By Omoh Gabriel, Business Editor
Banks that meet the N25billion minimum capital base in 2005 will be required to merge next year in the second round of consolidation planned by the Central Bank of Nigeria. This fact was disclosed on Saturday by Professor Peter Umoh, Executive Director Nigeria Deposit Insurance Corporation at the 2005 Project Edge Ethics Retreat held at Airport Hotel Ikeja.
According to Professor Umoh ‚ÄúOn Tuesday, February 22, 2005, the Governor of the CBN at the BankersÃì Committee meeting held in Lagos reported that fifteen banks had already met the N25 billion target although the CBN was still verifying the sources of the recapitalization.
‚ÄúTo underscore that N25 billion would be inadequate shareholdersÃì funds for NigeriaÃìs bank of the future, the Governor averred that the next round of consolidation as from next year would involve the merger of the banks that had met the N25 billion target this year. That would obviously leave no room for small and medium sized banks as canvassed in some quarters‚Äù.
Professor Umoh said that whilst the fifteen banks should be commended for sourcing the required capital before the deadline, ‚Äúit is pertinent to observe that
some had done so using tactics that had tended to impair the image of banks.
‚ÄúSuch banks set targets for staff to source shareholders for the banksÃì Initial Public Offers(IPOs) in a manner reminiscent of deposit targets set for staff. The latter had tended to taint the image of the banks as such staff did whatever was necessary to meet their targets because their confirmation of appointments and promotions were based on meeting such deposit targets‚Äù.
He said that the bankers committee has deliberated on the issue and condemned it in very strong terms. Today, he said ‚Äúone can happily say that most of the banks have come to accept the reality of their under-capitalisation and the inevitability of the reform. Some banks are now aiming at shareholdersÃì funds way in excess of the N25 billion stipulated by the CBN‚Äù.
Professor Umoh lamented the sharp practices in Nigeria banks saying that some bank chief executives and a chairman and her two staff were forced out of the banking system for falsification of returns to the monetary authorities. According to him ‚ÄúThe rendition of false returns by banks to the Regulatory Authorities had been with the banking industry for quite some time. In the past, modest monetary fines were imposed on the erring banks but such fines had not been enough to deter the banks. The gains from the malpractice, for example, rendering returns that purportedly met the Cash Reserve Ratio, Liquidity Ratio, Single Obligor Limit and reduced deposit insurance premium were seen to be greater than the monetary penalty. Whilst the banks may have made monetary gains on balance, such banks failed to reckon with the reputational risks which their institutions and management faced as a result of such malpractice. Today, there are banks in the system that Bank Examiners pay more than usual attention to the returns sent by the banks because of the banksÃì poor track record in that regard. One wonders how such banks price the lack of confidence supervisors have on them. Loss of confidence cannot be costless!