Nigeria Banking Update

THE Central Bank (CBN) has given 17 Nigerian banks approval to manage the nation’s foreign reserves. The apex bank has also allotted between $325 million and $1billion to the 17 banks depending on the class of their mandate .Besides,the least capitalised Nigerian bank achieved a capital base of about N25 billion ($188 million) as against N1.3 billion ($10 million) before consolidation, while total capitalisation of the sector rose significantly from N311 billion ($2.4 billion) to N932 billion ($7.3 billion) by December 31, 2005.

Recall that Nigerian banking industry was struggling, trying to overcome several challenges which made it very difficult for the sector to support the real sector of the economy before July 2004.There used to be 89 banks comprising institutions of various sizes and degrees of soundness.Evidently, the industry was highly concentrated on the 20 largest banks which accounted for over 70 per cent of total industry deposits, assets and liabilities.In addition, the sector was battling with some challenges among which were: poor capital base, capacity issues, poor corporate governance, unethical practices, distress syndrome and accelerated erosion of public confidence.

As at December 31, 2005,N360 billion and Direct Foreign Investment of $652 million and £162,000 were raised by banks.The unexpected level of success achieved has not gone unnoticed in the global market as evidenced by the improved rating of Nigerian banks. In the rankings, 20 of the 25 Nigerian banks are now in the top 100 banks in Africa; 17 are in the top 40 banks, while four are among the top 10 in Africa. Seventeen of the 25 banks are in the top 1,000 in the world.The banking sector was able to grapple with the Consolidation exercise and came out successfully.

Fraudsters and forgers went on the rampage in the banking industry in the first half of 2007 successfully stealing N1.401 billion from the banks, even as quality of loan facilities deteriorated in the industry.The half year annual report of the Central Bank of Nigeria (CBN) released last week revealed this stating, "A total of 741 cases of attempted fraud and forgery, involving N 5.4 billion, US$35,406.1, 150.00 and £60.0 were reported, up from 597 cases in the corresponding period of 2006".The 438 cases that were successfully executed resulted in the loss of Nl .4 billion, US$ 13,938, 150.0 Euro and £60.0 to the banks, compared with 295 cases and the loss of N1 .2 billion, US$455,549.0, and £10,000.0 during the corresponding period in 2006.

The CBN attributed the rising wave of fraud and forgery in the industry to the weaknesses in the internal control systems of the banks and the delay to fully integrate their systems and processes.In a related development the apex bank reported deterioration in the quality of loan facilities granted by banks. According to the report, "An assessment of the banking sector soundness using the CAMEL parameters revealed that as at end June2007, six (6) banks were rated sound, sixteen (16) satisfactory, and three (3) banks were rated marginal. No bank was rated unsound, reflecting the positive results of the consolidation exercise.

The non-performing loans of the banks rose from N209.8 billion at end-June 2006 to N254 billion, reflecting a deterioration in the quality of loan facilities.The ratio of non-performing credit to industry total credit was 7.7 per cent as at end-June, 2007 as against 9.7 per cent recorded at end-June, 2006. The ratios were below the acceptable contingency threshold of 2.0 per cent for the industry.

A banking operator recently blamed the rising incidence of frauds in the banks to the weakness of the existing banking laws to deter frauds in the industry.Speaking on the role of regulatory authorities in combating fraud in the banking industry, at the workshop on Internal Audit and Accounting Control Measures in the Mortgage Banking sector organized by the Mortgage Banking Association of Nigeria (MBAN), Managing director/chief executive Omega Savings and Loans Limited, Mr Effiong Bassey stated that, "Laudable as they may be, the existing laws-BOFIA, FMBN, NDIC e.t.c cannot deter fraudulent persons unless their provisions are strictly implemented and law enforcement agencies must decisively prosecute any established fraudster.

In addition to this, delays in prosecution process must stop, while connivance with fraudster to cause their escape from lawful custody must be addressed as well as tampering with evidences by enforcements agents for financial gains from fraudsters.Bassey noted that it is difficult to actually know the trend of fraud in the industry due to absence of a uniform reporting system.
"Some banks report only successful frauds to the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC), other report both attempted and successful ones while others report none for fear of damaging their images. This not withstanding, fraud has been on the increase with all cadres of staff involved in it.

This rising incidence of fraud is due to a host of factors among which are: Non-call over of transactions, Poor record keeping, Non-identification of Payees of instruments, Absence of Dual control, Non-adherence to cash holding limits, and wrong staff placement/non-rotation of duty.
To address the incidence of fraud in banks,he suggested adequate background checks on prospective employees, adding that integrity test must begin from recruitment, as the obtaining of a good grade does not mean hard work or honesty.

Furthermore he recommended: Adequate staff training. Adherence to guidelines given by regulatory authorities and bank's operational guidelines and manuals.Assignment of duties to staff on the basis of ability. Passionate reward for fraud detection and prevention. Conclusive prosecution of identified fraudsters. Adequate staffing to eliminate comprise of roles. Competitive remuneration to elicit unalloyed loyalty. Accurate book/record keeping to ensure the regular reconciliation of accounts. And Surprise checks and rotation of staff to eliminate complacency.

Professor Chukwuma Soludo, governor of Central Bank of Nigeria (CBN) has listed two key factors that must be considered in the appointment of independent directors in banks to include "good reputation and integrity".He said the appointment of independent director in banks is important to the regulator and that the survival of banks during post consolidation depends on effective supervision,good self regulation by the operators.Adding that the effectiveness of independent director in monitoring and guiding the operation of banks' management is crucial.

The importance of independent directors in effective supervision of banks is to achieve good corporate governance in the system. The integrity of a person to be appointed a independent director is very important and the reputation of such a person. These two factors are very important in the appointment of independent directors.CBN has released the guidelines for the appointment of independent directors in banks following the introduction of the code of corporate governance to banks operating in Nigeria.

The new guidelines enable banks to comply with Section 5.3.6 of the code which states that at least two non-executive board members should be independent directors and they should be appointed on merit. Such persons, the guideline said, should not represent any particular shareholder interest or hold special business interest in the bank.In fact, the CBN's guideline defines an independent bank director as a member of the board of directors who has no direct material relationship with the bank or any of its officers, major shareholders, subsidiaries and affiliates; a relationship which may impair the director's ability to make independent judgments or compromise the director's objectivity in line with corporate governance best practices.

An independent director should not: provide financial, legal or consulting services to the bank or its subsidiaries or affiliates or had done so in the past five years; be a current or former employee who had served in the bank in the past and none of his immediate family members should be an employee or former staff of the bank at the top management level in the preceding five years; borrow funds from the bank, its officers, subsidiaries and affiliates; be part of management, executive committee or board of trustees of an institution, charitable or otherwise, supported by the bank; or serve on the Board of a subsidiary of the bank.

Furthermore, CBN said he or she should have sound knowledge of the operations of listed companies, the relevant laws and regulations guiding the industry, a minimum academic qualification of first degree or its equivalent with not less than 10 years of relevant working experience. It also states that such candidates should have proven skills and competencies in their fields.The responsibilities of independent directors include to: employ neutral, specialized or expert skills towards achieving a balance of knowledge, skills, judgment and other directional resources bearing in mind that neutrality of views and quality of debate are very crucial in enthroning good corporate governance practices; serve as a check on the management of banks by providing unbiased and independent views to boards of banks and represent minority shareholder's interests; and help the boards of banks to get the most out of its businesses by providing objective inputs to strategic thinking and decision making, while ensuring full compliance with statutory rules and regulations.

The term of office of an independent director shall be four years for a single term and a maximum of eight years of two consecutive terms if reelected upon the expiration of the first term. However, the independent director may resign before the expiration of his or her term. In this circumstance, the independent director shall submit a written letter of resignation spelling out the circumstances leading or surrounding the resignation, a copy of which should be sent to the CBN.

The Central Bank of Nigeria (CBN) has threatened to penalise banks and other financial institutions that transact business with customers that they have scanty information about.This according to the banking watchdog is a breach of the Know Your Customer (KYC) identification requirements.Banks have been given two-week deadline to fully comply with the Know Your Customer (KTC) guidelines or face severe sanctions.Mr. Ignatius Imala, CBN director of banking supervision who gave this directive, said after November 22, any bank that fails to comply fully with the KYC requirements as specified by Section 3 of Money Laundering Prohibition Act, 2004 would be seriously sanctioned. The CBN has also reiterated this directive in the following circulars: CBN KYC Directive, 2001 and KYC Manual, 2003.

In its current circular issued on November 8 and entitled Circular to banks and other financial institutions, compliance with Know Your Customer (KYC) requirements and banks' weekly money laundering reports to the NFIU using XML Schema Template, Imala said, "All banks and other financial institutions operating in Nigeria are by this circular reminded of the need to ensure full compliance with customer identification requirements in line with Section 3 of Money Laundering Prohibition Act, 2004, CBN KYC Directive, 2001 and KYC Manual, 2003".

Accordingly, banks and other financial institutions are required to demand and obtain complete identification information/evidence from all their customers (existing and intending). "This will enable the banks to render effective money laundering (ML) returns to the Nigerian Financial intelligence Unit (NFIU) through the XML Schema Template currently being used by them to render ML returns. Consequently, where customers fail to cooperate with the banks/institutions, they should suspend further transactions on such account(s) until full compliance is achieved.

KYC requirement is a manual intended to serve as a further guide to banks and other financial institutions in Nigeria on the procedures necessary for the proper knowledge of their customers. CBN said having sufficient information about your customer and making use of that information is the most effective weapon against being used to launder the proceeds of crime. In addition to minimising the risk of being used for illicit activities, it provides protection against fraud, reputational and financial risks and enables individual financial institutions to recognise suspicious activities.The KYC manual specifies that sufficient information should be obtained on the nature of the business that the customer intends to undertake, including the expected or predictable pattern of transactions.The information collected at the outset for this purpose should include: purpose and reason for opening the account or establishing the relationship; nature of the activity that is to be undertaken; expected origin of the funds to be used during the relationship; and details of occupation/employment/business activities and sources of wealth or income.

The Governor, Central Bank of Nigeria, Professor Chukwuma Soludo dispelled the rumour of distress in the Nigerian banking industry, saying there were no traces of unsoundness in the present crops of banks operating within the country.He stated this at the 2007 Annual Bankers Dinner held in Lagos.He said the nation’s banking industry still stand as the fastest growing in Africa today, the industry enjoyed the B+ rating for the first time by the Fitch rating agency. The 2006 Bankers Magazine Rating of first 1000 banks in the World, he recalled, rated Intercontinental Bank as the 355th in the World.

Soludo warned key players in the sector against peddling unfounded rumors about fellow competitors in the industry saying this had been responsible for the average level of confidence on the industry even after the consolidation exercise.These have been confirmed baseless and unfounded over the years. This could be called a mutually assured destruction and of grave consequences to the industry.The governor noted that out of the numerous awards to African banks in 2007 alone,Nigerian banks carted away a total number of 15 awards representing 50 per cent of the total number of awards. He said the rating of Nigeria amongst countries like Russia, India, China and Poland was a clear indication of the viability of her banking system.
With the nation’s foreign reserve currently standing at $49bn and hoping to hit the $50bn mark before end of the year, the pinning of the interest rate to a single digit and the fair stability in the exchange rates, Soludo said, the banks were getting better and stronger.

He noted that there was still much to be done by the banks to deepen intermediation by financing small and medium-scale enterprises, extending credit to the real sector and growing the mortgage finance.The last Bankers Committee, according to Soludo, addressed the complaints from different quarters about the high cost of other charges such as the Value Added Tax and others, where it was agreed to be cumulatively clamped on 2 per cent or below.He said contrary to the opinion that the banks were raising excess capital,he pointed out that the banks were not raising excess funds since their motives so far have been defined by their strategic agenda.

He further stated that if the nation must realize her strategic plan of Vision 2020, there was the need for stronger, more reliable and bigger banks to finance its infrastructural projects while also adding that the apex bank and the Nigerian Deposit Insurance Corporation would keep their eyes on the structure and balance sheets of the banks to make sure that risks were appropriately priced in such a way that the banks were not unduly exposed to troubles.
He said two banks have met the $1bn mark as requirements for managing the country’s foreign reserve and were soon to be handed over the $500m each of the reserve to manage.According to Soludo, foreigners who meet the CBN’s requirements for licensing would be allowed to operate in the country but the control of ownership and domination still remained the preserve of Nigerians.

One area of great concern to the regulatory authorities, according to Soludo, was the huge capital inflow into the country occasioned by the weakening of the Dollar in the last couple of months.This, he said had stemmed macro-economic volatility and left the local currency to struggle for a safe haven. A country that receives a GDP of 5 per cent in capital flow and sustained over a decade, he said, can not escape financial upheavals.The economy seemed to be getting more sophisticated, he noted, but acute shortage of skills at all levels had become a national challenge. He said the market capitalization was presently still less than 50 per cent of total GDP, adding that the road to the Financial Systems Strategies 2020 had about four hundred initiatives before 2015, and to which the strategic agenda for the naira was central.
The upsurge in the World oil market prices, he said, would not deter the nation’s economy but rather provide the much-needed capital required for development.

The President/ Chairman of Council of the Chartered Institute of Bankers of Nigeria, Mrs. Juliet Madubueze also added that the Institute made efforts to impact positively on the confidence, transparency and performance of the financial system during the year.She said the Institute intervention comes in areas such as the enactment of the CIBN Act No. 5 of 2007, the Ethics and ProfessioNalism Desk at CIBN, the quality of training giving to practitioners in the industry the public enlightenments on the implications of issuing dud cheques, amongst others.

The strong competitiveness and need for high profitability as well as impressive returns on shareholder's investments now force the post-consolidation banks to employ outrageous and aggressive marketing strategies that have little or no respect for human values or virtues.The rate of outright or disguised unemployment as well as attractive remuneration packages in the banking industry make working in the industry not only attractive but also enviable, especially to young graduates in the country.Just as oil and telecommunication companies, entry-level bank employees are handsomely paid,well equipped with modern banking tools,aided with the state-of-the-art information technology gadgets and they, no doubt operate in conducive working environments.

However, there are several silent dangers embedded in working as employees of banking organisations.These dangers are so implicit that one can hardly observe but for experiences of bank employees themselves and observations exposed by keen banking industry observers. These remuneration and technology-coated dangers range from strained relationships to sexual harassment or professionally induced prostitution. Beautiful young ladies are employed into the marketing departments of some banks to woo and attract patronage from captains of industry, giving whatever it takes.These ladies are given deadlines and targets and failure to meet the targets at the appointed times attracts ruthless penalties in forms of suspension and pay stoppage or deduction.

Troubled young ladies in order to retain their jobs, stoop to sexual pressures from their prospective clients, rendering themselves vulnerable to the dangers of the scourge of HIV/AIDS. Relationships, for bank employees are totally strained and jeopardised. Married bankers hardly spend meaningful periods of time with their spouses and children.Those who are not married have little or no time for courtship or friendship while those who are already into some friendship or courtship end up in failure.To sustain any relationship,time is inevitable but bankers’ have no control over their times, for they work on Saturdays and Sundays at the detriment of their marriages, friendships or courtships.

A banker with one of the strongest banks in Nigeria once said “As a banker, one has no time for oneself, one’s spouse or children. Many of us even work on Saturdays and Sundays depending on the bank in question.Really, it strains relationships and family sense of belonging for the married ones.” He said further, “Single bankers are terribly affected because they find it difficult to start or maintain a relationship and that is why we have too many unmarried bankers, especially ladies who are ripe for marriage.Health defects that emanate from restless lifestyle and long hours on the job may be the lots of new generation bank workers.

Scientists in their findings, say too much eye exposure to computer monitors without intermittent time off is dangerous to the eyes and also, sedentary working style of bankers is not good for their health. Exposure to too much air-conditioners,mental and physical stress, coupled with solitude of single bankers may result into frequent break down of health.
Restlessness, anxiety and stress have been linked to high blood pressure, and bankers are prone to these risk factors more than any other category of employees.

EVEN with the glowing tributes being heaped on Nigerian banks globally,they are not resting on their oars. Currently they are trying to raise their market capitalisation to a new level.The Central Bank of Nigeria's governor, Prof. Chukwuma Soludo last week revealed that the 25 banks market capitalisation would hit N3.84 trillion by December 2007.He disclosed this in Abuja in his address at the International Conference on African Central Bank's website,. He said by the end of the year there would be over 15 banks with market capitalisation of N256 billion ($2 billion) each.

While noting that three years ago none of the banks came up to $500 million,he remarked that "It is not an understatement that Nigeria has the fastest growing banking system in Africa and one of the fastest in the world. According to him, there was no Nigerian bank in the top 1,000 banks worldwide of 2004 but as at the end of 2006, there were 12 banks ranked among the top 1,000, with one ranked 335th among the top 500. Besides making domestic roads into the West African coast,we now have Nigerian banks setting up subsidiaries in Europe as well as getting listed on the London Stock Exchange.

He also said the goal of becoming one of the 20 largest economies in the world had imposed on the CBN a sense of urgency to mainstream the economy as the international financial centre of choice and African's financial hub.In this regard, the apex bank has been at the forefront of institutionalising the necessary reforms through the Financial System Strategy (FSS) 2020 framework to leap frog Nigeria towards the attainment of this goal.He expressed delight that the FSS 2020 is concretising the fine details of the road-map for the realisation of this medium agenda which include the globally acknowledged banking consolidation exercise that has literally transformed Nigerian banks to global players.

Since the 2004 banks' consolidation exercise in the country, current happenings are like a dream.This is because, when this programme was unveiled by the Central Bank of Nigeria (CBN) governor, Pro. Chukwuma Soludo on July 6, 2004 most thought the idea was at best a bad dream.Apart from the then N25 billion minimum capitalisation requirement, Soludo had insisted that he wanted to see Nigerian banks compete globally. Currently, not only that, Nigerian banks have even far exceeded the N25 billion capitalisation benchmark, every of their steps in business has international trademark.

Banks offerings now have Global Depository Receipts (GDR) components, which expose investors to the international stock markets.Meanwhile, global acclaim came in bountiful proportions for Nigerian banks at the weekend in Washington D.C., United States.The events also provided another opportunity for stakeholders in the financial sector to shower encomiums on the Central Bank of Nigeria and its governor, Prof. Chukwuma Soludo. He emerged the African Central Banker of the Year for the second time.

First Bank of Nigeria Plc clinched three awards, courtesy of a poll conducted by an international financial publication, Global Finance (GF) based in Washington D.C. At another event, packaged by a London-based organisation, I.C. Publications, publishers of the African Banker magazine, six other Nigerian banks also carted away awards The awardees include Oceanic International Bank Plc, the United Bank for Africa Plc and Zenith Bank. The others are Access Bank Plc, Bank of Industry and IBTC Chartered Bank Plc.

The three awards were bestowed on First Bank during this year's meeting of the World Bank and the International Monetary Fund (IMF) in Washington DC. They are Best Bank in Nigeria, Best Trade Finance Bank and the Best Foreign Exchange Bank for 2007. In a poll conducted by GF with input from industry analysts, corporate executives, banking consultants and technology experts in 24 countries, First Bank was named Nigeria's best bank. This makes it the third consecutive year the bank has won the awards. Announcing the award from its New York headquarters, Joseph Giarraputo, GF president, noted that emerging markets were attracting increased attention. He added that "We have identified the banks that provide services to corporations seeking to take advantage of substantial opportunities for growth in a sometimes challenging environment and First Bank is one of them."

At the African Banker magazine awards, Dr. Cecilia Ibru of Oceanic Bank won the Banker of the Year award, while UBA got the prize for the Best Emerging Global Bank in Africa.The Most Innovative Bank of the Year went to Access Bank Plc, while the Bank of Industry was named the Development Bank in Nigeria and Zenith Bank got the Socially Responsible Bank of the Year award.Swazi Bank in Swaziland received the Gender Sensitivity award. For its award, Access Bank beat two other Nigerian banks, First Inland and GTBank, as well as the Swazi Bank. Access Bank also came close to clinching the Gender Sensitivity award won by Swazi Bank.

UBA won the Emerging Global Bank in Africa category, which had JP Morgan Chase Bank and Standard Bank of South Africa (also trading as Stanbic Bank) in contention. Zenith emerged the Most Socially Responsible Corporate Citizen in Africa, coming tops of Fidelity Bank, Bank PHB, Intercontinental and Medbank of South Africa. Receiving the award, the Deputy Managing Director, Godwin Emefiele thanked the organisers for the initiative and promised to keep being a very good corporate citizen.

The fact that presently, most Nigerian banks going to the capital market to raise fresh funds to enhance their capital base are incorporating the Global Depository Receipts (GDRs) as a component part of their capital raising schemes.In the spirit of expanding their world view and business focus, Nigerian banks are no longer satisfied with just raising only naira denominated capital but also dollar capital by offering their shares to international investors through GDRs.

A Global Depository Receipt is typically a dollar denominated instrument issued in international financial market through a registered depository bank (the depository bank). They are negotiable bank certificates, issued by the depository bank, which represent ownership of certain equity securities (the underlying shares) that are issued and tradeabe in local market.
The GDRs are exchanged with the underlying shares at a predetermined ratio (for example, 50 shares to one GDR), and are mostly used for capital raising by companies from emerging market to access investors in international markets. The issuer of GDRs is typically a non-United States or United Kingdom domiciled company, and is responsible for issuing, registering, and depositing the GDRs with the depository bank.Although a GDR offering is targeted at international institutional investors seeking to invest in well structured emerging market equities, local investors (Nigerians) may also participate in GDR offering if a Nigerian company seeking to issue GDRs decides to sell a portion of the offering to domestic investors.

For a typical Nigerian investor in the GDRs, the benefits accruing are many and include portfolio diversification into foreign securities, opportunity for holding a foreign currency denominated instrument issued by a top tier local company, and opportunity for getting dividends in U.S. dollars.Other benefits include being able to trade on foreign stock exchanges, which provides liquidity as well as having equivalent corporate shareholder and economic rights to ordinary shares.