August 31, 2009

The shake-up in banks: Matters arising

One of the outcomes of the sacking of five bank chief executives by the Central Bank of Nigeria (CBN) on August 14, is that frenzied feeling still runs deep in the banking sector.

The fear factor has inexorably crept in. There is so much anxiety over the fate of other banks, whose financials are still being audited. All of these seems to have eroded confidence, which is critical in the financial service sector.

This does not bode well for our banks which play a pre-eminent position in the economy. It is, therefore, safe to say that without a return of confidence in the banks, the bearish run in the stock market will persist for a long time to come.

We have no reason to doubt that the leadership of the CBN under Lamido Sanusi means well for our country in the current effort to reshape and stabilize the financial system.

The recent bold decisions the apex bank took, among them, the removal of the five MD/CEOs, we believe, are geared towards making the banks safer. One of the lessons of history in countries that had faced similar crises is that government’s action through its key regulatory authorities can help stem the pain. That, the CBN maintains, is what it is determined to do.

The worry, however, is that the panic that has enveloped the sector should not be allowed to last too long. Urgent and pragmatic measures are needed to restore sanity in the system.
Again, the twist in the current quake in the sector is that every passing day, new developments are unearthed, suggesting that the extent of the crisis, especially that of toxic debts, is perhaps much deeper than had been earlier imagined. Nonetheless, we feel that a well-thought out solution should be devised immediately. Such solution has to be both systematic and comprehensive enough in order to achieve the desired results.

Solution to the failure of confidence in the sector must go beyond insolvency and risk, which some of the indicted banks were said to have indulged in. Our fear is that no aspect of our economy would be spared from the financial equivalent of a heart attack if the current effort to sanitize the banks is bungled. While endorsing the measures so far initiated by the CBN, we advise that the regulators, including the Nigeria Deposit Insurance Corporation (NDIC), should henceforth take much firmer intervention measures, and indeed, show much more interest in the running of banks in our country.

They should not wait until things get very bad before intervening. Oversight on the banks should be a continuous exercise. More reasonable regulations need to be put in place, which must not be such that run the risk of blocking innovation and creativity in any of the banks. Also, this is the time for bank executives who are used to ducking behind corporate veil, to begin to develop a new mindset and embrace a new set of tools that will put the banks in good stead.

Beyond that, our economy must be strengthened through enhanced performance of the real sector. We are not unmindful of the fact that, of the four-point agenda of the CBN governor, the need to strengthen regulation and supervision through enhanced disclosures by financial institutions ranks high. We urge that the current reforms be tempered with reasoned discussions and dialogue with the key stakeholders.

This is time for the CBN governor to talk less. He should be guarded in his utterances in order not to be misinterpreted. There is no denying the fact that there is so much sleaze in the banking sector and this has not been helped by the ostentatious lifestyle of some of the bank CEOs. We believe they have learnt the necessary lessons and would, henceforth, adopt a more sedate lifestyle.

Altogether, the consequences of the ongoing happenings in the banking sector call for deep reflection. The stakes are too high and require a hands-on solution. It needs restating that a healthy banking system promotes not just confidence but corporate governance and social responsibility.

No comments: