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CBN acknowledges positive improvement in insider-related credit

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The strategy adopted by the Central Bank of Nigeria in dealing with abuses in the banking industry has continued to yield positive results especially in the areas of corporate governance and insider-related credits.Just as the indicted chief executive officers and directors are still being grilled by the Economic and Financial Crimes Commission, those who did things right to escape the tortuous experience are doing much more to improve on the credibility of the industry.

The Deputy Governor, Financial Sector Stability, CBN, Dr. Kingsley Moghalu, confirmed this in Lagos on Wednesday when he said that there was a slight improvement in the performance of insider-related credits in the industry.

Speaking at an international symposium for Nigerian bankers organised by Committee of Chief Compliance Officers of Banks in Nigeria, he said in order to promote transparency and full disclosure, banks were directed to disclose the details of insider-related credits and transactions in their annual accounts.

According to him, "In addition, external auditors and internal audit committees were required to include in their audit reports, comments on the adequacy of disclosure as a basis for audit opinions. The result of the recently concluded pilot review of two banks under the new consolidated supervision program is encouraging. There is a slight improvement in the performance of insider-related credits in the industry. The CBN has also directed banks to appoint compliance officers who report to regulators on compliance issues."

Prior to the progress recorded so far, the Governor of the CBN, Mr. Lamido Sanusi, had lamented that governance and internal processes in the banks were unstructured, and this compromised the CBN's ability to supervise the industry.

Moghalu said the indcted chief executive officers set up special purpose vehicles to lend money to themselves for stock price manipulation or the purchase of estates all over the world.

A lot of the capital supposedly raised by these so called "mega banks" was fake capital financed from depositors' funds.

Moghalu, who spoke on the topic, "The Three Lines of Defence," observed that the weak corporate governance structures at banks went virtually unchecked after consolidation.

He said they became a way of life in many banks, adding that corporate governance in many banks failed because their boards failed to follow the tenets of sound bank management.

"Some of the boards were misled by management while others breached their fiduciary responsibilities by ignoring management excesses. It was an open secret that bank managing directors set up special purpose vehicles to lend money to themselves for stock price manipulation and purchase of estates all over the world. The CBN has already published details of the extent of insider abuse in some of the banks," he said.

Speaking on the challenges of entrenching sound corporate governance, he said in spite of banking consolidation, ownership structure of some banks remained skewed in favor of some family majority owners whose influence may inhibit the entrenchment of sound corporate governance, adding that the pool of fit and proper persons to serve as independent directors was shallow, among others.

Source: The Punch