CBN raises alarm on rising cases of bank fraud

THE Central Bank, CBN, yesterday, raised an alarm on rising cases of fraud in the nation’s financial institutions even as it granted the request of shareholders of Equatorial Trust Bank Limited to recapitalise the bank, following a proposal by the bank’s shareholders to the apex bank.

The CBN said that as at December 31, 2008, a total 1,974 cases of fraud and forgeries, amounting to N24.49 billion and various other sums in foreign currencies were reported by banks.
Sanusi Lamido Sanusi, Governor CBN and Mike Adenuga Junior, Chairman & CEO Globacom.

Sanusi Lamido Sanusi, Governor CBN and Mike Adenuga Junior, Chairman & CEO Globacom.

According to the CBN in its 2008 Banking Supervision report, 746 of the cases amounting to over N6.37 billion were reported to have been successful. Arising therefrom, 316 staff of the banks were dismissed and 220 others had their appointments terminated.

Reviewing the non-performing loans in the banks in 2008, the CBN said “Non-performing credits increased from N0.4 trillion in 2007 to N0.5 trillion in 2008. The ratio of non-performing credits to total credits of 6.26 per cent during the review period was far below the trigger level of 35 per cent for setting up a Crisis Management Unit as stipulated in the Contingency Planning Framework for Systemic Distress.

“The ratio was lower than 21.6 per cent, 18.12 per cent, 8.77 per cent and 8.44 per cent recorded in 2004, 2005, 2006 and 2007, respectively. Provision for bad and doubtful debts grew from N0.2 trillion in 2004 to N0.4 trillion in 2008.

The ratio of bad debt provision to total credits was 22.6 percent in 2004; 19.1 percent in 2005; 6.3 percent in 2006; 8.1 percent in 2007 and 6.1 percent in 2008”.

According to the CBN, “In many of the banks, Board and Management oversight needed improvement as evidenced by lapses in risk asset quality, corporate governance and abuse of insider-related facilities.

“Most of the banks reported increased earnings and profitability due to increased lending and business diversification. The crisis in the capital market threatened the liquidity in the banking system due to banks’ exposure to margin loans.

The CBN took some actions, such as the stoppage of liquidity mop-up and reduction of liquidity ratio from 40 per cent to 30 percent, to assist banks in their liquidity management.

“Some of the banks had their foreign lines reviewed downward by their foreign correspondent banks, which reduced supply of foreign exchange in the market and exerted pressure on the exchange rate.”

According to the report, “The minimum liquidity ratio for banks was reduced from 40 to 30 percent during the year. Compliance with the prescribed minimum liquidity ratio of 30 and 60 percent by banks and discount houses respectively, was closely monitored on daily and monthly basis. Two banks failed to meet the minimum prescribed liquidity ratio of 30 percent in the month of December 2008. Compliance with the capital adequacy ratio requirement of banks and discount houses was also monitored throughout the year. In the month of December 2008 two banks failed to meet the minimum prescribed capital adequacy ratio of 10 per cent.”

Returns ETB to shareholders

In a statement signed by the M.M. Abdullahi, Head, Corporate Affairs, CBN said “having reviewed the terms and conditions of the Deeds of Covenant, the CBN has consented to the request aimed at further strengthening the bank. In granting these requests, CBN noted that the Special Examination had not raised issues of serious supervisory concern or criminal activity by any member of the Board of ETB.

However, the CBN will closely monitor the implementation of the terms of the Covenant to ensure that the lapses are fully rectified and in the overall interest of the banking system.”

In the statement, the CBN further said “Following the special examination of all banks operating in the country, and the subsequent actions by the CBN, the shareholders of Equitorial Trust Bank Limited requested the permission of the Central Bank of Nigeria to be allowed to rectify lapses identified in the bank.

In pursuance to that, the shareholders executed a Deed of Covenant, the specific terms and conditions of which included the following:

“The willingness of the shareholders to recapitalise the bank by way of injection of additional capital latest by June 30, 2010; restructuring, diversification and enlargement of the capital base of the bank either by way of a public offering of shares, securing a core investor or merger with a local bank within one year period; addressing the corporate governance issues in the bank which were mainly ascribed to the previous Executive Management team in the bank; reconstitution of the Board of Directors of the bank through the retirement of two non-executive directors and the appointment of four new non-executive directors, including Dr. Mike Adenuga Jnr. (CON), an erstwhile member of the board, subject to the approval of the Central Bank of Nigeria; and Convening a general meeting of the bank’s shareholders to ratify, through a resolution all the nominated appointments to the bank’s board”.