News Archive

5 Jul 2016

Is Nigerian banking sector still immune from failure?

If there is anything that the Nigerian economy so much deserves at this crucial period, it is a banking sector that is healthy and stable. A banking sector where investors, depositors, operators, regulators and other stakeholders, including the employees can go to sleep after a day’s work with all eyes closed and without any anxiety.
 
In other words, if there is anything that Nigeria cannot risk at this period, it is battling bank failure. The two-word phrase sounds so much like Armageddon to the nation’s economy and to think it is looming is to think the end is near for the Nigeria, whose economy, is fledgling again at the moment.
 
As at today, a number of Nigerian banks are facing the crippling problem of insider abuse and the Apex bank cannot afford to ignore. Add to this capital adequacy and non-performing loans. The three are bad enough to cause the collapse of any bank. In so many of the banks, there are insider loans running into hundreds of billions of naira. Specifically, Skye Bank, whose management team has just been sent packing is groaning under a N150 billion uncollateralized loan owed by just its Chairman Tunde Ayeni and one other board member.
 
Skye Bank is not the only bank guilty of such infractions. Dreadful as it sounds, economic watchers are beginning to sound notes of warning that the symptoms are here with us. They are already percolating through many banks, if they ever left them at all. While the bank rogues have continued with their insider abuse, the regulators seem not care about the effects, while the investors and depositors look askance. This, watchers say, is a dangerous trend.
 
Any type of suspicious activity is a bad sign for banks. But it is especially troubling when the threat comes from within. In fact, some of the most significant risks to a bank are self-serving or criminal acts carried out by business insiders; and those include employees, contractors, consultants and even trusted individuals in an oversight capacity (directors, officers, executives). Using their special access privileges and knowledge of bank operations, insiders can commit fraud, intellectual property theft and privacy breaches. When insiders use their technical knowledge to alter or disable security controls, it can be even more difficult to detect abuse. Any of the crimes that can be committed by outsiders can be committed by insiders and often, with more ease.
 
According to the immediate past president of the Central Bank of Nigeria, Sanusi Lamido Sanusi,  we often say some banks have failed. This is a passive and complicit phrase that masked a gross irresponsibility and crass insensitivity. “The bank has failed,” he said, somewhat sounds like coming across the corpse of a man whose throat was slit, or whose body is covered with knife wounds or riddled with bullets and saying “the man died.”
 
The man did not die. He was killed. He was murdered. And he did not kill himself. To use the term “death” instead of “murder”, excuses us from the responsibility of finding the killers and bringing them to book. And that is exactly what happens when we refer to “failed banks” as if the bank itself, some impersonal structure made up of branches and computers, somehow collapsed on its own. By using, or abusing, the term “failed bank” we are able to mask what is almost always a monumental fraud. But it is a deliberate act of prestidigitation
 
What are the landmines that Nigeria as a country should begin to watch out for in the banking sector? The Nigerian Depositors Insurance Corporation once listed the terminal ailments killing banks in Nigeria as: Huge Non-performing Loans, Severe Liquidity Squeeze, Poor Corporate Governance and Negative Capital. A dreadful list of life-threatening diseases indeed, and each of these factors is serious on its own right. But acting together, they will always bring the nation’s financial system to the brink of collapse.
 
These are economically challenging times. Nigeria cannot do with banking crisis at this point. Government should closely monitor the activities of banks through their agencies/regulatory authorities without necessarily politicizing their mandate. Banks should equally strengthen their internal control measure. Moreover, if the regulatory authority saddled with the responsibility of managing the industry keeps an eagle eye on the industry’s activities, it will stem the tide to bank and limit the management’s meddling with the fortunes of depositors, shareholders and other interested parties. This will be good for the overall benefit of the economy.

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