Will Moghalu Restore Confidence In Banks?

The Central Bank of Nigeria (CBN) has completed the audit of the remaining

14 banks. While some CEOs had been axed and the affected banks get bailout

to the tune of N620 billion, it is incontrovertible that the banking

sector is suffering from crisis of confidence. Already a vast number of

people are unsure if there will not be a re-occurrence of the insiders'

abuse and account cooking.
Earlier this week, Minister of State for Finance, Remi Babalola,

maintained that there is a need for the restoration of confidence in the

Nigerian financial system so that the sector could play its roles in the

economy. He is right. Right now the banking system faces a number of

challenges which include stiff competition among players, stakeholders'

expectations and adoption of risk based premium assessment. Restoring

confidence does not come by sheer luck. It is achieved through a

combination of factors which include those who take key decisions at the

apex bank.
Except lessons learnt from this crisis are well absorbed and supervisory

activities of CBN are well manned, a crisis of higher magnitude might

re-surface in no distant time. Of course, no one would have expected the

current happenings in the financial sector given the rate of bank

liquidation in the 90s and the recent consolidation. The apex bank needs

to ensure banks conform to regulations and be able to nip in the bud

whatever problems that surface before they mature. The present crisis

therefore is a lesson for everyone on how not to supervise banks. It

simply means the regulator should change the way banks are supervised.

Determined to address this, President Yar'Adua nominated Dr. Kingsley

Moghalu as the CBN's Deputy Governor for Financial Sector Surveillance

(FSS) subject to Senate confirmation. If confirmed, he will directly

supervise the banks. To nominate is one thing and the ability of the

nominee to perform creditably well is another. The real issue now revolves

round the ability to effectively monitor and supervise banks so as to

forestall future occurrence.
The primary functions of deputy governor (FSS) are; firstly, prudential

supervision and regulation of deposit money banks and corporate governance

oversight; secondly, managing development finance – policy formulation on

microfinance, guaranteeing credit schemes and other initiatives to support

economic development through the real sector including agriculture and

small and medium scale enterprises, and lastly regulating other financial

institutions such as micro-finance banks, mortgage banks, finance

companies and bureau de change.
Obviously, these roles are multidisciplinary, and go well beyond the

technical confines of traditional commercial banking. Occupiers must be

able to discharge this effectively and be able to make robust

contributions to policy formulation at board of directors' level. Informed

policies are important at this time to block the inherent gaps in the

system and position our banks for competition in the global financial

market. The CBN governor has once admitted the apex bank needs to be

strengthened in order to be more effective in its roles.

Given previous experience, banks supervision requires individuals who have

strong track records of accountability and transparency, risk management,

and corporate governance. In addition, such individuals should also be

able to bring a high level of credibility to the regulatory role of the

CBN. The public policy implication is that it will help to restore the

confidence of investors, depositors, and a wide range of stakeholders in

the financial sector.
Moghalu's track record inspires confidence. Aside being a professionally

certified risk manager, he has managed portfolio and strategic risk for a

Geneva-based global fund with $21 billion in assets under management,

redesigned the accountability and regulatory compliance system of the

United Nations as a member of a high-level panel appointed by

Secretary-General Kofi Annan, led money-laundering and asset tracing

investigations against indicted war criminals responsible for Rwanda's

genocide, and has more recently been a risk management and corporate

strategy consultant to global corporations, including one of the world's

biggest banks after leaving the UN.
What usually compromises regulator's effectiveness is the unethical and

unprofessional camaraderie that existed between the regulator and the

banks. It is quite easy for the regulator to be captured, particularly if

those at the helms are mostly from within the industry. With this

consideration in mind, it is necessary to ensure that anyone in charge of

bank surveillance has no direct affiliation or pecuniary interests in the

banks. The nominee's profile shows he is coming outside of the banking

system which will enable him to look at issues objectively and

dispassionately.
Above all, crisis like this also requires the need for new regulatory

framework. This is because operators may have perfected methods of

manipulating the existing regulatory system. Financial crises often expose

weaknesses in the underlying regulatory frameworks and the supervision

systems that are supposed to reinforce them. This no doubt calls the need

for design of structures that will ensure that adequate information is at

the disposal of the Central Bank. It behoves the apex bank to be alert to

such information and act in a manner that will break the cycle of

corporate governance violations that is increasingly threatening the

future of the Nigerian financial system.
Around the world, SMEs are the superstructure on which sound and

sustainable economy is built. In recent time, there has been utter neglect

of the SMEs. The lending practices are skewed against them even with

genuine and verifiable collaterals. Experience in development finance,

particularly through consistent records of performance and leadership

roles in first-rate global institutions, are critical in understanding the

importance of SMEs as engine for growth.
Finance is a risky business. Regulation and supervision alone cannot

completely eliminate crisis. However, upon his confirmation it will be

Moghalu's responsibility to ensure that sound corporate governance,

accountability and simple but stringent reporting standard become the

hallmark of our nation's financial system. This is the surest way in which

confidence can be restored.