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| Godwin Emefiele, CBN Governor |
The
reason for this provision is, no doubt, to save the banks from insider abuses
being perpetrated by directors of banks by borrowing money without repaying, a
situation that portends serious problems for the banks.
While
it is commendable that the CBN appears to have woken up to address a
long-standing problem, given that responsibility for the implementation of the
provision has been assigned to the board of banks, any jubilation must be with
caution.
The
reason is that CBN might not have foreseen situations where majority of a
bank’s board members have non-performing credits. Who will then sack who in
such situations? Or how easy would it be for the board to remove a dominant
shareholder, who, as the chairman of the board, is a bad debtor? Certainly, by
transferring its responsibility to banks’ boards rather than assume it, CBN is
still treating the cankerworm of insider non-performing directors’ loans with
levity.
Both
Banks and Other Financial Institutions Act and the Central Bank of Nigeria Act
empower the CBN to undertake such critical and important responsibility as
removing banks’ directors from their seats if their actions or inactions pose
threats to the safety, soundness, stability and sustainability of the banks
and/or the banking system. And the CBN has played this role in the not too
distant past where not just the entire boards but also senior management staff
of some banks were removed and some prosecuted.
The
rate of non-performing loans (to total loans) in banks is in excess of 20 per
cent against the regulatory threshold of 5 per cent. Furthermore, bank
directors are responsible for a substantial part of provisions of N856.9 billion
for bad debts in banks. To worsen the situation and in contravention of
provisions of BOFIA, 1991, most bank directors’ non-performing credits, far in
excess of N50, 000, are unsecured.
Actions
of the directors go against prescriptions of Code of Corporate Governance for
Bank Directors and Ethical and Professional Codes of Conduct in the Nigerian
Banking Industry. They threaten the health and soundness of banks and the
system and thus, jeopardize the interest of depositors as well as other users of
banking services in the country.
Indeed,
bad loans significantly contribute to bank distress. In a 1995 collaborative
study on Distress in the Nigerian Financial Services Industry, the CBN and
Nigeria Deposit Insurance Corporation (NDIC) affirmed that ‘‘most commercial
banks surveyed” attributed 30.1 per cent of institutional causes of bank
distress to “bad loans and advances.” Besides, insider abuse of bank directors
borrowing huge amounts without repaying falls within this realm.
Why
would a bank director borrow money from the bank he is at its helm of affairs
and fail to repay in line with stipulated terms? Would such a director have the
legal or moral standing to accost other debtor-customers to repay what they
owe? When bank directors who ought to be beacons of high integrity and good
examples treat depositors’ money under their care as their personal fortune,
they must be punished in ways that must remain in their consciousness for life.
They must live with the consequences of cheapening themselves and acting
imprudently with public assets. Such directors are not better than individuals
who have been classified as ‘corrupt’ or ‘economic and financial criminals.’
Although
a multiplicity of reasons may account for the misbehaviour of debtor bank
directors, three can be considered most critical in encouraging them. One is
that government has watched them contravene laws and regulations without
imposing deterrent sanctions.
Second,
the society accords them undeserved recognition. Third is that greed makes some
bank directors believe that because they raised money to float a bank, they own
all the money in such a bank and thus, deal with it however they want. That is,
even when they know that their shareholders’ fund is very insignificant
compared to the depositors’ funds (deposit liabilities). And the law often
looks on helplessly.
Bank
directors with non-performing loans must therefore repay their indebtedness
without further delay. As for curing prevalence of bank directors’
non-performing credits, there is the need for the directors to separate their
personal interest from that of their banks and to discontinue treating banks as
their personal property.
The
law and Corporate Governance Code must make provision for bank directors to go
to banks other than the ones they superintend to process their requests and if
approved, borrow from there.
This
will ensure an arms-length evaluation, approval and handling of credit
applications by bank directors. It will also curtail insider dealings and
abuses. But it must then be the responsibility of the regulators and
supervisors of the banking system to ensure that the ‘you scratch my back, I
scratch yours’ syndrome does not arise to defeat the purpose of such
provisions.
CBN
must use the instrumentality of the law to deal with directors having bad loans
and advances. In this instance, CBN must not delegate its statutory power to
sanction to boards of banks.
By
accepting and operating banking licences issued by the CBN, the directors
agreed to comply with subsisting laws and regulations. Besides, it is CBN that
screens nominees to ensure they are ‘fit and proper persons’ before they are
appointed into boards and top management of banks.
If
CBN’s ‘fit and proper persons’ screening process has failed (as evidenced by
the misbehaviour of many bank directors), the law must not fail in adequately
punishing such culprits.
Where
subsisting sanctions provided in the laws and regulations are adjudged a ‘slap
on the palm,’ amendments should be sought and obtained from the National
Assembly for greater deterrent sanctions to be provided.
The
National Assembly is hereby called upon to consider, with utmost urgency,
proposals for enhanced sanctions to guarantee that those who put banks and the
economy on perilous paths are visited with the severest sanctions. (Guardian)
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