business
... to engage in wholesale and retail mortgage business. CENTRAL BANK OF NIGERIA 12 Banking Supervision Annual Report 2001 The issuance of the Guidelines for the Practice of Universal Banking (UB) in Nigeria, in December 2000, ushered in a new era in banking. Banking business was re-defined by the Governor of the CBN to include, in addition to the existing traditional banking functions, the provision of insurance marketing services and capital market business. Since the adoption of the concept with effect from January 1, 2001, the CBN commenced the immediate implementation of the Guidelines. Accordingly, it recalled the existing licences of all the commercial and merchant banks and issued them with new, uniform licences. The new licences allow the banks to choose which segment(s) of the financial market (i.e. money market, capital market, insurance business or any combination of these) they wish to operate in, after considering and evaluating appropriately their own competencies. However, they are required to comply with the requirements of the regulatory body of each of the sub-sectors. Based on this understanding, the CBN on January 4, 2001, issued a circular, referenced BSD/DO/CIR/VOL.1/02/2001, to all the banks specifying the requirements that should be met by the banks that intend to undertake retail banking activities. These requirements include putting in place, at the bank’s head office and branches, to the satisfaction of the CBN, essential facilities for cashiering and clearing house activities, such as appropriate banking halls, cashier cubicles, strong rooms, loading bays and associated security facilities/ arrangements. Other requirements include the assemblage of the necessary competent and experienced staff at all levels to cope with the new areas of banking operations. Such banks are also expected to procure an adequate insurance policy cover for the envisaged volume of cash transactions as well as secure the CBN’s approval before the commencement of retail banking activities. Since the issuance of the circular, 8 banks as at December 31, 2001, have taken advantage of its provisions, to go into retail banking. In the same vein, banks, which intend to undertake capital market activities or insurance business, are required to comply with the regulations put in place by the Securities and Exchange Commission and National Insurance Commission 1.04 UPDATE ON UNIVERSAL BANKING IN NIGERIA Uniform licence for all banks. CENTRAL BANK OF NIGERIA Banking Supervision Annual Report 2001 13 respectively. Consequent upon the adoption and implementation of UB in Nigeria, the CBN, vide its circular BSD/DO/CIR/VOL.1/2001/5 (see appendix 2), extended the application of the Cash Reserve Requirement (CRR), which currently stands at 12.5 percent, to all banks, with effect from April 2001, to engender a level playing field. Prior to this date, merchant banks were exempted from the application of the CRR. Proposals for the amendment of relevant laws to give legal backing to the adoption of UB have been submitted to the National Assembly, for its consideration. CENTRAL BANK OF NIGERIA 14 Banking Supervision Annual Report 2001 The pursuit of ethics, professionalism and good corporate governance is worldwide and cuts across all vocations/professions. The areas where the concern for ethics is engaging practitioners/professionals, governments and various international organisations are vast and range from law to medicine, from cloning to the environment, from fishing to genetic engineering and from bank lending to securities trading. All professions, as well as social groups, have their respective standards, codes and ethics of practice, which members must conform with, to ensure the enthronement of certain ideals, standards, modes of behaviour and hallmarks by which members are identified. Often juxtaposed with these standards and codes, are sanctions intended to discourage non-conformity. The financial system of any country provides the catalyst, through financial intermediation, for productive activities to ensure economic growth and development. Thus, the state of any economy is often a reflection of the state of its financial system. This correlation cuts across the globe, being true in developed and developing economies alike. The Nigerian financial system comprises institutions, markets, regulatory bodies and instruments in the three major areas of financial services, viz: banking and related services, capital market and insurance services. The banks and other financial institutions sub-sector is made up of the deposittaking banks, development finance institutions, primary mortgage institutions and bureaux de change. The Central Bank of Nigeria, which is at the apex of the entire financial system, maintains supervisory control over this sub-sector while the Nigeria Deposit Insurance Corporation (NDIC) performs the complementary function of protecting depositors, thereby promoting confidence in the banking system through the deposit insurance scheme. Ethics, professionalism, essential to all vocations/ professions. 1.05 ETHICS AND PROFESSIONALISM IN THE FINANCIAL SERVICES INDUSTRY The Nigerian financial system. CENTRAL BANK OF NIGERIA Banking Supervision Annual Report 2001 15 The capital market sub-sector comprises the stock exchange, issuing houses, stock broking firms, registrars, trustees, investment advisers and portfolio/fund managers. A commodities exchange is in the pipeline. The Securities and Exchange Commission (SEC) is the supervisory agency in this sub-sector. The insurance sub-sector is supervised by the National Insurance Commission [NAICOM], while the major operators include the insurance companies, reinsurance companies, loss adjusters and brokers. The Ministry of Finance is recognized as an integral part of the financial system, being the organ charged with the enunciation and implementation of the government’s fiscal policy, which has a great influence on monetary policy. All the regulatory agencies in the system, along with the Corporate Affairs Commission, come together under the aegis of the Financial Services Regulation Coordinating Committee [FSRCC], pursuant to the provision of Section 38A of the Central Bank of Nigeria Act No. 24 of 1991 [as amended], for the purpose of coordinating the supervision of the financial institutions. An economy thrives, mostly, on a healthy financial system, while the financial system itself thrives on, among others, high ethical standards and professionalism. This is the reason why various laws, codes of conduct and other rules and regulations exist to regulate every segment of the financial system. Ethics and professionalism in financial services as professed by the different subsectors embrace trust in banking, utmost good faith in insurance, and transparency in the capital market, which must be respected by all the stakeholders for the industry to command the needed confidence. The financial services industry has various laws, guidelines and codes of ethics to guide the conduct of its practitioners. The Banks and Other Financial Institutions Act No 25 was enacted along with the Central Bank of Nigeria Act No 24 in 1991. Both laws have since been amended a number of times. The laws contain the The pursuit of ethics and professionalism. CENTRAL BANK OF NIGERIA 16 Banking Supervision Annual Report 2001 “dos” and “don’ts” of the banking and allied services industry. They also have various provisions on the modes of behaviour expected of the shareholders, directors, managers and employees of the institutions, as well as the sanctions to be imposed for not conforming to such behaviour. In addition to the laws, the CBN issues circulars and guidelines every year to explain grey areas of the banking and other financial institutions laws, complement the laws and correct unhealthy trends in the sub-sector, in line with the powers conferred on it. To ensure that only fit and proper persons own and manage financial institutions, the CBN takes prospective shareholders, directors and top management staff of these institutions through the “fit and proper persons test” which involves, among others, obtaining status reports from financial institutions, financial sector regulators and past employers, security screening as well as the use of market information. Due to the special importance of the position held by bank directors, the “Code of Conduct for the Directors of Licensed Banks in the Management of the Business of the Bank” was put in place to guide their conduct and ensure that they act in the best interest of the depositors, customers and other stakeholders. On the other hand, the employees of the CBN and the NDIC, in general, and their bank examiners, in particular, also have their codes of conduct. The examiners’ code requires them to, among others, display exemplary conduct and maturity in carrying out their assignments, maintain the oath of secrecy regarding their findings in the course of their work, be objective in their reports. All banks have their staff/operational manuals designed to guide employees in conducting the business of the banks. The Chartered Institute of Bankers of Nigeria, which is statutorily charged with regulating the banking profession and education, has a code of conduct for the banking industry. In addition, the Institute has a disciplinary committee to investigate and redress violations of the code of conduct. In the same vein, the Bankers Committee, as a mark of its concern about the growing trend of unethical and unprofessional practices in the banking and finance business, which is capable of eroding trust and confidence in the industry, established a Sub-committee on Ethics and Professionalism in December 2000. The sub-committee, which com- … in the banking industry. CENTRAL BANK OF NIGERIA Banking Supervision Annual Report 2001 17 prised 15 members, was mandated to “identify practices considered unethical in the industry, develop an acceptable code of ethics and professionalism, and put in place an effective machinery for enforcing compliance with the code”. The recommendations of the Sub-committee resulted in the publication of the “Code of Conduct and Professionalism in the Banking and Finance Industry” by the Bankers’ Committee, in 2001. The code contains a list of practices and omissions considered unethical/unprofessional in the banking and financial services industry and the framework, including procedures and sanctions, for redressing them. Other financial institutions carrying on banking-related activities, including finance companies, bureaux de change, community banks and primary mortgage institutions and [other] self regulatory organisations, do not only have guidelines to regulate their various activities, but also have associations for members e.g. Finance Houses Association of Nigeria [FHAN], Association of Bureaux de Change Operators of Nigeria [ABCON], Money Market Association of Nigeria, etc. These all have codes of conduct that they are required to adhere to. These associations also help the regulatory authorities by disseminating information from the regulators to their members and enforcing regulatory compliance. In the capital market sub-sector, which is supervised by the Securities and Exchange Commission [SEC], the Investments and Securities Act [ISA] No 45 of 1999 is the instrument for regulating activities in the market. The SEC and the Nigerian Stock Exchange, also issue guidelines to their operators. In addition, there are codes of conduct for various bodies and personnel of organizations engaged in different aspects of the capital market, such as the Dealing Members of the Nigeria Stock Exchange, Capital Market Operators and Investment Advisers/Portfolio Managers, as well as the employees of Capital Market Institutions, Issuing Houses, Registrars, Brokers/Dealers. Sanctions for violating these codes also apply. The large-scale reform in the capital market, in the recent past, was not only to improve the market infrastructure and efficiency but also to promote transparency, which is the cornerstone of ethics and professionalism in the capital market. The Code of Ethics and Practice for the Nigerian Insurance Industry states in Part A1 that “the business of insurance is founded on the principle of utmost good faith. This should be the dominant principle regulating the conduct of all insurance prac- … in the capital market sub-sector. … in the insurance sub-sector. CENTRAL BANK OF NIGERIA 18 Banking Supervision Annual Report 2001 titioners and companies in whatever aspect or class of insurance they may be engaged”. Other aspects of the code cover the production of insurance business, underwriting practice, claims and regulations applicable to members of the Institute of Loss Adjusters of Nigeria. Overall, however, insurance business in Nigeria operates under the Insurance Act of 1991 and the supervision of the National Insurance Commission [NAICOM]. The Insurance Act embodies the regulations for the conduct of insurance business and prescribes penalties for violation of the regulations. In addition to the Nigerian laws, regulations and guidelines for the financial services industry, international organisations also have guidelines, codes of conduct and standards of practice for application by financial institutions and regulators, worldwide. Such organisations include the Bank for International Settlements, which, through its Committee on Banking Supervision undertakes studies and research into banking and related businesses and issues guidelines and principles for the regulation of various aspects of the activities of banks; the International Organisation of Securities Commissions [IOSCO], which carries out similar functions for the securities industry and the International Association of Insurance Supervisors [IAIS], for the insurance industry. These organisations cooperate and collaborate in certain areas of their activities, such as in the issuance of guidelines for the risk management of derivatives activities, the framework for the reporting of derivatives-related information to supervisory authorities, the disclosure of information on the trading and derivatives activities of banks and securities firms, as well as guidelines on the supervision of financial conglomerates. From the foregoing, the concern for good conduct in the financial services industry has engaged both the practitioners and regulators alike. The industry is, consequently, steeped in laws, codes and guidelines. Running through all of them, is the need for honesty, transparency and professionalism on the part of all practitioners in the conduct of the business of their institutions and to eschew insider abuses, malpractices, insider dealing and self-serving dispositions. What is lacking in the industry is compliance with the various laws and codes of ethics. Unethical conduct manifests itself in various ways, including insider abuse, fraudu- International concern. Manifestation of unethical conduct. CENTRAL BANK OF NIGERIA Banking Supervision Annual Report 2001 19 lent dealings, irregularity/inaccuracy in the rendition of statutory returns, as well as window-dressing of accounts and other records. The consequences of violating ethical standards by the industry are many, including loss of confidence and trust in the industry, loss of business for the institutions, shareholder/board/management disputes, operational losses, distress of the sector and liquidation of institutions, capital flight (worsened by lack of further foreign investment) and stagnation of the economy. The systemic distress of the early 90s, which afflicted the Nigerian financial sector, was induced by insider abuse, widespread malpractices, and mismanagement of the institutions, among others, resulting in the liquidation of various banks and other financial institutions. In the thick of the distress, the government was compelled to enact the Failed Banks [Recovery of Debts] and Other Financial Malpractices in Banks Act of 1994. The Failed Banks Tribunals that were subsequently set up to try identified cases of malpractices, made shocking revelations of large scale violation of known codes of ethics, insider abuse, mismanagement of institutions and self-serving tendencies on the part of the owners, directors and managers of various financial institutions. In the same vein, the regulators in the insurance and securities sub-sectors undertook the sanitisation of their respective sectors through, among others, liquidation or direct management of ailing institutions. The system is yet to recover fully from the effects of that era. With a few signs of distress still lingering in the system, it is only a strong adherence to the highest standards of ethics, professionalism and good corporate governance that will ensure its healthy survival. The gains from maintaining high ethical conduct far outweigh the short-term benefits derivable from sharp practices. Empirical evidence from the financial system shows that the violation of the ideals on which the financial system is built is eventually uncovered and redressed, as seen from the cases of foreign exchange malpractices, which attracted various sanctions. There is, therefore, no gainsaying the fact that the financial services industry has much to benefit by upholding the tenets and ethics on which the efficient functioning of the industry is Imperative for ethical conduct. CENTRAL BANK OF NIGERIA 20 Banking Supervision Annual Report 2001 anchored. Such gains include: " Increased confidence and trust in the financial system. " Healthier institutions arising from increased confidence and investment in the system. " Healthy competition, which will ensure steady development. " Abatement of distress. " Less regulation, less regulatory sanctions and continued deregulation of the industry. " Steady development of the economy. " Increased foreign exchange/capital inflow with positive effects on the exchange rate. " Improved image of the country. While all the operators in the system have a stake in upholding high ethical standards and are consequently enjoined to do so, it also behoves on the regulatory agencies, as well as the government, not only to avoid those actions that encourage the violation of regulations, but to promptly and firmly redress identified cases. In this regard, therefore, the regulatory authorities are taking steps to ensure that they: (i) Are open and transparent in carrying out their functions. (ii) Are more consistent in their policy formulation and implementation. (iii) Avoid abrupt policy reversals. (iv) Are firm in dealing with the violation of the rules and regulations by refraining from the withdrawal of sanctions already imposed for violations. (v) Avoid double standards in dealing with institutions. (vi) Encourage innovation by continued deregulation of the system. (vii) Promote self-regulation by co-operating with self-regulatory organisations. (viii) Consult with the operators before formulating policies, as is done through the Monetary Policy Forum of the Central Bank of Nigeria. (ix) Co-operate with one another, in policy formulation and implementation to avoid regulatory arbitrage in the system that could be exploited to undermine the sector, as envisaged by the establishment of the Financial Services Regulation Co-ordinating Committee. CENTRAL BANK OF NIGERIA Banking Supervision Annual Report 2001 21 The strategic importance of the financial system to the growth of all sectors of the economy (industrial, service and social) and consequently the desired overall development of the country demands that the sector remains healthy. Thus, the prevalence of unethical and unprofessional conduct in the system, which was responsible for the distress suffered by the sector a few years back, is undesirable and inimical to the fulfilment of the role of the sector. It is, therefore, hoped that all stakeholders in the system have learnt from the lessons of the past. This can only be demonstrated by the strict observance of the laws, rules, regulations and codes that have been developed for the orderly conduct of business in the financial sector. CENTRAL BANK OF NIGERIA 22 Banking Supervision Annual Report 2001 The Central Bank of Nigeria had observed, with concern, the high demand for foreign exchange in the Interbank Foreign Exchange Market (IFEM) without any appreciable or corresponding growth in the real sector of the economy during the year. The rising profile of the demand for foreign exchange continued to impact negatively on the exchange rate of the Naira to other currencies, with the former depreciating persistently despite various measures put in place by the CBN to curb speculative demand by the authorised dealers. In an effort to stabilise the market and address the concern of the regulatory authorities, the CBN, in conjunction with the Nigerian Institute for Social and Economic Research (NISER), undertook a study of the informal foreign exchange market in 2001, with a view to, among others, determining the causes of the wide gap between the official and the parallel market rates. Based on its findings, the study group recommended that the bureaux de change (BDC) should be allowed to access foreign exchange directly from the CBN. Consequently, a committee was set up by the CBN to develop the framework for the involvement of BDCs. The Committee is expected to submit its report in the coming year. Also, spot checks were conducted on banks to determine the genuineness of their demand for foreign exchange on behalf of their customers. The outcome of the exercise was quite revealing, as some of the banks, in their desperate attempt to declare huge profits, were found to have been involved in glaring foreign exchange malpractices, particularly round-tripping. The round-tripping activities were fuelled by the wide margin that existed between the rates in the IFEM and the parallel market. The parallel market, therefore, became a profit haven for banks to make huge gains by diverting foreign exchange purportedly sourced on behalf of their customers, using spurious documentation. Some of the methods adopted by the banks in the unwholesome practices included: • Forged documentation for letters of credit on imports. • False payments for goods purportedly obtained on credit from overseas Demand for foreign exchange, not reflected in real sector growth. 1.06 ROUND-TRIPPING OF FOREIGN EXCHANGE IN THE BANKING INDUSTRY AND THE CHALLENGES FOR SUPERVISION Round-tripping of foreign exchange, uncovered in banks. CENTRAL BANK OF NIGERIA Banking Supervision Annual Report 2001 23 suppliers under the Bills for Collection arrangement. • Recycling of air tickets with the sole aim of procuring Business Travel Allowance (BTA) and Personal Travel Allowance (PTA). • Outright transfer of funds abroad (capital flight). • Non-disclosure to the CBN, of offshore bank accounts, which were used to record “free-funds” transactions. • False payments for invisible trade transactions like aircraft maintenance, judgement debts, etc, using spurious documents. The diversion of foreign exchange from its intended purposes was discovered to have been carried out by bank officials in collusion with some customers. In some instances customer’s names were fraudulently used to procure foreign exchange without their mandates. The efforts of the CBN to curb these malpractices revealed that most of the banks examined, illegally acquired foreign exchange amounting to over $350 million between January 1999 and December 2001. Various sanctions and conditions imposed by the CBN on the affected banks included: i) Temporary withdrawal of their authorised dealership licences ii) Return to the CBN, in Naira, of the abnormal gains or profits made from the transactions. iii) Barring the customers that colluded with the banks from purchasing foreign exchange from the IFEM. iv) Directives to the banks involved to institute investigating panels to determine the culpability of their boards, management and staff. v) Removal of the officials of banks involved in the malpractices vi) Strengthening of the internal control procedures of the international operations of the affected banks. vii) An undertaking to the CBN by the boards of the affected banks that such foreign exchange malpractices would not re-occur. The CBN issued a circular in October 2001, which further spelt out more severe sanctions for banks that contravened regulations in the IFEM. The CBN has also strengthened the supervisory capability of its foreign exchange monitoring mechanism through the adoption of various proactive measures. In this regard, the co-operation of Pre-shipment Inspection Agents (PIAs) was enlisted on direct Erring banks, sanctioned. CENTRAL BANK OF NIGERIA 24 Banking Supervision Annual Report 2001 confirmation of documents (clean report of inspection (CRI), combined certificate of value and origin [CCVO], etc) issued by them in support of foreign exchange applications. Examiners are now required to pay particular attention to the documentation requirements for all imports, regardless of the amount involved. The regulations guiding foreign exchange transactions are being constantly reviewed to engender transparency on the part of the operators. Similarly, the operators are being encouraged through moral suasion, to shun unethical and/or unprofessional conduct in the interest of the economy. The periodic publication of the list of end-users of foreign exchange in Nigerian newspapers, by the CBN, and the introduction of destination inspection of imports by the Federal Government are expected to engender greater transparency in the market. Finally, close monitoring of the open position limits of the banks would continue to be carried out to ensure that they comply with the limits set for them, in order to avoid unnecessary foreign exchange risk. The CBN will continue to intensify its efforts in controlling excess liquidity in order to maintain relative exchange rate stability. Proactive measures will be put in place to curtail the banks’ spurious demand for foreign exchange while surveillance on foreign exchange transactions by the end users will be intensified to ensure the judicious use of the foreign exchange procured by them. It is expected that the initiatives by the CBN, including the admission of BDCs into the formal foreign exchange market, will narrow the gap between the official and parallel market rates, as well as promote a more transparent reporting system and stability in the foreign exchange market. Need to embrace ethical standards. CENTRAL BANK OF NIGERIA Banking Supervision Annual Report 2001 25 The concept of liability and profit targeting in banks has recently become an issue of great concern to the stakeholders in the financial services industry. Profit targeting is the practice whereby an organisation sets or imposes an amount of profit to be achieved within a specified period of time. On the other hand, liability targeting requires the employee to mobilise a minimum amount of deposits over a period of time. Targeting carries conditions, which provide for sanctions and rewards. The practice is a veritable management tool, which if improperly used, can lead to some unintended problems. In an effort to achieve liability and profit targets, some of the banks employ all sorts of tactics and practices that are inimical to the financial system. Some of these include foreign exchange malpractices, offering high interest rates and high brokerage to attract deposits, particularly from the public sector, thereby driving up the lending rates. Partly due to the unwholesome practices employed by these banks to achieve high profit targets, the supervisors in recent times, have had to carry out verification of the incomes reported by the banks, before approving their annual accounts for publication. The very high entry qualifications for employment in banks, have been sacrificed by these banks on the altar of deposit mobilisation, by offering employment to attractive, but not necessarily qualified, female applicants to win customers for their banks. It was observed that the new generation banks, in particular, were in the habit of setting unattainable profit and liability targets for their staff. The practice has become the subject of abuse, rather than a motivational tool for performance. Some moral questions and their implications on falling standards have been raised, and have become the concern of the regulatory authorities. Consequently, it became imperative for the CBN to bring to the attention of the boards and managements of the banks, the ills of the unwholesome practice. It was on the basis of the foregoing that the CBN, during the year, held consultations with the operators in 1.07 LIABILITY AND PROFIT TARGETING BY BANKS Tactics employed in profit and liability targeting. CBN’s concern. CENTRAL BANK OF NIGERIA 26 Banking Supervision Annual Report 2001 the financial system on the setting of profit and liability targets. Subsequently, a circular referenced BSD/DO/CIR/VOL.I/2001/25 (appendix 3) was issued in December 2001. The underlying reason for the circular was to proactively guide the operators to avoid the pitfalls of unguided rivalry and unhealthy competition. As identified by the circular, some consequences of such practices are: (i) The female staff of the financial institutions are usually put under undue pressure thereby making them to compromise their moral values. (ii) The “know your customer” requirement is usually compromised when handling new customers. (iii) The operational staff are usually given very high profit targets which prompt them to engage in unethical practices (iv) The careers of talented young men and women who fail to achieve the set targets are usually prematurely truncated, causing a lot frustration. In conclusion, the CBN directed the banks to set realistic and achievable targets for both old and new staff and ensure that the unwholesome practices and, specifically, the undesirable use of female staff was discontinued. Consequences of profit and liability targeting. CENTRAL BANK OF NIGERIA Banking Supervision Annual Report 2001 27 In its continued effort to promote healthy competition and ensure the provision of qualitative banking services, to the vast majority of Nigerians, the CBN, in line with successive government’s policies of deregulating the economy had, over time, licensed a number of banks and other financial institutions. By 1991 when an embargo was placed on the licensing of banks, the number of licensed banks peaked at 120. The proliferation of banks and other financial institutions (OFIs) brought about mixed developments in the system. On the one hand, it brought about keen competition with attendant innovations and, on the other, it over-stretched the limited number of qualified personnel in the industry, as a result of which recruitment and other standards were compromised. The compromise of standards, together with the rampant internal mismanagement, insider abuse, massive loan repayment defaults and macro-economic instability that prevailed in the main, led to the systemic distress that was witnessed between 1995 and 2000. A total of 33 terminally distressed banks had their licences revoked between 1994 and 2000 (2 in 1994, 2 in 1995, 26 in 1998 and 3 in 2000). The licensed banks could be categorised as follows: First generation: Banks that were licensed before independence in 1960 Second generation: Banks that were licensed between 1960 and 1980 Third generation: Banks that were licensed between 1980 and 1991 Fourth generation: Banks that were licensed from 1998 to date 1.08 BANK LICENSING Proliferation of financial institutions. Thirty three banks liquidated between 1994 and 2000. Four phases of bank licensing. CENTRAL BANK OF NIGERIA 28 Banking Supervision Annual Report 2001 In 1998, the embargo which was earlier placed on the licensing of banks was lifted. Having learnt from the bitter experience of the past, and to forestall a repeat of the systemic distress that engulfed the financial sector, more stringent licensing requirements were introduced. This was to ensure that only those persons of proven integrity and good financial standing are allowed to participate in the ownership and management of banks. A part of what led to the demise of some of the banks was that the requirements for board and top management staff appointments were inadequate. Another loophole exploited was the absence of a mechanism for ascertaining the source of capital. Promoters were borrowing funds on short-term basis to float banks, only for the new banks to be stripped of these much-needed capital funds, shortly after the acquisition of a licence. Consequently, it became necessary to subject capital deposits to thorough checks to ensure that such deposits were from stable sources and were not in any way borrowed. Also, the requirements for appointments into board and top management positions were strengthened, both in terms of the minimum educational qualifications and the required years of experience. In processing applications for new banking licences, the CBN holds meetings with the promoters of banks to seek clarification on issues that are not clear. In addition, discussions are held with the promoters and top management staff of the proposed banks before the final licence is issued. At such meetings, the implications of owning and managing a bank, as well as the respective roles the various stakeholders are expected to play, are highlighted. Also, the need to have in place, at all times, a good corporate governance structure and the need to avoid insider abuse, manipulation of records and other sharp practices, are emphasised. The promoters are also, at this meeting, required to give a final commitment as to whether or not they would still desire to pursue the project, having been told the implications of owning a bank. Following the lifting of the embargo on bank licensing, the number of requests for bank licence rose astronomically. Most of the requests were, however, found to be frivolous, as most persons who posed as promoters had no funds to float banks. They were only desperate to have the initial Approval-In -Principle (AIP) and thereafter scout for serious investors. A new bank licensing framework. CENTRAL BANK OF NIGERIA Banking Supervision Annual Report 2001 29 To check these phantom requests for banking licences, the paid up capital for new banks was further increased from x1 billion to x2 billion and the promoters were required to deposit such funds in an escrow account with the CBN before the issuance of the AIP. Application processing and licence fees were equally increased from x100,000 and x500,000 to x500,000 and x5 million, respectively. Since the introduction of the new requirements, the number of requests for banking licences has declined. The business of establishing a bank is undoubtedly a serious one and a lot of caution should be exercised. The new licensing requirements are not intended to scare away potential investors/promoters. Rather, they are to ensure that only serious-minded and credible promoters/investors, who have the required funds, technical expertise and are "fit and proper", are allowed to establish banks. The ultimate objective is to ensure a virile and healthy banking industry. Capital for new banks raised. CENTRAL BANK OF NIGERIA 30 Banking Supervision Annual Report 2001 Chapter hapter Two The CBN, in discharge of its statutory responsibility of promoting monetary stability and a sound financial system continued the monitoring of the financial system, by a combination of off-site and on-site supervisory activities. The off-site supervisory activities, during the year, focused on the following areas: (i) Analysis of Statutory Returns This involved the analysis of the statutory returns of the banks, using financial indicators such as liquidity ratio, capital adequacy ratio, loans to deposit ratio, ratio of performing risk assets etc., to determine the banks’ financial conditions. (ii) Assessment of Boards and Management During the year, the Bank approved the appointment of 93 persons to the boards of various banks. Out of these, 33 were in executive capacity, while the other 60 were in non-executive capacity. (iii) Licensing of New Banks Eight new applications were received during the year, thus bringing the total applications to 25, including the 4 that were earlier granted Approval- In-Principle (AIP) as at December 31, 2001. However, following the stringent conditions that were introduced in the year for granting new banking licences, only one applicant satisfied the prescribed conditions and was accordingly licensed. Off-site supervisory activities. SUPERVISORY ACTIVITIES IN 2001 CENTRAL BANK OF NIGERIA Banking Supervision Annual Report 2001 31 (iv) Appraisal and Approval of Financial Statements As part of the efforts to ensure that banks published reliable results on their performance, the CBN conducted income audits prior to the approval of the banks’ audited financial statements. This was against the backdrop of the jumbo profits declared by most banks in recent times vis-à-vis the performance of the other sectors of the economy. A total of 102 accounts were approved for banks and discount houses during the year, out of which 7 were in respect of prior years. Eighty-five (85) of the accounts showed increases in profit while 17 others showed either a decline or outright losses. (v) Branch Network During the year, the CBN approved the establishment of 308 bank branches at various locations in the country. (vi) Enforcing Statutory Requirements (a) Liquidity Ratio Banks are required to maintain a minimum percentage of their deposit liabilities in liquid assets. The minimum liquidity ratio, which was 35 per cent at the beginning of the year, was increased to 40 percent in March 2001, as a result of the excess liquidity that arose from the monetisation of the excess sales of crude oil. The compliance of the banks with this requirement was assessed on a monthly basis, through their monthly returns and spot checks. Some banks failed to meet the minimum requirement during the year. The highest number of 20 banks was recorded for the months of May, September and October, while the least number of 9 banks was recorded for the month of February. An increase in the number of banks that contravened the provision was observed from May following the upward review of the minimum required ratio from 35 percent to 40 percent. (b) Capital Adequacy Requirement A review of the capital adequacy of the banks revealed that 9 banks CENTRAL BANK OF NIGERIA 32 Banking Supervision Annual Report 2001 failed to meet the minimum capital adequacy requirement as at December 31, 2001. Accordingly, various amounts of additional capital injection were recommended. (c) Cash Reserve Requirement (CRR) Cash reserve is applied on the total deposit liabilities of a bank as a tool for monetary control to complement the Open Market Operations (OMO). During the year, the rate of CRR was reviewed upward from 10 percent in January to 11 percent in February and subsequently to 12.5 percent in March 2001. Also, following the adoption of universal banking, which eliminated the functional distinction between commercial and merchant banks, the erstwhile merchant banks were subjected to the CRR requirement. These developments, coupled with an increase in the banks’ total deposit liabilities, resulted in an increase in the cash reserve balance with the CBN from x75.813 billion in December 2000 to x117.622 billion in December 2001. Out of the 95 banks and discount houses scheduled for routine examination by the supervisory authorities during the year, 68 were allocated to the CBN, while 27 were assigned to the Nigeria Deposit Insurance Corporation (NDIC). Sixtythree (63) banks and 3 discount houses were subsequently examined by the CBN while the NDIC completed the examination of 27 banks. In addition, special examinations were conducted on 7 banks while there were 56 follow-up examinations by the CBN, to monitor the institutions’ compliance with the Examiners’ recommendations. Apart from the examinations, several ad-hoc assignments, such as spot checks on foreign exchange activities and investigations, were carried out. The major findings included: (i) Over-dependence on Government Funds by the Banks It was observed that most banks had a large proportion of their deposits sourced from the government and its agencies. This development was considered unhealthy by the regulatory authorities due to the volatile nature of such funds. Accordingly, the institutions were advised to diversify their sources of funds. On-site supervisory activities. CENTRAL BANK OF NIGERIA Banking Supervision Annual Report 2001 33 (ii) Lending to Public Sector by Banks The sourcing of deposits from the government opened an avenue for credit creation by the banks to the public sector. The incidence of default, which may arise due to changes in macro-economic circumstances, prompted the issuance of circular No. BSD/DO/CIR/VOL.I/2001/13 on lending to government and its agencies (see appendix 1). (iii) Foreign Borrowings The liquidity profile of some banks revealed an increasing recourse to foreign borrowings. This development would require adequate supervisory oversight to control the offshore financing risks, commercial risks and other risks associated with foreign loans. (iv) Credits There was substantial growth in credit creation, which necessitated correspondingly huge general provisioning requirements. In particular, there was a noticeable increase in the volume of insider related credits in some banks. More worrisome, however, was the increasing incidence of those, which were non-performing. Generally the assets showed a marginal improvement in quality. (v) Capital Adequacy Some banks had their operating capital eroded by huge provisioning requirements for non-performing assets and were advised to inject fresh funds to sustain their operations. Generally, however, most banks met the minimum capital adequacy requirement. (vi) Violation of Regulation Several banks failed to meet the minimum information requirements prescribed by the CBN Circular No. BED/DO/CIR/VOL.1/11 of March 1995, in respect of their credit printouts. A few banks breached the single obligor limits in their lending. There were also cases where some banks exceeded their foreign exchange open position limits as prescribed by the CBN, while some failed to render the required returns in accordance with CENTRAL BANK OF NIGERIA 34 Banking Supervision Annual Report 2001 the provisions of the Money Laundering Act of 1995. (vii) Foreign Exchange Lapses/Malpractices Many banks were found deficient in the record-keeping and documentation of their foreign exchange activities. Of particular concern, was the disbursement of foreign exchange by some banks based on spurious documents. All the offending banks were sanctioned appropriately. (viii) Overdrawn Current Accounts with the CBN Some banks’ current accounts with the CBN, were persistently overdrawn due to illiquidity occasioned by a shrinking deposits base, assets/liabilities mismatch and poor assets quality. Such banks were closely monitored, and in some cases, subjected to special examinations. Appropriate remedial actions were also prescribed for the banks. (ix) Other Lapses Other shortcomings included unsound management policies, lean management structures, inactive and ineffective inspection departments and poor credit administration. Generally, however, there were indications of industry-wide growth in assets base, improvement in assets quality and rising gross earnings profiles in the banks. SUPERVISION OF OTHER FINANCIAL INSTITUTIONS Re-capitalisation of Other Financial Institutions In exercising the powers conferred on it by section 59 [1] [b] of BOFIA 1991 as amended, the CBN, in 1999 reviewed the minimum paid up capital requirements for other financial institutions (OFIs). The review was necessitated by developments in the economy, which called for sufficiently higher capital to absorb and cushion the risks associated with the businesses in the sub-sector. The institutions concerned were notified through various circulars and given time-frames within which to comply. The Institutions affected were: (a) Community Banks (CBs) CENTRAL BANK OF NIGERIA Banking Supervision Annual Report 2001 35 (b) Primary Mortgage Institutions (PMIs) (c) Finance Companies (FCs) (d) Bureaux de Change (BDCs) The CBN, through various circulars, directed these institutions to increase their minimum paid-up capital as follows: In complying with these directives, the institutions were allowed to inject fresh funds through one or a combination of rights issue, private placement, capitalisation of reserves and conversion of long-term loans and debentures into equity. The same circulars, however, cautioned the institutions against capitalisation through either assets revaluation or capital contribution in kind. At the expiration of the times allowed for these institutions to re-capitalise, the Other Financial Institutions Department (OFID), commenced a verification exercise to confirm their existence and compliance with the requirements. The capital verification of finance companies and BDCs was yet to be concluded as at the end of the year. The highlights of the report in respect of the CBs and PMIs are provided below: Community Banks A total of 1,013 CBs were covered in two inspection exercises carried out in October 2000 and October/November 2001. Of these, 747 or 74 percent were in operation while 266 or 26 percent were either inactive or had closed shop. The field reports also showed that at the expiration of the deadline, only 133 or Institution Circular Reference and Date Old Capital x New Capital x Compliance Date Community Banks BSD/SURV.65/VOL.V/66 of November 1999 3 million 5 million August 31, 2001 Primary Mortgage Institutions BSD/OFID/PMI/VOL.1/75 of September 1999 20 million 100 million August 31, 2001 Finance Companies BSD/OFID/FIN/VOL.1/99 of April 1999 5 million 20 million April 30, 2001 Bureaux de Change BSD/CR/4/99 of September 1999 Nil 10 million August 31, 2001 Table A CENTRAL BANK OF NIGERIA 36 Banking Supervision Annual Report 2001 13 percent of the CBs had met the new minimum paid-up capital of x5 million. Similarly, 385 or 38 percent had paid-up capital of between x3 million and x4.99 million, while 495 or 49 percent were yet to meet the previous paid-up capital of x3 million. More importantly, some CBs, which met the x3 million mark, had their shareholders’ funds eroded by accumulated losses, resulting from sticky credits. At the end of the review exercise, 282 CBs qualified for licensing, 465 were given six months to rectify observed weaknesses while 266 had their provisional licences withdrawn. (See tables B and C below). The inspection reports revealed that the community-banking sub-sector was facing a myriad of problems. Prominent among the factors affecting the CBs were: (a) Inadequate Capitalisation The pre-licensing exercise revealed that most of the CBs’ inability to meet Schedule Recommended Action 1st Inspection Total % 1 For Licensing 232 282 28 2 Given 6 months to rectify weakness 391 465 46 3 Provisional Licence to be withdrawn 147 266 26 Total 770 1,013 100 2nd Inspection 50 74 119 243 Table C: Summary of Recommendations. Paid-up Capital x Number of CBs % 5 million and above 133 13 3 million - 4.99 million 385 38 Below 3 million 495 49 Total 1,013 100 Table B: Summary of the Minimum Paid-up Capital of CBs as at November 30, 2001. Problems facing the community banks. Two hundred and eighty two community banks for licence. CENTRAL BANK OF NIGERIA Banking Supervision Annual Report 2001 37 the stipulated minimum paid-up capital of x5 million was due mainly to the provisions in the Community Banking Act which restricted individual shareholdings in a CB to a maximum of 5 percent and the mandatory provision that at least 30 percent of the shares must be acquired by Community Development Associations (CDAs). The CBs have argued that these provisions served as limiting factors against interested individual investors, who were willing to acquire substantial shares in the CBs. In view of the above, the National Board for Community Banks (NBCB), in a letter to the Governor of the CBN, requested for the extension of the deadline on the minimum paid-up share capital of CBs to December 2002. The NBCB argued that the present shareholding structure whereby 30 percent of the shares were reserved for the CDA and not more than 5 percent shares for individuals was a serious factor inhibiting the re-capitalisation of most of the CBs. The request was being considered by the CBN. (b) Poor Management Team A majority of the CBs that were located in remote areas with limited infrastructural facilities found it difficult to attract and remunerate the right calibre of staff to manage the banks efficiently. In many instances, the CBs relied on a few retrenched/retired staff of some of the distressed conventional banks and primary/secondary school teachers available in their localities. Most of these staff were usually not qualified and lacked the necessary capabilities to manage the CBs. There were arrangements in the pipeline to assist in the training of the staff of the CBs by the CBN. Primary Mortgage Institutions The capital verification exercise was carried out between October and November 2001. Out of a total of 78 institutions visited, 68, or 87 percent, were in operation while 6, or 8 percent, had abandoned the mortgage business and 4, or 5 percent, had closed shop. The exercise also revealed that only 15, or 19 percent, of the 68 in operation, had met the minimum capital, 34, or 44 percent, had concluded plans towards meeting the capitalisation requirement while the capital position of 14, or 18 percent, was unconfirmed due to poor record-keeping. Also, 5, or 6 percent, had accepted capital contributions in kind, in contravention of the proviCENTRAL BANK OF NIGERIA 38 Banking Supervision Annual Report 2001 sions of the circular BSD/OFID/PMI/VOL/15 (see table D below). A review of the situation showed that most of the PMIs were experiencing problems in meeting the capitalization requirement within the stipulated period. A request by the Mortgage Banking Association of Nigeria for an extension of the deadline for the re-capitalisation of the PMIs, was being considered by the CBN. Category Findings No. of PMIs % A Those with paid up capital of N100 million and above 15 19 B Those that had asset swap for shares 5 6 C Those with concrete capitalisation plan 34 44 D Those that are in existence but unconfirmed capital position 14 18 E Those no longer in mortgage business 6 8 F Those that have closed shop 4 5 78 TOTAL 100 Table D: Summary of Findings from Capital Verification Exercise. CENTRAL BANK OF NIGERIA Banking Supervision Annual Report 2001 39 Chapter Threhapter Three Foreign borrowing by Nigerian banks refers to the facilities obtained by Nigerian banks from institutions outside the country. Such borrowing is either in the form of direct credit lines or other arrangements such as credit and export guarantees, for the purpose of financial intermediation. In recent times, the number of banks involved in such borrowing, and the quantum of funds, have witnessed an upsurge. As against the former practice of foreign institutions lending through development finance institutions backed by government guarantees, the recent trend is a shift towards private sector lending through banks. This shift is in line with the new orientation of the multilateral agencies and other external creditors, arising from their past experiences of irrecoverability of the facilities. Among the reasons for the rise in foreign loans to Nigerian banks are the growing confidence in the Nigerian state and the economy, as a result of the recent changes in the regulatory and legal environment occasioned by the reform of the financial sector, and the return to civil rule after several years of military rule. The sources of foreign loans include, multilateral agencies such as the International Finance Corporation (IFC), African Export-Import Bank (AFREXIM), the Netherlands Financievings-Maatschappij Voor Ontwikkelingslanden N.V. (FMO), and the African Development Bank (ADB). Some of the benefits of foreign borrowing are as follows: • It serves as a veritable source of additional funds to finance projects and Upsurge in foreign borrowing by banks. ISSUES IN SUPERVISION 3.01 FOREIGN BORROWING FOR ON-LENDING BY NIGERIAN BANKS Benefits of foreign borrowing. CENTRAL BANK OF NIGERIA 40 Banking Supervision Annual Report 2001 promote private sector involvement in the development of the economy. • It is an avenue for cheaper funds, as the interest rates thereon are much lower than the interest rates on the local currency denominated loans, • It provides an opportunity for the local banks to access a wider pool of foreign currency than would have been available locally, thereby enhancing their ability to meet the needs of their customers. • It reduces the pressure on the country’s foreign exchange reserves as the external funding replaces the foreign exchange that would otherwise have been purchased from the Inter-bank Foreign Exchange Market. • It aids the financial services sector in its role of driving the real sector of the economy, which is central to the development of the country. • It is a necessary help to the local industry, especially the oil sector, which has become very important. In spite of these benefits, the CBN expressed concern over the implications of such arrangements. Such concerns include the following: • The need to integrate the borrowings into the external debt policy of the country, which will among others, regulate the limit of exposure to foreign lenders based on established parameters. • The adverse effect of the preponderance of debt over equity in banks. This concern is further supported by the fact that the country, as a developing economy, is more susceptible to external shocks that could emanate from capital reversals. • The long-run problem of debt servicing associated with the loans, which could affect the economy and ultimately, the country’s relationship with the external creditors. • The exchange rate risk usually associated with loans in foreign currency. • Concentration of the loans in the oil sector to the detriment of other sectors of the economy. • The effect of the monetisation of the huge short- term inflows on liquidity and monetary policy. • The capitalization of the banks and their capacity to manage the risks associated with the facilities. • The need to instil financial discipline in the banks and also ensure that the Regulatory concerns. CENTRAL BANK OF NIGERIA Banking Supervision Annual Report 2001 41 loans are channelled to the productive sectors of the economy. • Possible mismatch of the funds and the credits to be extended therefrom and the consequences on a bank’s financial position. Considering the fact that the huge debt overhang of the country today arose primarily from such borrowings, which initially appeared manageable, the CBN in performing its role of ensuring a sound financial system issued adequate guidelines via its circular reference BSD/DO/CIR/VOL.1/2001/22 in November 2001, after due consultation with the operators (see appendix 4). While the CBN, like other stakeholders in the economy, appreciates the importance of the inflow of funds from foreign lenders, the guidelines are considered necessary to the banks that are engaged in this activity. The guidelines have, therefore, been developed bearing in mind that for the benefits of the facilities to impact on domestic growth, the activities of the banks on the one hand, and those of the regulators on the other, must be properly coordinated. CENTRAL BANK OF NIGERIA 42 Banking Supervision Annual Report 2001 The Nigerian banking industry, in the 1990s, witnessed a re-occurrence of the distress syndrome that had affected the system in the 1930s. While the distress of the 1930s was traceable to such factors as inadequate capitalisation and regulation, managerial incompetence, inappropriate corporate governance structures, reckless use of depositors’ funds, over-trading and politicisation, the distress of the last decade was traceable to similar factors which could be broadly classified as internal and external. The internal factors such as management incompetence, under-capitalisation, interference by owners in the management of the institutions, weak internal controls and insider abuses were, however, identified as the key factors responsible for the demise of the institutions. A study conducted into the probable causes of distress in most institutions had further highlighted the importance of the quality of management in an institution’s survival. The deregulation of the economy through the introduction of the Structural Adjustment Programme in 1986 led to a rapid growth in the number of licensed banks from 46 in January 1986 to 90 as at December 2001. This left the banking industry with multi-faceted human capital problems among which was the dearth of skilled manpower. The banks, therefore, resorted to the poaching of staff in their efforts to attract the required manpower to manage their institutions. Staff poaching, in this context, refers to the luring of personnel from one bank to another. Poaching, per se, might not be considered undesirable, especially by the affected staff. The advantages of poaching, depending on the angle from which it is viewed, may include: • An opportunity for advancement in the industry in terms of benefits and promotion for the staff that is being poached and opportunity for those left behind to fill the resultant vacancies or for new staff to be recruited. • It presents an opportunity for the organisation to review and restructure or Management and banking sector distress. 3.02 STAFF POACHING IN THE NIGERIAN BANKING INDUSTRY Staff poaching as a survival strategy. CENTRAL BANK OF NIGERIA Banking Supervision Annual Report 2001 43 optimise its operations. However, for the system as a whole, there are certain discernible consequences, which could be considered negative. These include: • Disruptions in the operations of the organisation that has suffered the ‘brain drain’ as it is left with the problems of recouping, recruiting and training of new staff. Added to this, is the risk of critical information that could be taken away by the disengaging staff. • The unwillingness and/or reluctance of some institutions to train their staff because of the constant threat of exit. Without doubt, capacity building in the industry becomes the worse for it. • Promotion of mediocrity, in some instances, as less qualified staff are hurriedly upgraded to fill the vacancies created by the exit of the more qualified staff. • Difficulties experienced by the smaller banks in attracting and retaining qualified and experienced staff as a result of the competitive salary structure in the industry. The concern of the Central Bank of Nigeria and the practitioners in the industry, centre mainly on the long term effects of poaching. The effort to address the issue led to the issuance of the circular referenced BSD/ DO/CR/VOL.I/2001/23 (appendix 5) on staff poaching in the Nigerian banking industry. The circular, which was a result of the CBN’s consultation with practitioners in the industry, recognizing the inevitability of staff mobility, for diverse reasons, not only sought to prevent too frequent staff movement but also to make the adverse effects of poaching more manageable. In this wise, the circular, among other things, sought to: (i) Encourage the banks to build the stock of human capital in the banking industry by establishing minimum standards for staff training. In order to Regulators perspective on staff poaching. CENTRAL BANK OF NIGERIA 44 Banking Supervision Annual Report 2001 douse the fears of exit by such trained staff, it suggested that the affected staff could be bonded to the institutions for an agreed specified period. Also, restraints that require staff to refund a percentage of the training costs, should they opt to leave within a specified period, could be applied. (ii) Explore the synergic opportunities that could be exploited through the establishment of joint training institutions with other banks and/or in conjunction with such established institutions like the Financial Institutions Training Centre and the Chartered Institute of Bankers of Nigeria. (iii) Stem the tide of staff movement between the banks to a reasonable degree by adhering strictly to the standards set in another circular referenced BSD/DO/CIR/VOL.1/01/2001 (appendix 6) in the area of qualification and experience. It, therefore, suggested that staff, who do not meet the minimum number of years of experience but move to other institutions, should do so on the same grade. (iv) Advise the managements of the institutions, to improve on staff retention policies through job enrichment and enhancement. This, it is hoped, will not only provide employees with opportunities to improve their skills but will also challenge them and stimulate their abilities. (v) Encourage the banks to consider the re-absorption of ex-staff of liquidated institutions, who are still capable and willing to work. The guidelines on the pre-qualification for appointment to the boards and top management positions in the banks and the circular on staff poaching in Nigerian banks were issued in an attempt to check the myriad of human capital problems in the banking industry in Nigeria as a result of the dearth of experienced personnel. While it may yet be too early to measure the degree of success or otherwise of the guidelines, it is pertinent to mention that the implementation, which depends on both the operators and the regulators, will in no small measure resolve some of the management problems currently afflicting the banking industry. CENTRAL BANK OF NIGERIA Banking Supervision Annual Report 2001 45 Towards the turn of the last millennium, most of the banks, especially those of the first generation, used the opportunity of the year 2000 date-change to acquire new packages in order to enhance their banking applications. These packages embedded new and enhanced functionality that made them superior to earlier versions. The implementation of such systems occasioned the overall re-engineering of the operations of the affected banks. Beside the Y2K-induced change, keen competition, coupled with advances in information and communication technologies, dictated that the inefficient banks streamlined their operations, if they were to survive in the new information age. It was no longer enough to merely computerise their operations. Systems networking involving Local Area Network (LAN), Wide Area Network (WAN), and even Internet linkage became operational imperatives as well as a survival strategy. The banks deployed huge funds to link up their branches on online, realtime networks, in spite of the daunting challenges such as erratic power supply, poor communications infrastructure, inadequate local input in the hardware and software chain, low information technology (IT) and education/awareness. Each bank deployed network solutions and architecture without regard to the overall compatibility of the systems within the industry. Thus, interfacing these applications for overall system synergy was difficult. The supervisory challenge, posed by these developments, manifested in the need for supervisors to constantly catch up with the multiplicity of applications being deployed in the industry. There was, therefore, the need to set some rules of conduct and harmonise/ standardise the deployment of software packages in the banks, to engender uniformity and assist the regulatory authorities in their supervisory roles. A survey of the major banking software deployed in 77 banks in the country revealed that they use different banking software (see table E). 3.03 HARMONISATION/STANDARDISATION OF SOFTWARE IN BANKS Banks acquire new software packages. An array of banking software. CENTRAL BANK OF NIGERIA 46 Banking Supervision Annual Report 2001 From a supervisory perspective, it has become imperative that supervisors be empowered to access and interrogate these systems for a meaningful reporting and S/N Application Freq. % Distr. Cum.% 1 BANKMASTER 15 19.48 19.48 2 PHOENIX 10 12.98 32.46 3 GLOBUS 14 18.18 50.64 4 FLEXCUBE 10 12.98 63.62 20 CLIPPER 1 1.30 100.00 Cum. Freq. 15 25 39 49 77 5 KAPITI 7 56 9.09 72.71 6 FINNACLE 4 60 5.19 77.92 7 FUTURE BANK 2 62 2.60 80.52 8 BBA 2 64 2.60 83.12 9 TEAM-UP 2 66 2.60 85.71 10 BASIS 1 67 1.30 87.01 11 MICRO BANKER 1 68 1.30 88.31 12 CEB 1 69 1.30 89.61 13 IBBS 1 70 1.30 90.91 14 ISBADD 1 71 1.30 92.21 15 P-SALE 1 72 1.30 93.51 16 BRANCH POWER 1 73 1.30 94.81 17 REN BANKER 1 74 1.30 96.10 18 DEVINE BANKER 1 75 1.30 97.40 19 PROGENIGS 1 76 1.30 98.70 Table E: Distribution of Banking Software in Selected Banks. Source: Bank Survey 2001 CENTRAL BANK OF NIGERIA Banking Supervision Annual Report 2001 47 control. With so many applications being deployed, bank examiners’ competence in all of them would virtually be difficult to attain. There is, therefore, the need to define software application standards that should include such criteria...