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The Central Bank of Nigeria (CBN) says the basis of the current
banking reforms is to improve on corporate governance and risks management in
the financial services sector.

Sanusi Lamido Sanusi, the CBN Governor, who was represented by
Kingsley Maghalu, his deputy in charge of Financial System Stability, said that
the reform is projected to enhance the quality of the banks, to ensure
financial stabilisation through the proposed Asset Management Company (AMC), to
encourage sound evolutions of the financial system, and to connect the
financial sector to the real economy.

Speaking on the topic, ‘Financial System Fallout in West
Africa,’ at the third EuroFinance Annual Conference on Treasury, Risk and Cash
Management, in Lagos on Wednesday, Mr. Sanusi noted, “Most of the banks in
Nigeria did not really understand how important corporate governance is to
their business continuity.”

One-man shows

He said many banks took this for granted because “a lot of the
banks were essentially one- man shows,” adding,

“When you do not have a sound corporate governance frame work,
the reliance on the judgement or the views of one person or a small group of
persons becomes a very fundamental risk exposure for the bank’s survival.”

Accordingly, he said, risk management is important in practice.
“It is a matter of life and death. Risk management is not just an exoteric
thing. It is the conscious management of risk, reward, and business processes
to prevent untoward events that could disrupt the business.

“We found a situation where a lot of banks went into business
without proper risk analysis, just because other banks are doing it or because
they felt the need to grow big. Their ambitions led to a misalignment in risk
capacity and tolerance.” Not absolving the regulatory agencies from blame, the
chief industry regulator also admitted, “There was a very weak regulatory and
supervised environment caused mainly by the failure of the Central Bank as a
lead regulator to enforce the rules already in existence,” which he said are
now being addressed.

Reviewing governance code

In agreement with the CBN governor, Fabian Ajogwu, a legal
practitioner and Managing Partner of Kenna & Associate, called for the
review of corporate governance code in the financial and non-financial sectors
of the country.

Mr. Ajogwu, who spoke on ‘Towards all round corporate governance
best practice,’ said that the current corporate governance code has been
“weakened.” The Senior Lecturer at Lagos Business School said that the weakness
of the code is “forcing all regulators to come up with their own codes” which
may not wholly meet international practice.

No other way

Speaking generally on the reforms, Mr. Sanusi noted that
majority of the people had concentrated more on the removal of some banks’
Chief Executive Officers than on the findings of the bank audit, which “revealed
a serious systematic stress threatened by these banks.” In his own
presentation, Roland Ebelt, Managing Director, Nigerian Bottling Company Plc,
who spoke on ‘Financing trade in a tricky economy environment,’ insisted that
that the Nigerian economy has remained tricky for a while now.

Identifying some of the challenges confronting the company, Mr.
Ebelt said that the NBC needs “a lot of cash to finance growth (investments in
capital expenditure and working capital); has to reduce costs and drive bottom
line; wants to continue to simplify its products; needs reliable and audit
robust processes.”