Current Time: October 22, 2017 23:58:45pm Last Update: October 22, 2017 13:47:39pm
Home|Forum|Conferences|Concepts|Research|TrueColour|Business Developemnt         
iWitness | Register | Login | Subscribe         

Business > Money Market
CBN to get tougher on insider related loans, asks Independent directors to perform or be removed
Addthis Facebook Twitter LinkedIn Gmail
By Adesanya Alao
September 20, 2017 01:49:54am GMT      |      Views: 342
CBN building

*Local bank with 4.5 million depositors under watch

WorldStage Newsonline-- Worried over the rising level of insider abuses by bank chief executives and other key stakeholders, the Central Bank of Nigeria (CBN) has said that it will soon get tougher on insider related loans.

The CBN Governor, Godwin Emefiele, who spoke Tuesday at the CBN-Financial Institutions Training Centre (FITC) Continuous Education Programme for Directors of Banks and Other Financial Institutions, expressed dismay over the level of corporate governance abuses perpetrated by top echelon in banks, saying many bank chief and executive directors borrowed from the banks at very low interest rates.

Speaking on the theme: “The Next Level of Corporate Governance Practice” the apex bank boss said only fit and proper persons should be appointed into the boards of banks, adding that corporate governance is undoubtedly an essential pillar in financial system stability.

He said that failure of banks’ boards in carrying out their oversight functions by checking management excessive risk taking, conflict of interest, undue concentration on short term gains and excessive executive compensation fundamentally affect the ability of financial institution to meet their core mandates.

He said that safe and sound financial system is dependent on the quality of corporate governance practices which in turn depends on the quality of the board of directors and their ability to discharge their responsibilities honorably.

The CBN boss directed independent bank directors to rise up to their responsibilities and be the conscience of their institutions in the interest of depositors and minority shareholders.

“Independent directors do not need to be friends of the managing directors. They can’t fire you, but the CBN can remove you if you don’t do your job well,” he said.

 “The banking industry needs independent directors that are bold, sound and experienced to do what we want them to do.”

He said banks are not owned by shareholders but were simply used by God to establish them.

He said depositors funds are 10 times higher than shareholders’ funds, hence the interest of the depositors that should be paramount.

“A bank managing director who feels he set up the bank has only been used by God to set up such bank. The real owners of the banks are depositors,” he said.

Emefiele said even though the shareholders are important to the banking sector, but the most important stakeholders in the banks are the depositors.

“It is important for us to ensure we all protect them. That is why in the programme, we said that independent directors must remain independent and perform their roles and responsibilities, no matter how tough it is.  They have to look at insiders who are shareholders and tell them what is good and what is not right. Yes, we are going tough because it is a dynamic environment and we will continue to take drastic actions against that insider abuse,” he said.

He said there is a local bank with 4.5 million depositors that the CBN is monitoring but has decided the lender will not be allowed to go down.

“If we allow the bank to go down, how can we explain to the 4.5 million customers that their money is lost? The impact of such closure on the economy will be tough,” he said.

The CBN boss said running an efficient and sound bank is all about strong governance adding that weak governance ensues when shareholders employ inexperienced or unenlightened people to run their banks.

“Weak governance will ensure that liquidity position in banks is eroded. We want to make sure that banks remain strong by ensuring that strong governance exists. It is also about checking your conscience to tell yourself, have you performed your role diligently that you are not only serving your own interest as shareholders but also serving the interest of larger stakeholders? These are some of the issues we will be looking at going forward because those depositors are very important,” he added.

 “It encompasses the protection of minority shareholders, disclosure provisions,  the role and structure of the board, complexity on the definition of related parties, compensation structures and much more. Therefore weak corporate governance can undermine financial stability by heightening vulnerability of financial institutions to external shocks.”

He said that institutions with sound corporate governance and effective board oversights are more resilient to shocks and operate more profitably.

“Given the crucial financial intermediation role which banks and other financial institutions play in the economy, corporate governance for financial institutions is arguably, of great importance in contrast to governance in non-financial companies,” he said.

He said that prior to the global financial crisis of 2007 to 2009, it was taken for granted that the banking sector in Nigeria was safe and sound. However, this trust proved to be misplaced as it was realized that none of the 25 banks that scaled the CBN consolidation exercise was immune from failure if they operated in a poor corporate governance environment.

Accordingly, the 2014 CBN Code of Corporate Governance for Banks and Discount Houses, (an improvement on the 2006 Code), was one of many responses to the industry’s post-consolidation corporate governance challenges arising largely from the integration processes. The mass enlightenment on corporate governance in the industry today could very well be attributed to the issuance of the CBN Code. The implementation of the Code largely addressed ineffective board oversights; overbearing influences of chairmen on MDs/CEOs; weak internal controls and prolonged tenure on the board amongst other anomalies.

“While appreciable momentum had been attained in corporate governance practices in the Nigerian Banking Industry, we need not rest on our oars as vulnerabilities are still evident. The recent economic recession has shown that the financial industry still harbors weaknesses in governance, exemplified by instances of unclear rendition of returns, corporate governance abuses such as unreported losses, huge exit packages for directors, insider non-performing loans, over-domineering executive management, contravention of regulatory/prudential guidelines and lending limits, poorly appraised credits and weakening of shareholders’ funds among others.  Overall, the huge challenge of “key-man” risk abound in our industry,” Emefiele said.

He said ideas and opinions about corporate governance are in constant flux, making the concept very relevant and time invariant. Very topical is the role of independent, competent and qualified auditors and other control functions including risk management, compliance and legal functions.

He said the CBN shall continue to deploy more robust and risk-sensitive supervisory framework in line with global best practices in consonance with the rapidly changing environment to nip potential crisis in the bud. To this end, we have stepped up capacity building in our supervisory departments to ensure that our Examiners are equipped with the requisite skills and tools to effectively supervise banks and other financial institutions.

Emefiele said that ensuring good governance practices “is a responsibility of all stakeholders. “Shareholders by virtue of their long-term interests in ensuring the safety, soundness and stability of their investments in the financial system, also have crucial roles to play in taking corporate governance to a higher level by appointing skilled, capable and experienced directors. Auditors, both internal and external of institutions have no less roles,” he said.

He said the role of “the independent directors on ensuring sound corporate governance practice is equally significant. The expectation from them is not just their independence from the management of the business but more importantly vast technical and managerial expertise. The CBN will in the near future conduct studies to evaluate the effectiveness of independent directors on the board of financial institutions since the practice came into being in 2010.”

Addthis Facebook Twitter LinkedIn Gmail







Share |




ADVERTISEMENT



Related News
- October 22, 2017 10:28:35am GMT

- October 22, 2017 00:17:54am GMT

- October 18, 2017 11:11:24am GMT

- October 17, 2017 02:59:26am GMT

- October 16, 2017 17:59:39pm GMT