recognition by the eyes of equity the court must be ready and willing to open the veil of incorporation to see the characters behind the company in order to do justice”.
Cash is the backbone of any advanced economy. As a matter of fact, it is the blood through which life flows throughout the economy. The importance of funds for the sustainability of the economy and the State as a whole cannot be overemphasized. Any arrangement that influences the banking sector straightforwardly or by implication influences the whole economy. This is why serious countries protect the banks and in return make it responsive to them, such that no one can cheat the investors of the money that they have invested. This is not to say that losses are not possible. They are however, well managed with enviable resilience.
So far, there have indeed been diverse changes towards moulding Nigerian banks into solid and dependable financial institutions to guaranteeing the security of depositors’ funds and in addition, reinforcing the assurance that banks are set to assume their job of financial intermediation. Financial intermediation equates the process in which financial institutions particularly commercial banks mobilize from surplus economic units in the form of savings, and channel such funds to the deficit units or sectors of the economy. Usually, these units or sectors are in need of funds to execute useful economic activities through loans or mortgages.
The recent and most successful reform yet, is the Banking Sector Consolidation in 2004. Apparently in a bid to accomplish soundness in the banking system, the CBN raised the minimum shareholders’ fund for commercial banks from N2 Billion to N25 billion through the recapitalization process. This led to a swath of mergers and acquisitions amongst banks in Nigeria and a few other corporate restructuring moves. Some other Banks raised the required capital through private placement, public offers and rights issues. This intervention saw the extinction of numerous feeble banks because of their powerlessness to raise the required capital. Then, the rise of twenty-five (25) standard business banks happened. This intervention made Nigerian Banks steady, solid, able and internationally focused. Of the 25 banks afore-stated, some have subsequently merged while others have transformed in specific ways.
This clearly shows the need for the CBN to be on red-alert. The Central Bank of Nigeria Act, 2007 of the Federal Republic of Nigeria charges the CBN with the overall control and administration of the monetary and financial sector policies of the Federal Government. The objects of the CBN are as follows: ensuring monetary and price stability; issuance legal tender currency in Nigeria; maintaining external reserves to safeguard the international value of the legal tender currency; promoting a sound financial system in Nigeria; and acting as Banker and provider of economic and financial advice to the Federal Government.
The CBN is charged with the responsibility of enforcing the Banks and Other Financial Institutions Act, 1991 (BOFIA). The object of this Act appears to be the guarantee of global standards of banking practice while encouraging monetary strength through its observation exercises and in addition, the advancement of a productive instalment framework. The laws and codes would never implement themselves; it is high time the CBN began doing this. The administrative imperfections which prompted the eventual revocation of the license of Skye Bank and establishment of Polaris Bank could have been avoided, I believe, and certain persons responsible for this would have been brought to book long ago. The intervention of the CBN was amazing, brilliant and timely.
Also, the proposed corporate restructuring between Access Bank and Diamond Bank, tagged ‘Deal of the Year,’ by writers and analysts was a huge relief to the Central Bank of Nigeria (CBN). If this corporate restructuring had not been done, the apex bank would have again been called upon to salvage the situation as it did for the liquidated Skye Bank. Had this not pulled through, it would have resulted in fearful shivers down the spines of depositors and investors, foreign and local, which would not have been good for the Nigerian banking system, bearing in mind the present dreadful shape of the Nigerian economy.
As we sail through the coasts of 2019, no one can claim a perfect oracle vision of the negative multiplier effects of such a development, more so at a time when the uncertain outcome of a general election is waiting to burgle our doors and windows. History has shown us well enough that stocks and investments often times do not do well during the Nigerian elections.
The Nation, a Nigerian tabloid stated recently (November, 12, 2018) that “the CBN is well acquainted with the development. The regulator’s acquiescence to the deal was informed by the recent event that led to the liquidation of Skye Bank, and the apex bank not being disposed to following that route because of the huge cost implication that a bailout of Diamond Bank might require, encouraged the discussions.” The different interventions of the Central Bank of Nigeria were timely and brilliant. However, should this continue? It would only be reasonable to charge the CBN to regularly and consistently investigate these banks and put them on their toes. This is not just safe for the investors and potential investors, it is also healthy for our economy.
Code Of Corporate Governance For Banks In Nigeria Post Consolidation which became Effective on the 3rd of April 2006 highlighted a Weakness in Corporate Governance of Banks in Nigeria (Paragraph 2.0), some of which include:
“Disagreements between Board and Management giving rise to Board squabbles; Ineffective Board oversight functions; Fraudulent and self-serving practices among members of the board, management and staff; Overbearing influence of chairman or MD/CEO; Weak internal controls; Non-compliance with laid-down internal controls and operation procedures; Ignorance of and non-compliance with rules, laws and regulations guiding banking business; Passive shareholders; Poor risk management practices resulting in large quantum of non-performing credits including insider-related credits; Technical incompetence, poor leadership and administrative ability; Inability to plan and respond to changing business circumstances; Ineffective management information system.”
Over twelve (12) years down the line, these weaknesses are still with us, all of which can be adequately dealt with. It is understandable that it takes a lot of public funds, time and energy to deal with the challenges, however if we don’t not do this now, we may end up in the vicious circle of failed banks and forced mergers. The provisions of the code are mandatory, the CBN should enforce them.
I close this article with the words of Lord Denning who observed in Norwest Holst v. Secretary of State for Trade in relation to section 165 of the UK Companies Act, 1948 on which section 167 of the Nigerian Companies and Allied Matters Act, Cap. C20, LFN 2004 dealing with investigation of company are based as follows:
…Public companies are conducted in a way which is beyond the ordinary shareholders. The majority of the shares are in the hands of two or three individuals. These have control of the company’s affairs. The other shareholders know little and are told little. They receive glossy annual reports. Most of them throw into waste papers basket. The whole management and control is in the hands of the directors. They are a self-perpetuating oligarchy, and are virtually unaccountable. Seeing that the directors are the guardians of the company. The question is asked? Quis Constodient Ipsos Custodies? Who Will Guard the Guards Themselves?
The CBN adequately can. Let it act accordingly.
Basit Kolapo Saka, Esq.
Guest Columnist, LAW AXIS 360°
Associate, Ayanlaja, Adesanya & Co
Kolapo is a legal practitioner at the prestigious Ayanlaja, Adesanya & CO, Situate in ILupeju, Lagos.
He has keen interest in Business and Corporate Law, Commercial arbitration and Fintech.
He also writes and advises business start ups and SMEs.