THE HAMMER ON BANKS: SOFTLY, SOFTLY, CBN, FG!

14,442

The equivalent of a tremor hit three banks mid last week, causing the otherwise sedate industry boardrooms to quake for effect. The resultant echo has been reverberating across banking halls, in an industry that tends to quiver at the slightest hint of shock.

Yet, few keen watchers of events in the financial sector, especially in the last few weeks, would have been caught on the hop, on the axe that fell on the banks. Indeed, the signs were discernible. 

With snippets emanating from the report submitted on  December 20, 2023 by the Special Investigator on the Central Bank of Nigeria (CBN) and Related Entities, Mr Jim Obazee, to President Bola Ahmed Tinubu, it was beyond conjecture that something would hit some banks. It was only a matter of when.

The clincher eventually landed on Wednesday, January 10, 2024. It came through a terse, three-paragraph statement from the CBN and like a cyclone, it swept away the boards and management of Union Bank, Keystone Bank and Polaris Bank in one fell swoop.

The statement, signed by the Acting Director, Corporate Communication, Sidi Ali Hakama,  adduced corporate governance failure and non-compliance with regulatory requirements as among the reasons for the dissolution.

The apex bank also accused the banks of involvement in activities, it said, posed a threat to the financial stability of the banking sector.

“The action became necessary due to the non-compliance of these banks and their respective boards with the provisions of Section 12(c), (f), (g), (h) of the Banks and Other Financial Institutions Act, 2020. The banks’ infractions vary from regulatory non-compliance, corporate governance failure, disregarding the conditions under which their licences were granted and involvement in activities that pose a threat to financial stability, among others,” the statement said.

 The following day, CBN appointed two new executives each to manage the affairs of the banks, possibly pending the proper reconstitution of their respective  boards and management.

The precursor of the dissolution, as pointed out earlier, was the special investigator’s report, which resulted from the forensic audit of the apex bank under the embattled former governor, Godwin Emefiele.

Obazee told Mr President in the report that Emefiele allegedly used “ill-gotten wealth” to establish Titan Trust Bank, which he used to acquire Union Bank and Keystone Bank through proxies. He, therefore, recommended that the two banks be nationalised.

Experts’ opinions on the dissolution vary, but the preponderance of analyses agree that, even though the effects of the action are not likely to be felt directly, it is portentous because it could breed distrust and imperil the system.

We urge caution at this time. We queue behind experts who have admonished that regulatory operators need to exercise a high degree of discretion in dealing with alleged infractions on the part of Deposit Money Banks (DMBs).

This is certainly not the time to opt for extreme measures, wielding the big stick to punish alleged infractions that could be handled with a milder option. What is more, the economy is fragile and our macro-economic voyage at this time is highly tempestuous.

More importantly, the banking sector thrives on the fulcrum of confidence. It is a very sensitive system that responds sharply to needless disruptions, which are capable of eroding the faith of depositors and investors.

The perceived meddlesomeness of the regulatory actions in the operation of DMBs is capable of sending wrong signals, even beyond our shores and can undermine the much needed Direct Foreign Investment (DFI).

It is good that the CBN, in its statement, “assures the public of the safety and security of depositors’ funds and remains resolute in fulfilling its mandate to uphold a safe, sound and robust financial system in Nigeria.” That is how it should be.

 

Copyright @NewsClick Nigeria Media. No part of this piece or whole should be copied, used or shared without due credit to NewsClick Nigeria – www.newsclickng.com