Source Thisday: Onwuka Nzeshi, February 5th 2010

Abuja — The Central Bank of Nigeria (CBN) yesterday sought more powers to keep commercial banks in check on many fronts, including the revocation of banking licences, participation of banks in the stock market and the logistics of opening and closing branches anywhere in the world.

It also demanded powers to acquire the shares of an ailing bank up to a level that guarantees the apex bank’s control and management, provided that the CBN shall at the earliest opportunity dispose of such acquired shares, when it is satisfied that the state of affairs of the bank concerned has improved.

But the banks expressed some discomfort with the requests as both regulators and operators of the financial sector met at a public hearing organised by the House of Representatives Committee on Banking and Currency to deliberate on the bill for an Act to Re-enact the Banks and Other Financial Institutions Act (BOFIA) to resolve the many lapses that emerged with the global economic meltdown.

Governor, Central Bank of Nigeria , Mallam Sanusi Lamido Sanusi who presented a memorandum at the public hearing said additional control measures have become necessary given the fallout of its recent audit of the banks and the several revelations of insider abuse.

According to Sanusi, insider dealings have continued to pose special risk to banks as a result of the fact that transactions are with the same set of people who are actually in control of the lending institutions. He said that caution has often been thrown to the wind when the self interest of those in charge of the banks was concerned.

“It is therefore necessary to impose some non-preferential standards by which transactions with insiders would be subject to prudential requirements equivalent to those imposed on transactions with persons who are non-insiders,” Sanusi said.

The old generation banks, however, kicked against the move by the apex bank to introduce stiff penalties on the issue of expanding or reducing their branch networks. They said they cannot be compelled to inform the CBN of their intention to close unprofitable branches which were actually forced on them in through earlier policy of the CBN to encourage rural banking.

Section 6 of the bill states thus: “No bank may open any branch office anywhere within or outside Nigeria except with the prior consent of the CBN.”

Head of Legal Services, First Bank of Nigeria, Mr Kunle Adejorin said this provision would be problematic for the old generation banks because as profit oriented enterprises, the banks ought not to be tied to a spot when it was unprofitable to remain there, particularly when there are many Micro-Finance Banks in operation who could render rural banking services.

Sanusi, in his defense said the provision was necessary to curb the excesses of Chief Executives of banks many of whom he accused of opening some branches for purposes other than banking services.

“In some cases, the branches were not being opened for bank business but as real estate business for the CEOs. Some people were given branches they did not require. They were giving themselves the contracts either as people constructing or people who were landlords. They were paying themselves billions of money because it was much quicker than waiting to work hard and make money through the normal way,” Sanusi said.

On the move to exercise stricter control over depositors’ funds held by banks, Sanusi said that considering the abuses and recent crisis in the Capital Market, the CBN may soon put in place stiffer regulations to restrict banks from trading in shares. He said that situation whereby depositors funds were lent to some persons for the purpose of buying of stocks would no longer be acceptable.

Other stakeholders including the First City Monument Bank (FCMB) and Stanbic IBTC as well as the Chartered Institute of Banker also voiced out their misgivings on some aspects of the proposed legislation.

Nigerian Bank Nigeria CBN Central Bank Of Nigeria, FCMB First City Monument Bank Plc, First Bank of Nigeria Plc, Stanbic IBTC Bank Plc

Source Thisday: Onwuka Nzeshi, February 5th 2010

The Central Bank of Nigeria (CBN) yesterday sought more powers to keep commercial banks in check on many fronts including the revocation of banking licences, participation of banks in the stock market and the logistics of opening and closing branches anywhere in the world.

It also demanded powers to acquire the shares of an ailing bank up to a level that guarantees the apex bank’s control and management provided that the CBN shall at the earliest opportunity dispose of such acquired shares when it is satisfied that the state of affairs of the bank concerned has improved.

But the banks expressed some discomfort with the requests as both regulators and operators of the financial sector met at a public hearing organised by the House of Representatives Committee on Banking and Currency to deliberate on the bill for an Act to Re-enact the Banks and Other Financial Institutions Act (BOFIA) to resolve the many lapses that emerged with the global economic meltdown.

Governor, Central Bank of Nigeria , Mallam Sanusi Lamido Sanusi who presented a memorandum at the public hearing said additional control measures have become necessary given the fallout of its recent audit of the banks and the several revelations of insider abuse.

According to Sanusi, insider dealings have continued to pose special risk to banks as a result of the fact that transactions are with the same set of people who are actually in control of the lending institutions. He said that caution has often been thrown to the wind when the self interest of those in charge of the banks was concerned.

“It is therefore necessary to impose some non-preferential standards by which transactions with insiders would be subject to prudential requirements equivalent to those imposed on transactions with persons who are non-insiders,” Sanusi said.

The old generation banks, however, kicked against the move by the apex bank to introduce stiff penalties on the issue of expanding or reducing their branch networks. They said they cannot be compelled to inform the CBN of their intention to close unprofitable branches which were actually forced on them in through earlier policy of the CBN to encourage rural banking.

Section 6 of the bill states thus: “No bank may open any branch office anywhere within or outside Nigeria except with the prior consent of the CBN.”

Head of Legal Services, First Bank of Nigeria, Mr Kunle Adejorin said this provision would be problematic for the old generation banks because as profit oriented enterprises, the banks ought not to be tied to a spot when it was unprofitable to remain there, particularly when there are many Micro-Finance Banks in operation who could render rural banking services.

Sanusi, in his defence said the provision was necessary to curb the excesses of Chief Executives of banks many of whom he accused of opening some branches for purposes other than banking services.

“In some cases, the branches were not being opened for bank business but as real estate business for the CEOs. Some people were given branches they did not require. They were giving themselves the contracts either as people constructing or people who were landlords. They were paying themselves billions of money because it was much quicker than waiting to work hard and make money through the normal way,” Sanusi said.

On the move to exercise stricter control over depositors’ funds held by banks, Sanusi said that considering the abuses and recent crisis in the Capital Market, the CBN may soon put in place stiffer regulations to restrict banks from trading in shares. He said that situation whereby depositors funds were lent to some persons for the purpose of buying of stocks would no longer be acceptable.

Other stakeholders including the First City Monument Bank (FCMB) and Stanbic/IBTC as well as the Chartered Institute of Banker also voiced out their misgivings on some aspects of the proposed legislation.

Nigerian Bank Nigeria CBN Central Bank Of Nigeria, FCMB First City Monument Bank, First Bank of Nigeria Plc, Stanbic IBTC Bank Plc