Corporate governance and disclosure became front burner concerns after the global financial crisis. Regulators, board members and top management teams have sought to master these concerns. In his new book on corporate disclosure in the banking industry, David Isiavwe, General Manager of Union Bank PLC, thr0ws enormous light on what drives corporate disclosure. He spoke to STEPHEN ONYEKWELU and IFEOMA OKEKE. Excerpts
Could you tell us about your new book?
This book titled Corporate Disclosure in the Banking Industry is about the banking industry. It is about what drives disclosure by banks. It is about what drives the information that banks publish, their annual reports to stakeholders, current investors, potential investors, international investors, regulators, government and other stakeholders, even employees of the banks because they are also interested in the annual reports of the banks. What drives the disclosures that are made by the banks in Nigeria is what the book is about. For the purpose of the creation of this book, an empirical study was done.
What does the empirical study of the book covers?
The study covered nine years from year 2005 to 2013, to see what was contained in the annual report of all the banks in Nigeria as at those times. There were 21 banks at that time, two of which did not have enough information for the whole period of the year, so those two were isolated and all the other banks were produced for the study.
I designed an index called a disclosure index containing 219 disclosure items on what we believe banks should report, both from a mandatory perspective as well as a voluntary perspective. If something is voluntary, it means it is not compulsory, so that means it can be put in the report or the management and board may not wish to disclose it. We are looking at the worst case scenario that even if it is not mandatory by law because it is not everything that we do that is driven from a legalistic perspective.
In terms of law, the legal things that need to be done should be done; you do not have a choice. If you want to evaluate the level of disclosure to see the level of maturity of organisations, you don’t use only the mandatory or compulsory items. You also see from a maturity perspective, the other things the banks are disclosing voluntarily.
That index was crafted, which can be found in the appendix of the book and it is called ‘The Disclosure Index’ of 219 items and based on that, all the banks were evaluated, starting from the mandatory items which are the share capital, share premiums, return earnings, reserves, borrowings, investment securities, property and equipment amongst others, which are for the balance sheet.
Profit and loss side talks about interest income, related expenditures, fee and commissions that the banks take from customers, trading income up to statement of changes in the equity and cash flow statements as well as the board reports, all these are mandatorily required. Even areas of corporate governance, general risk management, credit risk exposure up to liquidity risk exposure, the Securities and Exchange Commission, (SEC) mandates banks as well as central banks to report all of these. Banks make disclosure at least twice every year to the SEC.
In addition to these, we want see how mature the banks are, so what are the voluntary items like background information about the bank, the general corporate information about the bank like the narrative history of the bank, the description of their corporate structure or general description of their business activities or things like official address, email addresses for contact, corporate strategy on how they intend to play in the next ten or 15 years. They should also disclose their corporate governance practices which are not required mandatorily but can enrich the value of the annual report like details about the chairman, his name, title, background, professional qualifications and experiences. It should also contain details about directors, their names, background of senior managers and contact addresses amongst others.
We also have disclosure of tenures of internal auditors and banks external auditors because if your external auditors have to provide advisory and consulting services to you, then there is a possibility that they may not report objectively on the audit function itself. There may be conflict of interest and then other issues of industry transparency, due process, and data integrity. There are financial performances like issues on financial ratio, debt operating ratio, deposit ratio, dividend per share amongst others. Also accounting policy reviews matters as well as other key non-financial statistics, like the age of your employees, details of number and addresses of branches, branch expansions, amongst others.
What did you set out to achieve in writing this book?
There are 219 disclosure items that was determined based on the local and regulatory environment and international best practices. This compendium did not exist until this book came into being. So, now there is a reference point. If you want to know whether a bank is disclosing what they should disclose both mandatorily and voluntarily, you can take this book and look at the part that shows the disclosure index from page 96 to page 106. You can then take the bank’s report and critique to see the level of disclosure of the bank. This is one of the gaps that the book set out to fill. In addition to this, the book was written with the objective of seeing the kind of forces that drive the disclosure by banks.
Who are your target readers?
The book is targeted at anyone interested in the wellbeing of banking in Nigeria, because the book focuses on corporate governance. It is corporate governance that shows whether you can disclose what the law does not mandate you to. Any director of a bank or those in the board of a bank should take a peep at this book. The book is targeted at the bank management, regulators, including organisations like the Chartered Institute of Bankers. In addition to these, auditors, both external and internal, consultants, lecturers in universities and students, especially the fairly experienced students who should be in their third or fourth year should read the book. Master’s degree students and Ph.D students should also read this book.
If you say this is the first book of its kind, then those who have been practicing, how have they been going about it?
Before this book came out, the people practicing were surviving with much more effort and less information. This book is like light into that path of banking disclosure and corporate governance. It will enable them see better. Before now the information was not enough and timely, so the book is an improvement on what the statuesque had been.
What do you think the reception of this book will be for the Institute of Directors?
The Institute of Directors should be interested in picking up the book. They will see the critical things that drive disclosures in banking in Nigeria. For instance there is a mix of profitability, a mix of science; the bigger banks versus the small banks. There is a mix of age, the older banks versus the younger banks. There is also a mix of internationality as well as financial expertise and independence of the board. These are the variables that the book evaluates; that in Nigeria there is a strong correlation of profitability in one hand, size of the bank on the other hand, international character of the bank as well as the expertise of the directors.
When is this book officially coming into the market?
The book will be officially unveiled on Sunday 4th June, 2017 at the CIBN Bankers House, Adeola Hopewell Street, Victoria Island, Lagos. The event starts by 2:30 pm and will end by 5pm.
STEPHEN ONYEKWELU and IFEOMA OKEKE
