…customers unshaken on CBN’s assurance
The dismissal of the old board of directors of three commercial banks, and the appointment of new board and management for the banks by the Central Bank of Nigeria (CBN), has continued to attract mixed reactions. Some stakeholders believe the development has little or no negative impact on the sector.
On Wednesday, January 10, the CBN dismissed the board and management teams of Union Bank, Keystone, and Polaris for severe violations of financial regulations.
According to the CBN, the dismissal followed the non-compliance of the banks and their respective boards with “provisions of Section 12 (c), (f), (g), (h) of the Banks and Other Financial Institutions Act, 2020.
Consequently, the CBN on Thursday, January 11, appointed new executive directors to steer these financial institutions.
“It is a known fact in the banking industry that those three banks were funded by a special purpose vehicle that they may not have generated from their balance sheet. It did not come as a surprise when the special CBN investigator reported that those banks were funded from the outside balance sheet of the buyers,” Johnson Chukwu, group managing director/CEO, Cowry Asset Management Limited, said.
“If the banks were funded from the public treasury, there is what we call lifting the veil of incorporation. When you lift-develop incorporation, you get to the root of the reason behind the transaction. In that case the beneficiary of the shareholding, if it is the government that funded it, then it belongs to the government. For me, the intervention did not come as a surprise, he said.
Looking at the implication of the CBN’s action, he said, for the other banks, they would have been involved if there is a systemic challenge but there is no systemic problem. If other banks are exposed to the interbank market, it does not affect them because they still have the capacity to meet their obligations.
“For the economy, since the ownership of the commercial institution is not affected….unless the new owner is involved in an unethical business practices or begin to grant unsecured loans or engaged in transactions or trade that are fraudulent, I do not think it can affect the economy,” Chukwu said.
Muda Yusuf, chief executive officer at the Centre for the Promotion of Private Enterprise, said, “We must concede that the CBN is in a better position to determine the scope and severity of infractions and regulatory breaches that have been committed. However, it is important to stress the imperative of fairness, equity and justice to all stakeholders [depositors, shareholders and employees] in the unfolding regulatory review.”
He said the main pillar of the banking system is confidence and this makes the financial system very sensitive to developments that could undermine the confidence of depositors and investors.
“This is why the handling of current investigations concerning these banks needs to be done with utmost discretion, caution and care. We cannot afford to ruin any of our banks at a time like this. The economy is still grappling with very challenging macroeconomic headwinds,” Yususf said.
According to him, if there are proven infractions in the management or governance of the banks, utmost discretion should be exercised in dealing with the situation to avoid negative signals and risk to the stability of the financial system.
“Meanwhile, it is comforting that the CBN had assured depositors of the safety of their funds. The shareholders also deserve to be assured of the safety of their investments, without prejudice to the consequences of proven infractions or breaches of the law. This is very critical for the preservation of investors’ confidence in the economy,” he added.
Ayodele Akinwunmi, relationship manager, corporate banking at FSDH Merchant Bank Limited, said, “The CBN gave reasons for the actions and the apex bank has the power to do what was done. The CBN has also assured the public that all depositors’ funds are safe in the affected banks.”
For Bunmi Lawson, managing director/CEO, EdFin Microfinance Bank, the CBN has to share clear communication to bank customers on the impact of this takeover. “It needs to be continuous and especially target middle to low income households, to give reassurance and stop the spread of rumours that may then destabilise the banking system,” she said.
Customers of the banks involved expressed varying opinions on the development. Boluwatife Kolawole, a Union Bank customer, said that the dissolution of the bank’s board of directors made him contemplate changing banks.
“I get unnecessary deductions on my account, and I’ve had a situation where I have had to email the bank incessantly. Last year, I had a friend who had a similar experience; we didn’t have any money to spend because our money was with Union Bank and we could not access it,” he said.
“All of this, and the dissolution of the leadership of the bank created this skepticism in my mind, and I’m contemplating removing my money from the bank,” he added.
Queen Ibaningo, another Union Bank customer said although she distrusts the integrity of any bank, she is not switching banks.
“I generally don’t feel safe with banks because you can’t be too sure, but I’ve never heard any issues about Union Bank. Banks have been keeping people’s money, so I don’t think I’ll change the bank since I have no issues with them,” she said.
Hussein Aromashadun, a Polaris Bank customer, said that the development is not new, and is no cause for alarm.
“I heard the news from my friend in Polaris Bank, and at first, I was scared. But when the CBN announced it, I figured it was like when the name was changed from Skye to Polaris Bank. They have the records; It’s our money, and it is safe. So, I don’t need to remove my money,” he said.
Tajudeen Kamorudeen, a Keystone Bank customer, also said that he had no cause for alarm. “I have no cause for alarm, especially because I have no issues with the customer service. I have been using this bank since 2009, and it has been a wonderful experience for me,” he said.
Asiwaju, a full-stack engineer on X (formerly Twitter) said, “Sacking the board doesn’t in any way affect the staff nor the customers. The bank is still running its day-to-day activities, no cause for alarm at all”, he posted.
Another post from a trinitywhite read, “Nothing is going to happen to the banks. It’s just the resignation of top management and replacement with another.”
