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

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must demand personal trustworthiness
from the leaders of its institutions. Warren
Buffett had to say: “Avoid business
involving moral risk; no matter what the
rate, you can’t write good contracts with
bad people.” Here’s what Alan Greenspan
said in testimony in July 2002: “Our
market system depends critically on
trust – trust in the word of our colleagues
and trust in the word of those with whom
we do business.” serious improvements
in personal trustworthiness. The three
particular sources of inculcating trust
worthiness in bank leadership are
Business Schools: Here in addition
to MBA programs, there should be
executive-education programs as well.
Universities should be urged to undertake
large-scale programs to reexamine the
fundamental role of personal ethics and
character and to teach it in a variety of
ways. Boards of Directors: Here’s
what Warren Buffet wrote in Berkshire
Hathaway’s 2009 Shareholder Letter is
very important, “The CEOs and directors
of the failed companies, however, have
largely gone unscathed. Their fortunes
may have been diminished by the
disasters they oversaw, but they still
live in grand style. It is the behaviour of
these CEOs and directors that needs
to be changed.” Industry/Professional
Bodies: Executives of professional/
industry associations need to recognise
that short-term selfish behaviour is
harmful to their constituencies in anything
beyond the short run and focus on broader
agenda that improve the long-term health
of their members.
Financial Inclusion: Other names for
Financial Inclusion can be Broadening
Financial Outreach, Enhancing Public
Confidence. In reality all are talking about
the same issue which is the delivery of
financial services at affordable costs to
disadvantaged and low income segments
of the Nigerian society. In Nigeria, 80%
of the adult population earn less than
N20,000 per month, 72% of the population
live in rural areas of whom the majority do
not have any formal employment, 70% of
the adult population do not currently use
any basic banking services (i.e. current
account, ATM card, savings account, or
any kind of loan), 2% of the rural population
have access to financial services, while
60% of the population have access to
mobile telephones. The primary reasons
given by survey respondents for not
having a bank account are the absence
of a regular income, distance from a bank
branch, lack of knowledge about banking
services, arbitrary unpredictable costs of
banking services and lack of confidence
on the banks. It is generally recognised
that unrestrained access to public goods
and services is an absolutely necessary
condition for an open and efficient society.
Financial services are in the nature of
public goods. Therefore it is essential
that the availability of banking and
payment services to the entire population
without discrimination should be the
prime objective of public policy in such a
society. In Nigeria, serving the population
with adequate financial products is quite
imperative.
Structural Imperatives: The recent
restructuring of deposit-money financial
institutions into Commercial Banks
(Regional, National and International),
Merchant Banks; and Specialised Banks
(which include non-interest banks,
microfinance banks, development banks
and mortgage banks), is a step in the right
direction and to re-focus these institutions
to perform only their statutory functions
would benefit the industry.
Regulatory Environment: To
integrate Nigeria’s financial system
into the regional and global financial
system there is need to strengthen
effective supervision of the banking
industry, regulation, transparency; and
risk management system. Banks are
expected to embrace the global best
practice in corporate governance,
ethics and professionalism, smooth and
efficient payment standards, international
reporting standards, disclosure, improve
on self-regulation, enhance the capital
base and risk management culture.
There is need for banks to become more
innovative in their intermediation function,
especially to increase financing to the
productive sectors in order to diversify the
productive base of the economy.
Regulators and senior managers in the
financial services sector need to buy into
the key concepts of Governance, Risk
and Compliance (GRC) as three pillars
of an effective cultural framework. The
regulators (CBN, NDIC, SEC) must better
co-ordinate in enforcement of existing
regulatory powers. More Principles Based
Regulation can work more effectively
than highly prescriptive regulation and
has the potential to provide an effective
basis for rebuilding trust and confidence
in the financial system.
Corporate Governance: A major plank
on which the CBN hinged its intervention
in the eight rescued banks on August
14, 2009 surrounded weak corporate
governance structures. According to
Walker’s Report, “The need is now to
bring corporate governance issues closer
to centre stage. Better financial regulation
has much to accomplish, but cannot
alone satisfactorily assure performance
of the major banks. These entities must
also be better governed.” Furthermore,
the Report stated “Board conformity with
laid down procedures such as those for
enhanced risk oversight will not alone
provide better corporate governance
overall if the chairman is weak, if the
composition and dynamics of the board is
inadequate and if there is unsatisfactory
or no engagement with major owners.
The behavioural changes that may be
needed are unlikely to be fostered by
regulatory fiat, which in any event risks
provoking unintended consequences.
Behavioural improvement is more likely to
be achieved through clearer identification
of best practice and more effective but,
in most areas, non-Statutory routes to
implementation so that boards and their
major owners feel “ownership” of good
corporate governance.” Board members
and chairmen would have to work harder
in future, devoting far more time to the job
and prove to the regulators in an interview
they have the experience to understand
some of the complex activities banks
are involved in. Non-executive board
members need to spend significantly more
time on the job than they do now and get
more structured institutional support in
developing competencies to perform their
oversight functions effectively through
the Board Committees. Chairmen should
devote probably not less than two-thirds
of their time to the business of the entity.
Incentives Structure: In objective
terms the levels of salary and bonus
paid in the financial services sector are
vast and do not always reflect the profit
made or the effort expended. Similarly,
losses made or failure has not to date
attracted any corresponding downside in
THE NIGERIAN ACCOUNTANT 33
April/June, 2012