We have received the news of the recent shake-up in five of the nation’s banks with mixed feelings. In the face of the emergence of the global financial and economic crises, we had argued that the crises arose largely as a result of the failure of regulation, particularly in the United States of America. We have therefore been advocates of stricter and more effective regulation of our banking system just as we have been calling for striker regulation of the entire economy, especially the oil sector. Our position was further reinforced by our conviction that the rosy picture often painted by our banks in their quarterly and annual reports did not align with the reality of the weak performance of the real sectors of the economy. We had always feared that the banks were in some sense “cooking” their books.
We are, therefore, in support of the actions taken by the Central Bank Governor in relation to the five banks. Haven carefully reviewed the details contained in the governor’s address of 14th August, 2009 it is clear that these five banks had reached a state of financial ill-health, which if left unchecked, would pose a danger to the whole banking system and ultimately the national economy. We wish to emphasize, however, that the very steps taken to restore stability to the banking sector could trigger short-term crisis of confidence unless a vigorous and sustained campaign is waged to build confidence and prevent a rush on the banks. In this regard, we identify with the Central Bank’s assurance that no bank would be allowed to fail. Beyond continuous publicity of this assurance, there is the need to ensure that customers put practical steps in place to guarantee that no bank is unable to meet cash demands on it. No matter the verbal assurance, customers are likely to panic and rush to withdraw their deposits. It is only when they realize over the next few days and weeks that the banks are able to meet their withdrawals that confidence would be restored.
In the medium and longer terms however, there is need to restructure the framework of regulation. Major episodic interventions such as the present one merely signify a weakness of the regulatory framework. What is needed is a strategy, which exposes emerging dangers as they begin to occur and allows for quick intervention. Early regulatory interventions could have been invoked as these banks were becoming over exposed to margin loans and other risky ventures.
The so-called bad loans in the books of the banks need to be recovered. Too often, well-connected and highly placed individuals deliberately seek to rip off the system. All legal means must be employed to recover all loans. While noting Mr. President’s order to the nation’s security agencies to help the banks in recovering the loans, we wish to caution that this must be done within the orbit of existing laws.
Finally, we call for a thorough investigation of the role of external audit firms in “cooking” the books of some of these banks over the years. External auditors found to have been complicit in hiding the true state of affairs of the banks should be brought to book. Clear and enforceable guidelines on full disclosure should be evolved and enforced.
John E. Odah,
General Secretary
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