Another bank failure looms?

Nigeria Deposit Insurance Corporation (NDIC) recently raised alarm that a new round of banking failure looms on the horizon. NDIC’s Managing Director Umaru Ibrahim raised the alarm, saying the scary scenario is to be blamed on the collapse of corporate governance and weak internal control regime in the sector. Addressing participants at the Thought Leadership Discussion Series of the Financial Institutions Training Centre (FITC) Lagos, Ibrahim who was represented by NDIC’s Executive Director, Operations Aghatise Erediauwa expressed fears over the historical relationship between compromised corporate governance and ineffectiveness of internal controls in banks with the failure cycle of the banking sector, which he said takes between seven to ten years to run. According to him therefore, given that the last bank failure took place nine years ago, a re-occurrence of the crisis is almost due.

The NDIC chief’s fears were corroborated by Chief Executive Officer of FSDH Merchant Bank Hamda Ambah. She said the situation is a wake-up call for regulators to rise to the occasion by applying the rules without minding whose ox is gored. According to her, the greatest problem banks and banking institutions have is that of inconsistency in corporate governance which always leads to failure. Ambah identified some aspects of the compromised corporate governance as instances of banks issuing credit without following laid down procedures, and the upturning of entrenched processes by managing directors, among others.

Also speaking at the occasion, Chief Executive Officer of Sterling Bank Plc Abubakar Suleiman identified other issues that plague Nigerian banks to include sovereign governance. In his view, the industry would operate better if the rules were more transparent. He also said it was the main responsibility of the regulators to adopt tools and laws that would help strengthen the banking sector and facilitate sustained growth. For his part, President of the Bank Customers Association Dr Uju Ogubunka lamented over the poor treatment of customers by Nigerian banks, saying that customers along with regulators and operators form the triad on which banking operates.

Against the backdrop of these contributions, it would then imply that the sector’s problem is actually a classic case of abdication of responsibility by the statutory regulators, namely Central Bank of Nigeria (CBN) and NDIC which in this case may be crying wolf instead of acting in a more proactive manner. In simpler terms, the lack of corporate governance is merely a euphemism for impunity and lawlessness in a system. And for banks, such a situation is an anachronism given their role as custodians of other people’s money. NDIC’s query therefore suggests a widespread malady of impunity in the operations of Nigerian banks with significant risks to the health and soundness of the country’s economy.

In the context of the foregoing therefore the submission of NDIC points to a self-indictment of itself and CBN since the two of them as regulators have failed to protect the Nigerian public from any shenanigans of banks, including such that would lead to failure. It needs to be recalled that such a disposition was the case when the previous instances of bank failure took place and sent many Nigerians into undeserved sudden penury and even death from frustration and anguish.

The consequences of bank distress and failure in this country is worse than odious. It took the creation of the Assets Management Company of Nigeria [AMCON] to save most of the banks by taking over their bad debts and enabling them to write off those bad debts from their books. That process cost trillions of naira which we are still paying. AMCON itself has complained about the delay and frustration in recovering many of these bad debts, especially since bad debtors use the courts to stall the recovery process. What are we to do if there is a new round of bank failures when we are still struggling to recover from the last one? That is a question we must ask NDIC, CBN and everyone else.