Jan 7, 2019

Managerial Check on the Nigerian Banks: The duties of the Central Bank of Nigeria | Saka, Basit Kolapo, Esq

The success or failure of an economy depends a lot on policy formation and implementation, with the Nigerian economy not doing well, it is important that this year we look deeper and more critically at certain issues that arose last year how we can deal with them this year, economics doesn’t necessarily run by years, but by happenings and events. Chief amongst these issues is the realities of the Nigerian banks, their health, which balls down to how they are being managed. While I can go on with the inadequacy of the will power of the political class, I have chosen not to do that, this is because there is a need to charge the directors of corporate bodies, with the duty to manage the organisation and the monies of investors well.  

As the court stated in Adeyemi v. Lan & Baker Nig. Ltd[i] : “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, meaning that when there is no money in the economy of a state, everything crashes, the importance of funds for the sustainability of 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 makes 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 possible, but they are well managed.

There have been diverse changes equipped towards making the banks solid and dependable financial institutions to guarantee the security of depositors’ funds and in addition guarantee that the banks are all around set to assume their job of financial intermediation in the nation, where Financial intermediation means the process in which financial institutions particularly commercial banks mobilize from surplus economic units in form of savings and channel such funds to the deficits units or sectors of the economy who are in need of funds to carryout useful economic activities through loans or mortgages[ii].

The recent and most successful reform yet, is the banking sector consolidation in2004. To accomplish this soundness in the banking system, the Central Bank of Nigeria raised the minimum shareholders’ fund for commercial banks from N2 Billion to N 25 billion through the recapitalization process. This led to merger and acquisition amongst banks in Nigeria. While some others raised the required capital through private placement, public offers and right issues. The consequence of this procedure is the conclusion of numerous feeble banks because of their powerlessness to raise the required capital. And after that the rise of 25 standard business banks in the nation. This procedure made Nigerian Banks steady, solid, able and internationally focused. Of those 25 banks, some have merged and others transformed[iii].

This shows why it is important that we make our banks more responsive to us. While it is impossible for every customer or shareholder of these banks to do this because of the rowdiness and clumsiness it will cause. The Central Bank of Nigeria Act of 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: ensure monetary and price stability; issue legal tender currency in Nigeria; maintain external reserves to safeguard the international value of the legal tender currency; promote a sound financial system in Nigeria; and act as Banker and provide economic and financial advice to the Federal Government[iv].

The CBN is of charged with the responsibility of administering and overseeing the implementation of the Banks and Other Financial Institutions (BOFI) Act (1991) as revised Section 1(1) of this demonstration so gives, with the sole point of guaranteeing elevated requirements of saving money practice and monetary strength through its observation exercises, and in addition the advancement of a productive instalment framework. The CBN with these forces has the obligation of keeping up mental stability in the saving money and fund segment. The laws and codes would not implement themselves, it is high time the CBN began doing this. The administrative imperfections which prompted the events of Skye Bank and eventual raise of Polaris Bank could have been avoided, I believe and certain persons responsible for this be brought to book. The intervention of the CBN was amazing, brilliant and timely.

Also, the merger between Access Bank and Diamond Bank, which they initially denied, tagged ‘Deal of the Year,’[v] by writers and analysts was a huge relief to the Central Bank of Nigeria (CBN). If this merger had not been done the apex bank would have again be called upon to savage the situation as it did for the liquidated Skye Bank. Had this not pulled through, it would have resulted in fearful shivers been sent down the spines of depositors and investors, both foreign and local, which would not have been good for the Nigerian banking system, bearing in mind that our economy is not what it used to be. As we enter 2019, no one can foretell the negative multiplier effects of such a development, at a time the uncertain outcome of a general election is just around the corner. History as shown us well enough that stocks and investments often times do not do well during the Nigerian elections.

The Nation stated as far back as 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.”[vi] The different interventions of the Central Bank of Nigeria were timely and brilliant, however to what extent would it be advisable for us to keep on doing this? It would only be reasonable to charge the CBN to 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 Weaknesses in Corporate Governance of Banks in Nigeria (Paragraph 2.0) some of which includes 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. Twelve years down the line this weakness is still with us, all of which can be 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 will close with the words of Lord Denning who observed in Norwest Holst v. Secretary of State for Trade[vii] in relation to section 165 of the UK companies act 1948 on which section 167 of the Nigerian Companies Act 2004 dealing with investigation of company were 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?

-Written by Saka, Basit Kolapo, Esq.

Saka is a lawyer with keen interest in corporate/commercial law as well as international commercial arbitration. He is not just concerned about policy making but also concern about policy implementation, which is why he uses his pen to drive home this point, thus spurring governments and citizens to action.

[i] (2000) 7 NWLR (pt 663) P. 33 at P. 51.
[ii] https://infoguidenigeria.com/role-of-the-banking-sector-in-economic-growth/ accessed on 04/1/2019
[iii] https://infoguidenigeria.com/role-of-the-banking-sector-in-economic-growth/ accessed 04/01/2019
[iv] https://www.cbn.gov.ng/AboutCBN/ accessed 04/01/19
[v] http://thenationonlineng.net/business-deal-year-2018-access-banks-acquisition-diamond-bank/# accessed 28/12/2018
[vi] http://thenationonlineng.net/talks-on-for-access-bank-to-acquire-diamond-bank/ accessed 28/12/2018
[vii] (1978) 3 All ER 280 CA.