Between a resilient banking sector and good corporate governance

Central Bank Head Office Abuja

When the former Central Bank of Nigeria Governor, Charles Chukwuma Soludo, embarked on reformation of the Nigerian banking sector in 2004/2005, the emphasis then seem to depend totally on how capitalised each of the participating banks were

When the former Central Bank of Nigeria Governor, Charles Chukwuma Soludo, embarked on reformation of the Nigerian banking sector in 2004/2005, the emphasis then seem to depend totally on how capitalised each of the participating banks were. As at then, any of the banks that could raise its share capital to a minimum baseline of N25 billionwas entitled to continue operations within the Nigerian environment.

Among the successful banks that participated in what was called "cherry picking" were banks like Union Bank plc and Intercontinental Bank plc. However less than five years after the so called re-capitalisation agenda, some of the surviving banks found themselves parading depleted share capital profiles. As at today the erstwhile mega banks are on the verge of being acquired by others. It is no longer a secret that some of the banks, which were bailed out by the Central Bank of Nigeria in the year 2010 are on the verge of being sold to interested investors.

What could have happened to the recently 'consolidated' banking sector which only recently was awash with billions of naira injected into the system by the investing public? Nigerians, and foreigners alike, confidently bought into the various public offers at that time with the firm belief that days of mushroom banks were over.

It has become as clear as daylight that the survival of a bank, like every other corporation,  is not necessarily just dependent on how much is the bank's share capital, but how the capital and other funds within the system is managed. This is because a man who mismanages N500 is likely to mismanage N50 million.  Its only a question of time. One therefore does not have to be a banker or even an economist to know that there is a problem in this sector that goes beyond increase in share capital base.

Prying into the activities of most of the indicted bank chief executives, one could see glaring and recurrent abuse of executive powers resulting from governance inadequacies. It is therefore only apt to presume that the solution to this abuse of trust is the reorganising of the banking governance structure in such a manner as to inhibit such abysmal level of corporate mismanagement as we have continued to experience in the banking sector in this country. What is needed is a total systemic overhaul.   Regulation of any system in today's world must be total to achieve the desired result. If it is suspended at any level then it is not adequate.

Managerial profligacy is neither new to the banking system nor to the corporate world at large. It is the desire to check the excesses of top management that informs the diverse schools of thought in corporate governance.  While the contractarians of the American corporate charter system advocate an all powerful board that gives the executive all the powers for entrepreneurial adventurism, the Germans opt for a double tier board where one board has a supervisory function of overseeing those that weld the executive powers.

To get at the Nigerian position on corporate governance as it concerns the Nigerian banks, one will have to take a cursory look at both the CBN governance code and the powers of Directors under the companies and Allied Matters Act (CAMA).

In the Nigerian case, however, the innate social problem of clique control doesn't seem to allow any of the well meaning theories to play out to its fullest.  At a time in this country banks became family or individual business. Hence, even where a double tier board is appointed, there are no truly independent directors. Both the seeming outside independent director and the inside director who has executive powers all have the tendency to orchestrate fraud to the detriment of the bank.

Now that most banks have gone public, there are still people with majority shares who influence every appointment therein. They may not even be on the board. Some institutional shareholders in Nigeria at times have been known to be fronting for an individual who is under some form of legal compulsion to operate and possibly control the institution at arms length.

Hence we get in Nigerian banks and corporations most times, a situation where the management supervise themselves. The public offers, mergers and acquisitions all become clique diluted. In most cases there were no genuine independent investors. The investments most times were segments of interest packaged by corporate fronts masquerading as foreign investors.  Even where such investors are available and indicate interests, some of the powerful insiders would not allow them take over the company or buy such major stakes as could possibly challenge their control of the system.