BLESSING ANARO & OYIBO EGWUONISO
A new vista of supervision may be in the offing at the Central Bank of Nigeria (CBN) following last week’s directive by the CBN to all banks and Discount Houses to submit a schedule of their Commercial Papers (CPs) and Bankers Acceptances (BAs) of N20 million and above. Analysts see this development as part of the renewed effort at sanitizing the nation’s banking industry by the apex regulatory bank.
CBN had said in the circular that details of the transactions including names of the counter-parties involved, amounts should be forwarded to it latest by the end of last week.
The interesting aspect of the unfolding drama according to Analysts is the fact that for once, causes of the endemic problems are being identified rather than waiting for the problems before proffering solutions.
To the analysts, no better approach would have been better than the Commercial Papers and Bankers Acceptances which have been severally abused by the industry operators, ostensibly due to none attention paid to the hydra-headed scourge which has become a monster.
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Commercial papers are instruments issued by banks to raise short term funds in order to meet their debt obligations like payroll, with promise to pay the face value on the maturity date specified on the note.
It represents short term loans of the bank and is a pointer to the financial obligations of the bank or financial institution.
BA’s on the other hand are a negotiable instrument or time draft drawn on and accepted by a bank. Upon acceptance, which occurs when an authorised bank accepts and signs it, the draft becomes a primary and unconditional liability of the bank. It usually arises in the course of international trade where a bank may or may not accept payment of an obligation of a customer at a future date.
Analysts believe firmly that the apex bank’s action may be targeting at checking allegations of window dressing among banks and further displaying its commitment to ensuring open disclosure, transparency and corporate governance in the industry.
In fact, classification of the BAs and CPs have been subject of controversy in the past as to whether they should be treated as either part of the banks’ balance sheets or off balance sheet. Most banks were then favourable disposed to their being treated as off balance sheet items. However, the items are now been treated as part of banks’ balance sheet, justifying CBN/s move to monitor them.
Analysts believe that CP’s and BA’s have significant impact on banks liquidity which can ultimately determine the system’s liquidity ratio. Besides, they can also be used as instruments of balancing liquidity position of the financial system.
The issue of disclosure has been a sore one to the banking industry. If anything, Analysts had blamed CBN for the oversight. The result was that some banks with little known fundamentals were on roof tops, announcing themselves as one with highest assets or deposits, among others.
But all that seem to be coming to an end with the direction that CBN seems to be taking. Very few people knew the role commercial papers (CP) and bankers’ acceptances (BAs) play in dressing financial accounts. But, the new direction by CBN is expected to unravel the mysteries of CPs and BAs and their relevance to liquidity positions of banks and even the viability of the blue chip companies that rely mostly on these instruments and in most cases, abuse them.
The fact that the apex bank, through D. A. N. Eke, acting director of banking supervision came out with a circular on the submission of details on exposures with relation to CPs and BAs, and with particular reference to Transnational Corporation (Transcorp) and Virgin Nigeria, is pointer to the fact that it is not impossible that they could be some unholy alliance between the banks and the companies which may be detrimental to the economy.
Experts think the new line of action by the apex bank may not be unconnected with approaching common financial year-end by 31st December 2009. One of the major purposes of that common year-end is to bring about a level playing field for the banks, particularly in the area of ratings.
One thing that you can be sure of is that a lot of banks would still find ways round to ensuring they cheat due process one way or the other by hiding behind some instruments to falsify their financials.
But if the new vista started by the apex bank is sustained, it might as well as be the beginning of opening up of financial shadiness by banks.
According to Renaissance Capital, lack of closure to the issues that dogged the market in 2008, still persists till date.
Renaissance Capital said, although there have been some recent pockets of success, some of the key issues that dogged the market for much of 2008 and early 2009 remain unresolved.
It said, these include: Prevailing poor levels of disclosure, although bank quarterly disclosure has improved from just providing the market with gross earnings, PBT and
PAT to including some balance-sheet disclosure. However, overall balance-sheet disclosure remains very poor, as it is not tailored for banks.
Renaissance Capital compared the disclosures provided with what we regard as a reasonable minimum. We note that the only useful balance-sheet items that are currently reported are the cash and net asset figures.
Aside from this, we take a very positive view on the sector’s recent agreement to adopt a common year-end (December) and begin reporting under International Financial Reporting Standard (IFRS) in December 2009, said Renaissance Capital.
Clearly, the banks should follow this new cue from the CBN governor and begin to open up on their financial transactions to bring about transparency.
This is because the perceived recognition of the new administration is that the CPs and BAs may be very vital if shrouding financial reporting.
