CBN Reads Riot Act to Banks
Vows to handover erring CEOs to EFCC
Asset Stripping
By Ayodele Aminu
The Central Bank of Nigeria (CBN) has warned that it would sanction any bank management or board that sells or transfers any of their banks' asset without its authorisation.
The apex bank also said it would also handover such bank chairman or chief executive officer to the Economic and Financial Crimes Commission (EFCC).
Apparently worried by insider abuses including asset stripping by top management of banks as a result of the on-going consolidation exercise in the industry, CBN sent this warning at the weekend through a circular signed by its Director of Banking Supervision, Mr. Ignatius Imala.
Some bank chiefs, especially those that believe their banks may not have a future after the expected consolidation are alleged to have commenced the sale of such assets.
This, in a nutshell means that any bank which acquires such a bank would be paying more than the actual cost since most of the assets would have already been disposed.
Entitled "Circular to all banks on the need for the preservation of bank's assets," the circular dated August 23, 2004 reads in part: ''The attention of the Central Bank of Nigeria (CBN) has been drawn to possible insider abuses including fraudulent conversion and assets stripping, as an unitended consequence of the on-going restructuring/consolidation efforts in the banking system.
"The CBN is obviously concerned about such developments and therefore seeks to remind all officers of banks of their fiduciary responsibilities and the possibilities and provisions of the Code of Conduct for Directors of licenced banks.
"Furthermore, the attention of all directors and chief executives of banks is drawn to the provision of section 20(2)(f) of Banks and Other Financial Institutions Act (BOFIA) and relevant sections of the Economic and Financial Crimes Commission Act. Accordingly, any sale or transfer of any bank's assets shall be subject to the prior approval of the CBN in writing," the CBN stated.
Consequently, the apex bank maintained that "the Chairmen and Chief Executive Officers of banks shall be held liable and would be appropriately sanctioned including prosecution under the Economic and Financial Crimes Commission (EFCC) Act, 2004 for the sale or transfer of any bank's asset without due authorization from the CBN.''
Bank chiefs that spoke to THISDAY in Lagos yesterday, however, blamed the CBN for this unwholesome development, saying such issues ought to have been taken care of before the merger/consolidation policy was announced.
"Both the Federal Government and the CBN appear not to know what they are doing. Why were they so hasty to announce the consolidation policy without taking care of issues like this (asset stripping) ?
"Of course what do you expect? Some people, especially those who know that they would no longer be around after the consolidation exercise would obviously convert their banks' assets," one bank chief said.
Another who preferred anonymity asked how the CBN would be able to determine the cost of a bank's asset, adding that the CBN did not do ''its homework before the consolidation proposal became a policy issue.''
"What the CBN ought to have done was to have carefully studied how mergers and aquisitions were carried out in other jurisdictions. How many of a bank's asset would have to go through the CBN for verification? For instance, if I want to sell an item like typewriter, do I still need to seek the consent of the CBN?" he asked.
About two months ago, Governor of the CBN, Professor Charles Soludo, had at an emergency meeting of the bankers' committee in Abuja raised the capital base of banks to N25 billion.
He advised banks that cannot meet the new capital before December 31, 2005 to merge and rolled out guidelines and incentives to encourage such mergers.
While releasing the guidelines and incentives, Soludo had enjoined banks ''to be open in their negotiations by placing the actual value of their assets on the table,'' stressing that sanctions would not be imposed for any previous misreporting detected in the course of consolidation.
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