More Banks’ Managers May Step Down over Regulatory Infractions

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Strict enforcement of regulatory guidelines may bring more deposit money banks (DMBs) under the sledge hammer of the Central Bank of Nigeria (CBN) NIYI JACOBS writes

The CBN had on Wednesday fired the boards of Union Bank, Polaris Bank and Keystone Bank, citing corporate governance failure and non-compliance with regulatory requirements, among others.

The acting CBN Director, Corporate Communications, Sidi Hakama, had in a statement alleged that the three banks were guilty of issues, it said, posed a threat to the financial stability of the banking sector.

The move is believed to have followed the outcome of the forensic audit of the CBN under Godwin Emefiele, the former governor of the apex bank by a special investigator appointed by President Bola Tinubu.

The CBN statement read in part, “The Central Bank of Nigeria has dissolved the boards and managements of Union Bank, Keystone Bank, and Polaris Bank.

“This action became necessary due to the non-compliance of these banks and their respective boards with the provisions of Section 12(c), (f), (g), (h) of Banks and Other Financial Institutions Act, 2020. The banks’ infractions vary from regulatory non-compliance, corporate governance failure, disregarding the conditions under which their licences were granted, and involvement in activities that pose a threat to financial stability, among others.”

Following the development, the CBN in the early hours of Thursday announced some members of interim managements for the three banks.

For Union Bank, Yetunde Oni was named the managing director while Mannir Ubali Ringim emerged an executive director. For the interim management team of Keystone, Hassan Imam was named the managing director while Chioma Mang was appointed an executive director. For Polaris Bank, Lawal Mudathir Omokayode Akintola was named the managing director while Chris Onyeka Ofikulu is an executive director.

According to the CBN, their appointment takes immediate effect and they are to oversee the affairs of the three banks whose boards and management were dissolved on Wednesday after a meeting involving the CBN Special Investigator, Jim Obazee, and the CBN Governor, Olayemi Cardoso.

Although specific details of the banks’ non-compliance were not given by the apex bank, regulatory non-compliance could involve issues like capital adequacy ratios, loan-to-deposit ratios, or risk management practices falling below acceptable standards.

In the same vein, corporate governance failures could encompass mismanagement of funds, conflicts of interest, or lack of transparency. Disregarding licensing conditions could involve exceeding authorised activities or operating outside permitted geographical areas.

Also, involvement in activities that pose a threat to financial stability could mean anything from reckless lending practices to money laundering or even outright fraud.

Provisions of Section 12(c), (f), (g), and (h) of the Banks and Other Financial Institutions Act (BOFIA), 2020, Section 12(c) prohibits directors, managers, and officers of banks from having personal interest in any advance, loan, or credit facility granted by the bank. They must declare any such interest to the bank. Additionally, they are prohibited from granting loans or credit facilities without authorization and proper security as per the bank’s rules and regulations.

Violating this section is an offense punishable by a fine of N100, 000 or imprisonment for three years and any gains or benefits gained through such contravention will be forfeited to the Federal Government.

Section 12(f) requires banks to comply with all applicable laws, regulations, and directives issued by the CBN. Failure to comply with this section can result in regulatory sanctions, including fines, limitations on operations, or even revocation of the bank’s license.

Section 12(g) sets restrictions on the types of investments banks can make. It allows them to invest in: Government securities with maturity not exceeding 25 years and publicly offered for sale; securities of the Federal Government on behalf of internal funds like staff pension funds; foreign currencies and bills of exchange maturing within 184 days; securities of freely convertible governments or international financial institutions of which Nigeria is a member.

Others are: redeemable bonds for regularising currency exchange exercises and exceeding these investment limits without proper authorisation could be considered non-compliance.

Section 12(h) empowers the CBN to issue additional directives to banks as it deems necessary for the purposes of the Act. Disregarding any such directives could also be considered a violation of Section 12(f).

Speaking on the development, an official of the CBN said: “These are serious accusations, and the CBN’s swift response demonstrates its commitment to maintaining a safe, sound, and robust financial system in Nigeria.

“The CBN’s action sends a strong message to all financial institutions in Nigeria that it will not tolerate any behaviour that jeopardises the integrity and stability of the financial system. This is, particularly, important in the current economic climate, where Nigeria, like many other countries, is facing significant headwinds due to global factors and domestic challenges.’’

In a conversation with our correspondent an economist, Dr. Paul Okoro, noted that it is almost certain that more banks will face the weight of regulatory guidelines to the extent of board dissolution if the apex bank is really committed to enforcement without compromising anything.

Worsening operating environment, he said, ‘’is increasingly weakening the banks’ ability to resist the temptation of playing outside the rules to either save cost or boost revenue.”

However, Dr. Muda Yusuf, founder and CEO of Lagos-based Centre for the Promotion of Private Enterprise (CPPE), is worried about the implication of the recent development for investors’ and depositors’ confidence.

“The main pillar of the banking system is confidence. This makes the financial system very sensitive to developments that could undermine the confidence of depositors and investors,” Yusuf, said.

“This is why the handling of current investigations concerning these banks needs to be done with utmost discretion, caution and care. We cannot afford a run on any of our banks at a time like this.”

He also noted that shareholders deserve to be assured of the safety of their investments even though the CBN has given some comfort to depositors by assuring them of the safety of their funds.

Meanwhile, indications have emerged that the CBN leadership will hold meetings with the shareholders of the three affected banks this weekend or early next week as a follow-up to the sack of their boards of directors.

‘’The team of the special investigator and that of the CBN will meet with the shareholders of the banks for further discussions,’’ a source close to the special investigator, said on condition of anonymity without elaborating further.