Banking on Courts!
In a bid to intensify its supervisory role in the financial sector, the Central Bank of Nigeria (CBN), establishes commercial courts
By Udo Onyeka
IT is obvious that many finance experts and operators in the sector are impressed by the on-going reforms in the banking sector, as engineered by the Central Bank of Nigeria (CBN). The exercise which has entered its second phase — post consolidation era – has seen the CBN under the leadership of Professor Charles Soludo giving good account of itself. From December 31, 2005 when the number of banks operating in the country was reduced from 89 to 25, the apex bank has not wavered in its determination to sanitise the sector through total restructuring.
Perhaps, it could be said that the restructuring exercise is paying off, though not without a cost, going by revelations made by Professor Soludo recently in Lagos, that the CBN spent about N72 billion to ensure price stability and check inflation between January and July this year.
The CBN governor said that the apex bank achieved price stability despite the difficult environment in which it operates, adding that inflation could have escalated to over 30 per cent but has in the alternative, dropped to about 10 per cent during the period under review.
According to Soludo, the current exchange rate stability in Nigeria is a “win-win affair” even as the CBN, he said, is committed to continuous price stability in order to ensure that the trend persists whilst the present exchange rate stability endures.
Soludo also said that though some progress have been made in the restructuring of the banking sector, much still needs to be done.
In this regard, however, The Source was told by a CBN source that some of the goals of restructuring was to mark Nigeria out as Africa’s financial hub and also to have some Nigerian banks in top 50-100 global outfits in 10 years, through, creating a transparent, competitive system that depositors could trust and investors rely upon.
Though the sector may have not gotten to the proverbial promise land, there are indications that Nigerian banks would compete favourably with others in the world in the not-too-distant future.
For instance, The Source was told that the 25 banks currently operating in the country were strong and reliable, as nine of them are in listed in the top 1,000 banks in the world, compared with 2003 when none was in this category.
Indeed, as part of its efforts to intensify its regulatory roles and pursue same to logical conclusion, the on-going restructuring has seen the CBN begin currency and payment system reforms.
The CBN had announced plans to change some of the country’s currency notes by December. The design and colouration of the N10, N20 and N50 notes will be altered fundamentally to make them cost effective. The Source, gathered that it currently costs up to eight naira to produce a five naira bill, and also the average life span of each bill is about eight months, after which the bill is usually recalled for destruction.
The Source was told that it was to extend the life span of the nation’s currency that the CBN has begun an aggressive media campaign to educate Nigerians the proper way of handling the currency.
Also, as part of the currency restructuring The Source was reliably informed that the CBN has concluded plans to print all the country’s currency in Nigeria, hence it may acquire the Nigeria Security Printing and Minting Company (NSPMC).
Similarly, the CBN’s introduction of the Nigeria Cheque Standard and Cheque Printers Accreditation Scheme (NICPAS) last February was an effort to check the banks’ payment system.
The Source gathered that the NICPAS was a result of huge demands on the production of cheque books as well as to exert control and ensure that the quality and security of the cheques produced are dictated by the apex bank.
According to Soludo, “There is very real concern that technology is becoming ever more sophisticated and more available to the fraudster. This has the potential for monies to be lost through cheque fraud, and to complement the scheme we are introducing a cheque standard”.
The CBN also plans the establishment of commercial courts to handle financial and banking offenders.
The courts, The Source gathered, would try offenders and are basically to check unethical practices in the industry- a lot of which brings about distress.
The Source’s investigations revealed that a total of 36 terminally distressed banks were closed down between 1994 and 2003 due to insolvency.
Findings also show that four banks were closed in 1994, one in 1995, while 26 were closed down 1998. Also, three bank were closed in 2000 and one each in 2002 and 2003.
The Deputy Governor, Financial Sector Surveillance, Tunde Lemo, said recently in Lagos that banks are expected to develop a risk management framework, to be reviewed by the CBN. According to Lemo, in the post-consolation period, special attention is being given to all the banks especially to merged banks, in recognition of the fact that mergers are usually fraught with several risks and challenges.