By Omoh Gabriel
The Nigeria Deposit Insurance Corporation has said that only three banks were in unsound condition in 2010. The NDIC in its 2010 report said that the financial condition of 15 of the 24 banks operating in the country were rated as sound/satisfactory compared to 13 of the previous year, six were rated as marginal as against one in the previous year whilst only three banks remained in the unsound category compared to the 10 in 2009”.
“The level of soundness and the industry performance improved during the period ended December 2010 when compared to its performance in 2009. During the period under review, the share of assets and deposit of the unsound banks accounted for 2.82 percentages and 0.44 percentage of the industry total as against 33.56 per cent and 33.65 per cent as at December 2009.
“Similarly, the share of total credit of the unsound deposit money banks also reduced significantly from 42.65 per cent of the industry total as at December 2009 to 1.40 per cent as at the end of December 2010. The various statistics was an indication that the nation banking industry benefited immensely from the stringent regulators action and restructuring efforts that took place in the industry during the year under review”.
According to the NDIC “The banking industry capital adequacy ratio deteriorated by 5,92 percentage points from the 10.24 per cent recorded in December 2009 to 4.32 per cent as at December 2010 which was far below the prudential minimum of 10 per cent. The significant decline could be attributed to the inability of some banks to make adequate provision for their toxic loans as recommended by the CBN/NDIC examiners during the year.
“Consequently, Tier II capital attached declined by 8.47 per cent while Total Qualifying capital recorded a significant decrease of 65.48 per cent over the same period. Also, Primary Capital (Tier1), which is the adjusted shareholders funds, depreciated by over 30 per cent from N448.99 billion reported in 2009 to N312.36 billion as at December 2010.
“At the end of the period under review, due to the reasons adduced above, eleven banks recorded Capital Adequacy Ratios (CAR) grossly below minimum requirement of 10 per cent. The banks were Afribank (-105,88%); Union Bank (-30.74%); Wema Bank (-31.26%); Equitorial Trust Bank (-38.70%); Oceanic Bank (-12.83%); Intercontinental Bank (-84.06%); Bank PHB (-(-97.99%); Spring Bank (- 54.69%); Finbank (-106.32%); Unity Bank 5.91 per cent and Sterling Bank 5.39 per cent. When compared with the previous year’s position, the record revealed that only Unity Bank, ETB, Oceanic Bank and Spring Bank had showed marginal improvements while all the others are further deteriorated”.
The NDIC report further stated “As a result of significant drop in the reserves, the banking industry total qualifying capital (that is the unadjusted shareholders fund) declined from the N2, 201.84 billion as at December 2010. The number of reported cases of attempted or successful frauds and forgeries in the nation’s banking industry declined during the year under review. There was a total of 1,532 reported cases of attempted frauds and forgeries involving over N21 billion in 2010 compared with 1,764 reported cases of frauds and forgeries involving over N41.3 billion in 2009. The expected loss components of the reported cases of frauds and forgeries that is, those whose probability of recovery was low as well as those not fully covered by Fidelity Insurance Bond amounted to over N11.68 billion in 2010 as against over N7 billion in 2009.
“The ten banks with the highest number of reported frauds cases were responsible for 51.08 per cent of the total amount involved in 2010 compared to 90.10 per cent in 2009. The total amount involved, which stood at N10.87 billion in 2010 was considerably lower than the 2009 figure of N37 billion. An analysis of the types of frauds and forgeries perpetrated during the year under review showed that the commonest types were the following: ATM fraud; fraudulent transfers/withdrawals; lodgment of stolen warrants; presentation of forged cheques; suppression of customer deposit.
“A further analysis of the types of frauds and forgeries perpetrated in 2010 showed that the perpetration of ATM frauds and granting of authorized credits accounted for the largest proportion. A total of 357 members of staff of banks were reported to be involved in frauds and forgeries in 2010, a decrease of about 45.58 per cent when compared with the previous year’s figure of 656. Of the total, core operation staff such as supervisors, officers, accountants, managers, executive assistants, clerks and cashiers totaled 286, thus accounting for about 80.11 per cent . That represented an increase of 14.41 percentage points relative to the 2009 position.
“The causes of frauds and forgeries can be classified under two generic factors namely the institutional or endogenous factors and environmental or exogenous factors. Institutional causes of frauds and forgeries in insured banks include poor accounting and weak internal control systems, ineffective supervision of subordinates, uncompetitive remuneration and perceived sense of inequity in reward, disregard of know your customer (KYC), rules etc. Environmental causes of frauds include undue societal demands, low moral values, slow and tortuous legal process, lack of effective deterrent or punishment and at times reluctance on the part of individual banks to report fraud cases due to the negative publicity it could attract to their image.
“Given the quantum of frauds and forgeries in 2010, it is important that insured banks should strengthen their operational risk management frameworks in the areas of internal control and security systems to reduce the incidence of frauds and forgeries, insured banks should also thoroughly screen prospective employees by obtaining status reports from previous employers and relevant agencies and should desist from deploying casual workers staff to sensitive positions. Insured banks should also endeavour to educate their customers on the use of the ATM and other e-banking services as well as the need to safeguard their Personal Identification Numbers (PIN).
“A total cumulative recoveries made by the NDIC in 2010 was N22.79 billion, as against N20.77 billion in 2009, representing an increase of over N2 billion, or about 9.7 per cent. In attempt to reinvigorate the recovery process, the NDIC, during the year under review had embarked on a number of aggressive debt recovery initiatives to facilitate recovery and enhance liquidation of dividend being paid to depositors and other eligible claimants to boost public confidence in the banking system. Some of these measures included the appointment of debt recovery agents, use of relevant law enforcement agencies as well as taking advantage of AMCON.
“In particular, the NDIC has commenced discussion with the AMCON to use the platform to dispose some of the risk assets of banks-in-liquidation. To facilitate this, NDIC had completed the segregation of all accounts with outstanding balances of N100 million and above which would be offloaded to AMCON as soon as it takes off. Also, NDIC had appointed some debt collection agents to enhance the pace of debt recovery.
The banking industry in the year 2010 generally recorded results which indicated that series of regulatory actions and restructuring efforts of the CBN had indeed yielded positive results”.
