Anxiety over rising banks’ borrowing from CBN

By OKEY ONYENWEAKU

Nigerian banks have once again fallen off the good books of the Central Bank of Nigeria (CBN) for carelessly failing to adhere strictly to corporate governance imperatives. For this reason, the financial institutions seem to be grunting, given most notably, the recent penalty and punishment that have been meted out to them for clumsily breaching the revised lending guidelines on a new Loan Deposit Ratio (LDR) of 60 per cent by September 30, 2019. At the close of the period, 12 defaulting banks were asked to pay a fine of N499.1billionfor that breach of rules.
For instance, Citibank will be paying a fine of N100,743,055, 321 for failing to meet the lending guidelines of maintaining a minimum Loan Deposit Ratio (LDR) of 60 per cent by September 30, 2019 while First Bank of Nigeria will cough out N74, 668,880,480 from its coffers. As for FBNQuest Merchant Bank, it will pay N2, 697,456,144 to the CBN while First City Monument Bank (FCMB) is expected to forfeit the sum of (N14, 371,064, 742), and Guaranty Trust Bank will lose N25, 147, 933, 628 to the apex bank for the same offence.
Others that will be taking hits include Jaiz Bank (N7, 525, 165,552); Keystone Bank (N4, 162, 938, 879); Rand Merchant Bank (N2, 823,177,399); Standard Chartered Bank (N30,027,137,984); SunTrust Bank (N1,703,205,427); United Bank for Africa (N99,676,181,916) and Zenith Bank (N135,629,337,625).
The LDR, which is now to be reviewed quarterly as a measure to improve lending to the real sector, was 58.5 per cent as at May.
It has now been raised from 60 percent to 65 per cent for the last quarter of the year.
The CBN had in a circular titled,
“Regulatory Measures to Improve Lending to the Real Sector of the Nigerian Economy,” ordered all banks to maintain a minimum LDR of 60 per cent in order to enhance economic growth through investment in the real sector.
The apex bank had warned that failure to meet the minimum loan to deposit ratio of 60 per cent by October 1 would attract a fine which translates to additional CRR equal to 50 per cent of the lending shortfall of the target. Mr. Godwin Emefiele, leader of the apex bank had also reiterated the warning that banks that fail to meet its directive on the 60 per cent LDR would be penalised at the expiration of the deadline.
“Failure to meet the above minimum LDR by the specified date shall result in a levy or additional Cash Reserve Requirement equal to 50 per cent of the lending shortfall of the target,” CBN Director, Banking Supervision, Ahmad Abdullahi, had outlined in the July 3 circular.
Critics of the scheme however fear that the LDR policy would push banks to increase lending to high risk-borrowers, with the potential of incurring heavy losses and higher non-performing loans.
On its part however, the apex bank says that to encourage SMEs, retail, mortgage and consumer lending, these sectors shall be assigned a weight of 150 per cent in computing LDR for this purpose.
Overall however, customers are beginning to express their worry even as they reappraise the banks’ long standing image which was expected to be built on very sound integrity, and particularly as it has to do with the critical component of corporate governance.
Some are taken aback as they ask what is happening to their once cherished financial power houses?
Whereas experts define corporate governance as involving a set of relations between a company’s management, its board, shareholders and other stakeholders, they explain that it is equally most important that the fundamental values of transparency, accountability, fairness and responsibility be respected in order for companies to build and sustain the confidence of investors, stakeholders and the society as a whole.
They also observe that companies with superior corporate governance practices tend to have better stock price performance, higher profitability, larger dividends pay out and lower risk levels.
But the banks do not seem to want to operate according to the rules as analysts accuse them of deliberately breaching set codes sometimes so long as they can benefit more from carrying out their non-conforming action.
They therefore advise that the apex bank should go ahead and wield a stronger stick than treating the matter with kiddies’ gloves.
A few of the analysts said it was indeed the non-enforcement of laws that caused the 2008 global financial crisis which, at that time, had almost crippled the Nigerian financial system.
Within the same breath also, industry experts believe that the CBN has the powers to ensure stability and therefore can take any measure within the law to achieve this objective.
But for the banks themselves, they do not think that they have gone beyond the acceptable boundary points:
”The bank complies with the legislation and codes of corporate governance of the jurisdictions within which it operates.
These include the Banks and Other Financial Institutions Act (BOFIA), the Companies and Allied Matters Act (CAMA) and the codes of corporate governance issued by Central Bank of Nigeria as well as the Securities and Exchange Commission, the United Kingdom Listing Act (UKLA) by virtue of the listing of Global Depository Receipts by the Bank on The London Stock Exchange in July 2007”, said one bank in a recent edition of its annual report.
This defence notwithstanding, many believe that the presence of corporate governance bugs in the nation’s banking system suggests a contrary view to the good image and the laudable reputation that the banks appear to have built over the years.
Concerned that the issue lack of adequate corporate governance is capable of sinking the economy, Dr. Akintola Owolabi of Lagos Business School, said that the level of corporate governance in Nigeria was not only low but a far cry from the adherence patterns that are normal with developed economies.
On her part, the former Chairman, Financial Reporting Council of Nigeria (FRCN), Hajiya Maryam Ladi-Ibrahim says that the concept of corporate governance was borne out of the need to protect stakeholders’ investment and assets of public interest entities.
She linked financial difficulties in many companies to weak corporate governance and warned that a situation where some individuals become more powerful than the organisations they represent would not enhance the economic growth of the country.
“As a matter of fact, the concept of good corporate governance is essential to the wellbeing of companies and their stakeholders. Until recently, corporate governance was not on the front burner in the public.
Indeed, it was a phenomenally prominent in the boardroom and academic environment”, she said.
Corporate governance compliance seems to be a challenge for companies in developing economies like Nigeria and other African countries.
For instance, some of the Nigerian Banks which failed and were nationalised in 2009 in Nigeria were mostly found to have been hobbled by their poor corporate governance regime.
Such banks as the defunct, Bank PHB, Afribank Plc and Spring Bank Plc were weighed down by grave challenges of corporate governance. In addition, Cadbury Nigeria’s historic set back is still blamed on the refusal of its leaders to observe high level of corporate governance about a decade ago.
At the international scene, some American firms such as Leyman Brothers, Enron and Arthur Anderson had equally failed on account of their not giving priority attention to their corporate governance climate.
This is even as Hallmark checks confirm that many banks still do not consider corporate governance as an important segment of the beat in their daily, monthly and yearly operations.
In the financial year ended 2014, banks were compelled to pay a whooping N642million as penalty to the Central Bank of Nigeria (CBN) for various corporate governance offences. This appears to be the highest amount the banks have paid as penalty for running foul of corporate governance rules in the last 15 years in Nigeria.
At that point, five Deposit Money Banks, DMBs were significantly involved in committing corporate governance offences in 2014. Details show that of the lot, Skye Bank (now known as Polaris Bank) was worse hit at that time, given that it had paid a penalty of N330million for various contraventions of the BOFIA provisions during that year. Coming closer however, Stanbic IBTC was also fined about N2 billion for violating the guidelines of the Central Bank of Nigeria, CBN, and committing other sundry offences in 2018. And now ‘the beat goes on.’

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