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Finance experts
have stated that with the long awaited passage into law of the bill
setting up the Asset Management Corporation of Nigeria (AMC), Nigerian
banks need to move with the times in achieving the goal of
institutionalising best practices in corporate governance, which they
say must be pursued from all possible angles.

The role of
corporate governance in management of banks is again the subject of
much debate, as a few banks have already started declaring victory over
the lapses in their corporate governance and risk management, major
factors which brought the industry down last year. Earlier this week,
John Aboh, GMD/CEO, Oceanic Bank, said that the bank had effectively
addressed the corporate governance and risk management deficiencies
that led to the Central Bank’s intervention on August 14, 2009.
According to him, the bank had since achieved stability, growing
customer confidence as well as a return to profitability as of March
31, 2010.

‘The worst is over’

“I am delighted to
report that the worst is over and what we need to do now is to
collaborate on adopting an effective recapitalization plan that will
give the bank a strong competitive edge in the Nigerian banking sector
and beyond,” he said, noting that it may be too early to declare such
victories. Finance experts have stated that caution be implemented at
this stage as “in reality, it is quite early to say all the issues have
been addressed because the banks can’t prove it, though, it is
theoretically possible,” said Mr Aboh. Eelco Fiole, Associate Partner,
Ciuci Consulting, a management consulting firm that focuses on
providing business improvement solutions to clients said
“Fundamentally, for an institution to ensure quality corporate
governance, the promoters of the institution must view corporate
governance as a priority. By doing so, necessary attention is paid to
issues which could ultimately define the company’s existence.”

Mr. Aboh said the
bank’s management, with the support of its board, had come up with a
recapitalisation plan that includes a combination of several options:
bad loan recoveries, provision write backs from restructured credits,
and sale of none performing loans to the recently established Asset
Management Corporation of Nigeria (AMCON). Oyinkan Adewale, Executive
Director/Chief Financial Officer, Oceanic Bank, said as of June 2010,
customer deposits had grown in excess of N600 billion, an indication of
the acceptance of the brand in the sector and that the bank had hit
about N98 billion in loan recoveries while sustaining a profit run rate
of approximately N2 billion monthly. She added that the bank’s books
now bear a true picture and fair picture of its state following
rigorous analysis of the past records.

Holding managers accountable

“The nature of
accountability of the managers to the stakeholders is a key factor in
determining the quality of governance,” she said. “Banks must ensure
that corporate governance codes, which clearly spell out guidelines for
decision making, reporting and compliance, as well as, the
responsibilities and limits of executives, offices and employees are
developed,” she said. “Strict adherence to such codes, which must be
developed in line with regulatory requirements and international best
practices, will ensure that the organisation operates within the
confines of globally acceptable governance standards. Agents with the
highest responsibility for ensuring corporate governance within banks
remain the executive management and the board of directors.”

Following the reconsolidation exercise in 2005, the Central Bank set
out to establish a corporate governance code to serve as a frame-work
for banks to build their governance systems on. This was done with the
objective of mitigating the challenges that came with having bigger
banks with greater liabilities, improving public confidence in the
banking sector and safeguarding shareholder funds. Consequently,
experts say 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.