• Wednesday, May 29, 2024
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BusinessDay

Of bank failures, insider abuse and EFCC

Banks begin paying remittances in dollars to customers

The recent disclosure of the indebtedness of former directors of 13 failed banks and the call for their prosecution by the Economic and Financial Crimes Commission (EFCC) coupled with the full recovery of the debt totaling N48.6 billion evoke concern.

It would be recalled that Nigeria has experienced three major waves of bank failures the first of which occurred in the early 1950s when 21 out of 25 banks in the country then collapsed owing to poor regulation issuing from lack of appropriate banking regulation and non-existence of a Central Bank.
The second wave of these failures was recorded in the 1990s. Many of the banks that failed in this wave did so essentially because they were victims of financial recklessness of their directors and management.
The case of the 13 failed banks falls within the third these failures which occurred in 2005/2006, following the inability of these banks to meet the stringent corporate governance standards and operating capital requirements of the last consolidation exercise.
That these 13 banks failed largely as a result of huge un-refunded loans owed by those who statutorily should ensure that the banks properly managed depositors’ funds and shareholders’ investments is worrisome and depicts poor corporate governance standards that has bedeviled the proper growth of both private and public enterprises in the country.
This unethical and disturbing trend of insider abuse, especially in the country’s banking sector, if unchecked by appropriate legislation and sanctions, would continue to portray the banks in bad light and give the impression that Nigerian banks are unsafe for bank depositors who ultimately suffer in the event of any bank failure.

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If one imagines the number of depositors and their dependants who have suffered untimely death, sickness and penury due to the failure of the 13 banks and the numerous employees who lost their jobs and had their careers truncated because of this abuse perpetrated by the management of these banks, it cannot be denied that laws and deterring sanctions commensurate to insider abuse by bank directors and management should be instituted.
The spate of this abuse and the corrupt application of privileged positions prevalent in the corridors of power, including public officers and political appointees at all levels, is no different from what occurs in the private sector. The widespread incidence of abuses that border on corrupt use of positions or power in our society draws strength from the fact that those who engage in practices that are inimical to the well-being of others usually go scot-free and are even glorified by members of the society as heroes.
The pursuit of the debtors of these failed banks by EFCC for the sake of recovering the debt is worthwhile and commendable. However, legislators, civil society and relevant stakeholders should brainstorm and devise rules, laws and sanctions that would create an appropriate disincentive to the incidence of insider abuse among bank directors and, by so doing, reverse the trend of bank failures in the economy.
It is feared that the spirited efforts made by the CBN towards attracting more funds into the formal banking system in an economy where informal deposit taking institutions thrive may remain futile if bank directors are allowed to run down banks through these abuses.