Nigerian Banks and the integrity question
By SEUN ADESIDA
Thursday, January 3, 2008

Central Bank of Nigeria (CBN) recently warned banks over the delay in remitting government revenue to it. The problem which reached a worrisome dimension necessitated the CBN to issue a warning to all the banks affected.

According to Mr. J. Olekah, a director in the Banking Operations Department of the CBN, the apex bank is worried that notwithstanding the appeals to the revenue collecting banks, some do not remit their collections as and at when due especially on the collections on behalf of the Nigeria National Petroleum Corporation (NNPC).

This he said had led to the postponement of the Federation Accounts Allocation Committee (FAAC) meeting dates in some instances and this is disrupting the distribution of revenue to the federating units. In addition, this unethical practice, the CBN said undermines the effective conduct of monetary policy given the size of the NNPC account.

Olekah warned the banks involved in the illegality that the CBN would no longer tolerate this attitude, directing that all revenue deposits collected on behalf of NNPC from all its depots should be paid into the CBN within twenty-four hours of the exact value date indicated on the NNPC payment instruction to banks, failing which the CBN shall debit the accounts of the affected banks in the CBN. Banks, whose accounts get overdrawn because of the direct debit, shall pay double the penalty for overdrawn accounts.”

In addition he said, “Defaulting banks risk being stopped from collecting revenue for NNPC and other parastatals.” It would be recalled that the Central Bank of Nigeria (CBN), in 1999 delegated its retail banking role with government to the deposit money banks. Since then banks have been the main revenue collecting agents for government and its agencies.

Under the arrangement that all appointed banks are required to remit all revenue collections into the pool accounts at the CBN, within an agreed timeline.
The withdrawal of public funds by the CBN is aimed at regulating liquidity in the banking system. It will also be recalled that shortly before the curtain fell on the 14 banks that could not make the consolidation exercise in 1995, the CBN was mandated to move all NNPC deposits in banks after Monetary Policy Committee (MPC) Meeting of November 1, 2005.

The CBN was instructed to move all NNPC deposits with commercial banks to the CBN and sterilize much of it with effect from October 31, 2005.
Before the consolidation exercise was concluded, about 25 banks out of the then total of 89, including a settlement bank, crashed out of the 22 clearing centres designated nationwide, this was as soon as the CBN started to withdraw public sector funds in commercial banks.

A CBN source said in Lagos that 24 settlement banks withdrew from clearing in Abuja and Lagos and most of them have been coming in and out of clearing for about a month. A managing director of one of the banks, who reacted to developments in the banking industry since the withdrawal exercise started, disclosed that the heat is on most banks as a result of the new N25 billion capitalisation requirement.
In his view, some banks are yet to fully recover from the shock created by the July 6 declaration by CBN that they must capitalise by the end of 2005.

Despite protests by banks over the withdrawal of the funds, CBN debited accounts of banks to the tune of N69 billion. The amount is said to belong to various public institutions, including the Nigerian National Petroleum Corporation (NNPC), its subsidiary, the Nigerian Petroleum Technology Development Fund (NPDTF) and the Bureau of Public Enterprises (BPE).

Withdrawal of public sector fund is one of the ways of forcing down inflation, the CBN announced the withdrawal of N74.5billion public funds from the banks. The NNPC engaged the CBN in a heated debate, canvassing the need to be allowed to maintain its accounts and those of its 29 subsidiaries with the banks for easy access. It declared that it had no intention to move its funds from the banks, which had also refused to co-operate with the CBN on the issue.

According CBN directive, all banks that collect revenues on behalf of the NNPC were expected to remit all such funds to the CBN within 48 hours of the collection. Failure to remit such funds would attract a penal interest charge of MRR plus 5. Any managing director of a bank that misreports NNPC deposits with it or falsifies any returns to the CBN be suspended for three months in the first instance.
To ensure effective monitoring and implementation of liquidity management programme, the MPC set up a Monetary Policy Implementation Committee which shall meet every two days to review developments and take necessary actions.

Timely remittance of government revenue by banks should not be something difficult to achieve, if the banks are truly offering the kind of service they claim they are offering the Nigerian banking public. Most of the collections are done online by the banks, so the issue of paper works is completely knocked out of the argument.

What in the name of banking procedures could the banks be doing with government revenue for over one month before such funds are transferred to the vault of the Central Bank of Nigeria.
The CBN should not allow such illegality to go with just a warning, questions on the integrity of banks have come to the fore in recent times and this is like a sore that wont go away from the nose of the banks. The integrity sore is affecting not just the banks but even bank customers who for one reason have gone through the ordeal of transferring money through the banks into accounts and at the end cases of un-reflected transfers are discussed in hushed tones.

In one instance a customer confided in Daily Sun that his account was messed up by a certain staff of a bank and all effort to retrieve his money fell on rock solid no explanation. At the end, the embattled staff asked for out of court settlement to avoid being sacked by his employers.