THE House of Representatives Committee on Banking and Currency recently concluded a 2-day public hearing on four Bills. One of the Bills is an Act to Repeal and Re-enact the Banks and Other Financial Institutions Act (BOFIA) 2004. The BOFIA Amendment Bill is aimed, among other objectives, to instill discipline in the banking and other financial services sector (such as microfinance houses) to protect public deposits.
The proposed amendments are expected to have far reaching implications, especially coming against the background of a wide range of allegations, including insider abuse, corporate governance breaches and other unethical practices. The bill, which stipulates stiff penalties, also seeks to prohibit the operation of unlicensed banks, otherwise known as shell banks, which have no physical presence in the country.
The amendment also seeks to impose heavy sanctions on erring bank Chief Executive Officers (CEOs) and Directors. According to the Chairman of the House Committee on Banking and Currency, Rep. Jones Chukwudi Onyereri, the proposed amendments have become expedient to sanitise the banking and financial services sector. He said the increased penalties against violations of the provisions of the bill are to help streamline the operations of banks and other financial institutions in the country, and ensure they conform to best practices as obtainable in other climes.
It is heartening that this bill provides stiff penalties for certain offences. For example, Section 2(2) of the bill proposes a penalty of not less than N50 million or a jail term of no less than10 years, or both, for any person who transacts a banking business without a banking licence. Also, Section 5(4) provides for a fine of not less than N20m against any bank manager or director who fails to take reasonable steps to ensure compliance with the conditions of the licence granted by the Central Bank of Nigeria (CBN).
In addition, Section 16 (11) imposes a fine on any director that fails to disclose any interest in any property, whether directly or indirectly owned, that conflicts with his or her duty or interest as director of a bank. Section 18(8)imposes a fine of N50m and five years imprisonment upon conviction on any bank officer that grants a facility exceeding 20 percent of the bank’s paid-up capital to persons or organisations without the authority of the board.
Other sections of the bill cover a wide range of infractions and proposed sanctions. However, apart from increased monetary penalties, the proposed new BOFIA 2004 is not fundamentally different from the original Act the new bill seeks to repeal and re-enact.
Which is why we agree with the position of both the CBN and the Nigeria Deposit Insurance Corporation (NDIC) that while the proposed amendments are apt and, perhaps, long overdue, financial penalties may not be sufficiently deterrent, because of the financial power at the disposal of bank CEOs and directors. For instance, N50m is a mere slap on the wrist for any bank CEO or director for any conflict of interest.
Indeed, as the CBN Governor’s representative at the public hearing, Mr. Johnson Akinkunmi, rightly submitted, payment of fines no longer deter erring bank CEOs and their accomplices, knowing what they stand to gain when they willfully break the law and get away with payment of fines. In that regard, it will be appropriate if the CBN reserves the power to take even more stringent steps that it deems fit against errant bank CEOs and directors, including revocation of bank licences, where necessary. However, the regulator must be mindful not to abuse such sweeping powers.
We strongly support all efforts that can strengthen our financial system and make it more viable, accountable, reliable and transparent. There should be no hiding place for bank chiefs and directors who abuse their privileges. Such willful infractions should be visited with condign punishment. It will be recalled that last year, the CBN said it was investigating some high-profile cases of insider abuse by members of boards of some commercial banks and other financial institutions. The public is yet to know the outcome of the investigation. But, the CBN Governor, Mr. Godwin Emefiele, stated at the 2017 edition of the CBN-FITC education programme held in Lagos, that the recent recession revealed shocking governance weaknesses in the banking sector.
The chief regulator disclosed that most of the banks hid unreported losses in their balance sheets and paid astonishing severance packages to directors and chief executives, while non-performing loans taken by them threatened the solvency of the banks entrusted in their care. This is in disregard of the regulatory and Prudential Guidelines designed to safeguard the banks and their depositors’ funds.
The proposed amendments of BOFIA should take into consideration the views of both the CBN and the NDIC, which are the two supervisory and monitoring bodies for the banks and financial services sector. The need to strengthen our banks and other financial institutions is not in doubt. The sector cannot afford the crises of the past that led to the collapse of 13 banks amidst a total indebtedness of N48.6 billion by the directors.
Altogether, we welcome the proposed amendment of BOFIA and urge the lawmakers to be diligent and painstaking in the discharge of this task. They should procure and be mindful of the best professional advice they can get on the proposed amendments. What is worth doing, is worth doing well.