Central Bank of Nigeria (CBN) says it is going to go tough on financial institutions over insider related issues.
Godwin Emefiele, CBN governor, said this Tuesday in Lagos at the CBN and FITC continuous education programme for bank directors and other financial institutions.
This comes some months after the Nigeria Deposit Insurance Corporation (NDIC) disclosed that insider related lending in the nation’s banking sector accounted for N740 billion or 40 percent of the total N1.85 trillion non-performing loans of deposit money banks (DMBs).
The CBN governor said the recent economic recession had shown that the financial industry still harboured 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.
“Yes, we are going to get tough because it is a dynamic environment and we still see cases of insider abuses and the CBN is currently looking at a few and will take drastic action against those insiders,” Emefiele said.
He explained that insiders or core shareholders of banks were people who have been directly used by God to set up those institutions, saying, “They truly do not own those institutions, even though they are important, the more important stakeholders in the bank are the depositors and there is need for us to protect them.
“That is why I said independent directors must remain independent and perform their roles and responsibilities no matter how tough it is.”
Delivering a keynote address on the theme “The Next Level of Corporate Governance Practice,” at the 12th edition of the CBN – FITC programme, Emefiele said corporate governance was undoubtedly an essential pillar in financial system stability.
The CBN had beyond strengthening its corporate governance code, issued a Competency Framework for the banking industry in Nigeria and a revised Circular on Approved Persons Regime to ensure that only fit and proper persons are appointed on the boards of financial institutions.
Other improvements introduced by the CBN include review of Board of Directors Charters and fixed tenure for CEO/MD of banks and other executive directors.
Recently, the CBN exposed to external stakeholders, the draft Codes of Corporate Governance for six Other Financial Institutions (OFIs), which will soon be issued to the industry. “Overall, the huge challenge of “key-man” risk abound in our industry,” he said.
He stressed that 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.
Consequently, he said the CBN has stepped up capacity building in its supervisory departments to ensure that its Examiners are equipped with the requisite skills and tools to effectively supervise banks and other financial institutions.
The governor reminded bank directors that ensuring good governance practices is a responsibility of all stakeholders, adding that 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.
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 governor disclosed that the bank would 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.
“It is my conviction that the next level of corporate governance practice by financial institutions in Nigeria is a call for collaborative thinking for a joint action. The commitment to excellence in corporate governance matters is a shared responsibility. Regulators and operators should always bear in mind that the credibility, resilience, soundness and efficiency of the financial industry rest squarely on good corporate governance regime,” he said.
Speaking at the event, Okwu Joseph Nnanna, deputy governor, Financial System Stability, CBN, said good corporate governance bred trust and confidence critical success factors for banking and other financial institutions.
