The Nigerian Accountant 2012 - The Institute of Chartered ...

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Rebuilding Trust
In Nigerian Banking
Industry
By CHUKE NWUDE
The importance of a bank in any economy cannot be overemphasised. It is
only when banks operate efficiently within financial systems that economies
can grow and thrive. The failure of banks around the world has caused huge
damage to the economies of many countries. This underscores the importance
of sound banking systems to global prosperity and why banking system is
heavily regulated in every economy. Currently, Nigerian banking industry is
embracing International Financial Reporting Standards (IFRS) and cashless
economy. From the mood of the banking public, there is need to cross some
Ts and dot some Is in banks. Therefore the objective of this paper is to point
out the critical trust and confidence issues that need to be addressed in this
era of IFRS and cashless economy. More importantly, what can be done to
restore trust and stability in Nigerian financial institutions? To come up with
the issues, the author engaged archival and interactive research approaches.
From the study, it was obvious that banks do not fail rather it is the people who
work in them, who lead them, who operate their risk management systems,
who trade their financial products, who make their loans. The operators of
these functions collectively have to take responsibility for the performances,
good or bad, of their banks. Too many of the bank personnel are woefully
undertrained and ill-equipped to carry out their functions professionally. Even
though the way banking has been conducted has dramatically changed over
the last few decades, the core principles of banking namely, prudence; good
judgment; propriety; conservatism; capital adequacy; and ethical conduct have
remained unchanged. Consequently, the paper recommends ethical revolution
in training bank personnel, especially in the areas of corporate governance,
regulatory matters, incentive structure, and product formulation along the
value chain with regards to the needs of the economy. To smoothly operate
cashless economy in Nigeria, stable power supply and domestic producers
of ICT equipment must be in place.
Banking institutions occupy a
central position in the financial
system of every economy. As
the human heart collects blood
and pumps it to all parts of
the body for them to function well, so does
the financial system makes sure there is
continuous flow of credit in the economy. It
collects funds from the surplus units of the
economy and sends it to the deficit units to
fulfill its financial intermediation function. It is
the banks that dominate the financial system
and play greater percentage of its financial
intermediation role. For the economy to
perform well in terms of production of goods
and services, creation of employment and
development of the economy, the financial
sector championed by banks has to be safe
and sound. However, it has been discovered
that Nigerian deposit-taking institutions have
not really been trusted by the Nigerian public
over time. The truth is that the Nigerian
public has had a wary relationship with the
country’s deposit-taking institutions over time
since the first major banking failures occurred
in the country in 1929 (Appendix 1). Since
then, available records indicate that no less
than 71 deposit-taking institutions have been
liquidated on account of distress (Appendices
1 – 4). In mid-2007 we witnessed a global
financial crisis triggered in the United States
THE NIGERIAN ACCOUNTANT 29
April/June, 2012