Nigeria Banking Update

Eleven banks were last year sanctioned by the Central Bank of Nigeria (CBN) for breaking the rules, according to a report released on Tuesday in Abuja.The report, compiled by the CBN, also disclosed that 48,894 borrowers owed banks N1.553 trillion by December 31, 2006.

Nigeria International Bank (NIB) had five infractions, the highest number, followed by Fidelity Bank, Afribank, and Access Bank, which committed four each.Equitorial Trust was penalised for three contraventions. Sterling Bank, Union Bank and Guaranty Trust were culpable for three, while IBTC Chartered, Ecobank, and Oceanic were sanctioned for one each.Seven banks were free of contravention in 2006: United Bank for Africa, Zenith, First Bank, Bank PHB, Diamond, First City Monument, and Stanbic.

The report says "Contraventions for which the offending banks were penalised were as follows: non-implementation of recommendations in the previous examination; failure to adhere to CBN circular reference BSD/FE/48/Vol.6/304 dated March 29, 1990, in respect of the minimum information to be contained in a credit file; and failure to obtain the prescribed documentation for some letters of credit and invisible trade transactions.

Other infractions include: non-adherence to foreign exchange regulation, such as failure to report to the CBN, customers who defaulted in the submission of shipping documents 90 days after negotiation; and failure to adhere to CBN Circular reference SD/DO/CIR/VOL.1/2001/22 of November 29, 2001, by using unconfirmed letters of credit to import finished goods, among others.

Appropriate penalties/sanctions on banks that contravened regulations were imposed on the affected banks, in line with the provisions of the Banks and Other Financial Institutions Act."
Some 54 banks were penalised in 2004 for 212 contraventions. More than 50 banks were sanctioned in 2005 for over 160 offences.

On the Credit Risk Management System (CRMS), the report said the system web-enabled CRMS database had a balance of N1.553 trillion, involving 48,894 borrowers in 2006, against N1.388 trillion and 34,366 borrowers in 2005.

As at December 31, 2006, in absolute terms, both the Naira value and the number of borrowers grew, reflecting the growing confidence of the public in the banking system.It stated that 1,193 cases of fraud and forgery, involving over N4.6 billion and various other sums of foreign currencies, were reported by banks last year, out of which 612 cases - amounting to over N2.6 billion - were reported to have been lost to perpetrators of the crime.

The report also said that liquidation dividends of private sector depositors of the banks that failed the capitalisation requirement will be paid to the CBN paid by the Nigeria Deposit Insurance Corporation (NDIC).And, on another flank, it disclosed that 14 Nigerian banks are partnering foreign ones to manage the country's external reserves.

So far, the CBN has allotted between $325 million and $1 billion to the 14 partnerships, depending on the class of their mandate. Foreign bank custodians/asset managers that show interest in developing local capacity and partnering with Nigerian banks would be allotted more funds to manage."

By January 1, 2008, only 450 out of a total 700 community banks across the country would operate as Microfinance Banks to cater for the needs of the micro, small and medium-scale enterprises, the Central Bank of Nigeria (CBN) said yesterday.This was made known in Calabar at the ongoing 6th Annual Seminar of the Nigeria Deposit Insurance Corporation (NDIC) organised for Finance Correspondents and Business Editors.

The apex bank had in December 2005, announced a new Microfinance framework.Under the regulatory guidelines, Unit Microfinance Banks are expected to have a minimum of N20 million capital base, while the State Microfinance Banks are required to beef up their capital base to the tune of N1 billion. Licences of those that are unable to scale through the recapitalisation exercise are to be revoked.

As at end of last month, about 407 have already been given licence to open and commence business along side four non-governmental organizations (NGOs) and its expected that by the December 31, 2007 deadline, the remaining 250 community banks that are unsuccessful would have their licences revoked by an exit strategy that is being worked by the CBN and NDIC in order to create a soft-landing for the institutions and instil confidence in depositors.disclosed already about 150 community banks out of the 250 that are unlikely to meet the deadline have closed down even before the commencement of the consolidation exercise in the sub-sector.He however assured of CBN’s commitment in ensuring that depositor’s funds in the remaining institutions are protected. “The CBN and NDIC are working out an exit strategy for these institutions in a way that we will not hamper depositors confidence.The CBN intend to run a certification programme for operators and regulators in the first quarter of 2008.The programme will help them to upgrade the skills of operators in the industry.

All licensed microfinance institutions will undergo a certification programme within the next three years. This is to ensure that the programme is self sustained and driven by credibility and professionalism on the part of the institutions selected to drive it. The supervisory board of the programme would be headed by the CBN.The certification programme will aimed at establishing high standard for the certificate, benchmarked on international best practices and training curricula.The CBN would adopt zero tolerance in ensuring that the issue of insider abuse, which was common with the community banks, does not arise.For instance, as apart of its measures, ownership structure would be diversified,Management must be suitably qualified, experienced, competent, committed and certified microfinance practitioners. MFB should operate in line with commercial principles, best MF practices and high accounting, auditing and MIS standards.

Union Bank of Nigeria Plc plans to float a hybrid offer next year in its quest to remain formidable in the Nigerian banking industry. Consequently, the bank has obtained the permission of shareholders to float a combination of rights and public offer as well as a global depository receipt (GDR).At the 38th annual general meeting held in Abuja last week, shareholders approved the bank's recapitalisation plans, part of which includes the issuance of 1,117,650,000 ordinary shares out of the unissued share, to be allotted to existing shareholders.

Union Bank currently has 15 billion authorized shares, out of which, only about 9.65 billion units are on issue.According to the notice to shareholders in the annual report, "The new shares be issued and allotted provisionally to existing shareholders and that any shares not taken up by the existing shareholders within a stipulated period to be determined by the directors shall be offered for sale first to other interested shareholders of the company." The GDR, which will also be issued out of the un-issued shares of the bank after consideration of the rights issue, will be by way of preferential allotment. Mr. Barth Ebong, group managing director said the bank is challenged to do better in view of the extreme competition in the industry. "The kind of business we do today are huge. We require huge capital to in order to meet the required single obligor to grant such financing. That is why we need huge capital in the banking industry today."He told shareholders of the intention to list more of its subsidiaries on the Nigerian Stock Exchange (NSE).

The bank's full fledged subsidiaries include Union Trustees Limited, Union Assurance Company Limited, Union Capital Markets Limited, Union Registrars Limited, Union Property Company Limited and Union Homes Savings and Loans Plc which was listed in 2005. "As we grow more of our subsidiaries, we will ensure that they are profitable enough to make us proud." He said the bank was undergoing a transformation of its operations in order to improve on the quality of service. "Our channels of distribution will be improved. We are reviewing staff salaries because of the need to attract and retain good hand and we will endeavour to have presence in major commercial centres across the country. At the end of the transformation, the bank will be placed on an unassailable position in the banking industry in Nigeria," he said.

For the year ended March 31 2007, the group posted gross earnings of N88.1 billion, 32.3 per cent above the N66.6 billion posted in the comparable period of 2006. Profit after tax rose by 22.4 per cent from N10.8 billion to N13.22 billion while dividend increased by nearly 54 per cent from N6.3 billion to N9.65 billion which translated to N1.00 per 50 kobo share. Shareholders also got a bonus of one for every five previously held.

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.