Unwholesome practices in some financial institutions

By Casmir Igbokwe

 Published: Sunday, 29 Mar 2009

 THESE are not the best of times for some of our aristocrats. Neither are things getting better for some of our banks and other financial institutions. As the global economic crisis continues to shoot without missing, individuals and corporate bodies are learning to fly without perching. They are adopting different survival strategies. But the problem now is that while the kite perches, it does not allow the eagle to perch as well. Bear with me if I tend to be speaking in parables. It’s because of the enormity of the problems we will share together here today.

Last week, African Petroleum Plc came up with a disturbing allegation. In a two-page advertorial in some national dailies, the management of AP accused Nova Finance and Securities Ltd. and Alhaji Aliko Dangote of unethical manipulation of AP shares. This, the company claimed, had led to a decline in value of its shares. Whatever be the outcome of investigations into the matter by the Nigerian Stock Exchange and the Securities and Exchange Commission, it is imperative to note that this type of negative stories is partly why many Nigerians have lost confidence in the stock market.

In the same token, many are also losing confidence in the banking sector. There are variegated rumours regarding the good health or otherwise of our banks. Part of these rumours is that some banks are a few kilometres away from distress. Before the 2004 consolidation exercise in the industry, such a practice was rife. In 2006, the rumour resurfaced. To stem this tide, the Central Bank of Nigeria, in a circular, warned against this trend. Towards the end of 2008, some disgruntled elements in the industry sent text messages indicating that the five banks selected as market makers to arrest the downturn in the stock market, had liquidity problems.

Now, the problem is back. Industry sources attribute this unwholesome practice mainly to the cut-throat competition among top players in the sector. Each of the top five banks is struggling to be the number one. Those in the league of 10 are fighting to be among the first five. And like jilted lovers, they run each other down in what is known as de-marketing.

 There is also the Soludo angle to the whole issue. The first term of the CBN Governor expires in May this year. Hence, there are some interest groups angling to take over his position. And the best way to do this, perhaps, is to rubbish his major legacy – the banking consolidation. There are other reasons hinging mainly on the desperation of the banks to stay ahead of competition.

Both the CBN and the Chartered Institute of Bankers of Nigeria had intervened in the past to stop the trend. The CBN Governor, Chukwuma Soludo, has had cause to reassure citizens that our banks are still very strong. He had warned that de-marketing or whatever name they call it would do nothing but undermine the banking system.

Beyond de-marketing, there are some other financial malpractices the CBN needs to look into. One of them is the allegation that most banks indulge in foreign exchange fraud (see our cover story today). Reports at my disposal indicate that these banks use fake international passports to obtain Basic Travelling Allowance, which is usually in dollars. They sell these dollars in the black market in order to make undue profits. This, perhaps, explains why dollar is expensive now. And this is partly why the prices of imported items have risen to the rooftop.

Our major problem is greed; or dishonesty if you like. Elsewhere, billionaires pool resources together to better the lots of humanity. In June 2006, for instance, American billionaire investor, Warren Buffett, announced a donation of almost all his assets to charity. The greatest beneficiary happens to be the Bill and Melinda Gates Foundation. Incidentally, the chairman of the Foundation, Bill Gates, is richer than Buffett who made the donation. Here, our own billionaires fight to discredit one another.

 In the United Kingdom, Chancellor Alistair Darling, has spoken of the need to restore public confidence in the banking system. In a recent speech at the Financial Services Authority, Darling said, “It is clear – beyond doubt – that just as society needs the banks, banks need society too…Banks need to demonstrate to the public that they’ve learned lessons from recent events.” He said there was need to reform banks’ culture so as to rebuild public trust.

Nigerian bankers should draw some lessons from this statement. Otherwise, what happened recently in the UK and US where distraught citizens vented their anger on banks may happen here. In the UK, for instance, vandals reportedly attacked the home of the former Royal Bank of Scotland chief executive, Sir Fred Goodwin, in Edinburgh last week. The attack, perhaps, was sequel to the pension payout to Goodwin worth about £700,000 a year. The bank had made a loss of £24.1bn in 2008.

Nigerians are patient people. The loss of their deposits in distressed banks prior to consolidation did not lead to any major attack on any bank executive. They mourned their losses silently. Some, including widows, lost their life earnings in different wonder banks that dot our landscape. Some of these people still write to me lamenting their plight and pleading that something be done to recover their money. There is no need to further try their patience. If bankers have any issue among themselves, let them settle it without involving the rest of us. To create unnecessary panic in the system will not only undermine their operations, it will also have a debilitating effect on the entire economy.

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