Mass failure of OFIs
The Central Bank of Nigeria [CBN] recently announced that it would revoke the operating licenses of 182 Other Financial Institutions [OFIs]. These are financial services providers different from commercial banks. They include microfinance banks, primary mortgage banks and finance houses. According to a notice posted on CBN’s website, it listed the affected institutions as comprising 154 micro finance banks, six primary mortgage banks and 22 finance companies.
In justifying its action CBN said already, many of these listed institutions were technically no more operational. In its analysis, 62 micro finance banks had already closed shop while 74 had become insolvent, 12 were terminally distressed and six had voluntarily liquidated. Further revelations by CBN indicate that of the 22 mentioned finance companies, eight voluntarily liquidated and 13 could not recapitalize while the last one remained insolvent. CBN cited some cases such as those of Ahocol Savings and Loans Limited owned by the Anambra State Government which closed shop and Trans-Atlantic Savings and Loans Limited which belongs to Bayelsa State Government. Other highbrow cases are rife according to the CBN report.
In revoking the operating licenses of these institutions, CBN is acting against the backdrop of a long history of distress among them in their respective categories and especially those operating with unit licenses, that is, with only one operational office or branch. This situation mirrors the general state of compromised soundness and safety of the country’s financial services sector where these agencies operate and are expected to provide traction to the business community in general. However rather than provide the needed traction, a wide cross section of them have constituted mere drains on the funds belonging to unsuspecting members of the public.
The immediate blame for the poor state of affairs goes to CBN itself which licensed them in the first place. From available information, this is not the first time a system-wide failure of financial institutions has been recorded in the country. CBN always intervenes in these situations by delisting and withdrawing operating licenses from the defaulting institutions, without subjecting them to exacting conditions of entry into the business of financial service provision and sustainable operation as well as imposing adequate sanctions on defaulting operators. This is often as the victims of the failed institutions are abandoned to lick their wounds from irredeemably lost funds.
Even the most cursory appraisal of the ownership structure of many of the micro finance banks and the other categories betray instances where family units and even just husband and wife own such entities. This situation breaches the core principle of denying consanguinally connected partners in such sensitive services, as such easily breeds conspiracies for insider crimes.
Against the backdrop of the pervasiveness of the failure of such financial service providers, public perception of CBN’s sanctions are seen largely as a mere slap on the wrist, as in most cases the culprits who mismanaged such institutions escape scot free, and in some case even resurface to engage in business ostensibly with funds retrieved from the earlier failed financial institutions under their briefs.
The syndrome of serial failure of these other financial institutions has necessitated the need for CBN to apply more rigorous regulatory measures on them as they provide equal exposure to public funds as the commercial banks hence should not be judged with standards that do not equate with the same rigour as for the banks. In the light of the foregoing therefore the CBN needs to embark on drastic reforms in the sector with a new template for ownership structure and regulatory framework.
Nigerians are yet to come over the shock of the recently failed Skye Bank Plc. Having to be exposed to further systemic failures in the financial services sector will be a burden too much. In some cases the OFIs were not solely responsible for their own failure. The criminally epileptic state of the National Housing Fund, for example, was a major factor in the failure of primary mortgage institutions.