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Industry regulators
and finance experts have said that though it is a laudable step that
Nigerian banks should adopt the International Financial Reporting
Standards, it is not an end in itself and cannot take the place of good
corporate governance.

The Central Bank
governor, Sanusi Lamido Sanusi, said that other issues would need to be
put in place to achieve the results of improving the industry’s
reporting standards. “No accounting/reporting standards can take the
place of good corporate governance,” he said, during the International
Financial Reporting Standards (IFRS) conference organised by Access
Bank last Monday.

He urged banks to
henceforth ensure that they report their numbers correctly, adding that
they should learn from their past mistakes, which led to the challenges
the banks faced last year.

The International
Financial Reporting Standards (IFRS) are accounting standards and
framework adopted by the International Accounting Standards Boards
(IASB), which is now becoming the global standard for the preparation
of public quoted companies’ financial statements.

IFRS reporting
demands that Nigerian banks must give a true and fair view of their
financial accounts. Experts say banks’ books, which averagely stands at
about 30 pages, would be increased to about 90 pages.

The CBN governor
said it would boost investor confidence through full disclosure, lower
the cost of investment capital, develop a more efficient capital
market, aid a robust regulation and supervision, and aid the
availability of useful data, among others.

Other participants
from finance regulatory bodies said major issues such as reporting the
right figures in the first place need to be addressed by the banks
before they can enjoy the benefits of improving their reporting
standards, as the regulators are not expected to do everything for them.

The 2009 audit of
the Central Bank revealed significant corporate governance failures and
lax risk management in several banks, despite the attempts made by the
regulators towards improving the quality of corporate governance.

Lax risk management

According to
analysts from Ciuci consulting, a management consulting firm that
provides business improvement solutions to its clients, “it was
discovered that chief executives of several banks occasionally flouted
laws by approving loans without recourse to laid down loan approval
processes. They also allocated funds to projects without proper
consultation with their boards and other stakeholders.

In some cases,
boards were found to be complicit in these malpractices, as personal
interests were put ahead of the interests of stakeholders.
Consequently, the issue remains how to ensure that banks adhere to best
practices in corporate governance in order to safeguard the investments
of shareholders and enhance the value creation process.”

Weak governance,
inappropriate incentive structures, and poor risk management systems
were among some of the main causes of the collapse of the global
financial system. Nigerian banks were not left out as most of them
failed to adhere to established risk management procedures, resulting
in massive loan losses.

Reports from the
consulting firm stated that the Central Bank’s special audit report
indicated that the total deposit liability of the eight affected banks
stood at 3 trillion, while aggregate non-performing loans stood at over
1.5 trillion, representing 61 percent of industry total. The full
disclosure revealed huge losses of unprecedented proportions in the
history of Nigerian banking.

Finance experts say
risk management failures are generally attributed to frameworks and
technologies adopted by the banks, but are actually largely affected
more so by the executives at the helm of affairs. The average
non-performing ratio for the 24 banks in 2009 stood at 34.4 percent
against the 2008 figures, which stood at 5.6 percent.

They also say for a
risk management structure to be effective in delivering its benefits,
it requires the full involvement and ownership of the executives and
must begin with a genuine determination by the leadership to comply
with risk management policies and procedures, as well as letting their
decisions and actions be driven by the interest and safety of all
stakeholders.

The consulting firm
urged that limits and other controls must be respected by top
management of any bank, if risk management is to be given its rightful
place.

In addition to
strategic renewal and operational transformation, implementation of
rules and regulations at the banks will come at a cost. However, this
cost is necessary to come to a more solid, efficient, effective and
lasting banking system.

Clearing the mess

The governor of the
Central bank of Nigeria has stated that the Asset Management
Corporation (AMCON) is set up to do three major things: it would
purchase non-performing loans, after buying the loans, the rescued
banks remain largely undercapitalised; it would also be in a position
to inject capital into these banks for ordinary shares (ownership), and
also manage the loans for recovery post capital injection.

AMCON would be a
permanent structure with a life span for 10 years. It would remain a
part of CBN regulatory infrastructure, going forward to reduce
non-performing loans levels in banks. For capital market operations,
experts say the AMCON is going to take over these loans, while some
operators may be given debt forgiveness, except there is evidence of
fraud or industry malpractice.