Mixed reactions as CBN dismisses 3 banks’ board of directors.

HomeMixed reactions as CBN dismisses 3 banks’ board of directors.

Mixed reactions as CBN dismisses 3 banks’ board of directors.

 0 Gen-Z Journo 📰 January 18, 2024

  Reactions to the Central Bank of Nigeria's (CBN) removal of the three commercial banks' previous boards of directors and appointment of new directors and management have remained polarized. According to certain stakeholders, the development has little to no detrimental effects on the industry.

The CBN fired the management teams and board of Union Bank, Keystone, and Polaris on Wednesday, January 10, citing serious infractions of financial norms.

The CBN claims that the banks' and their boards' failure to abide by the "provisions of Section 12 (c), (f), (g), and (h) of the Banks and Other Financial Institutions Act, 2020" was the reason for the dismissal.

As a result, the CBN named new executive directors to lead these financial institutions on Thursday, January 11.

“It is a known fact in the banking industry that those three banks were funded by a special purpose vehicle that they may not have generated from their balance sheet. It did not come as a surprise when the special CBN investigator reported that those banks were funded from the outside balance sheet of the buyers,” Johnson Chukwu, group managing director/CEO, Cowry Asset Management Limited, said.

“If the banks were funded from the public treasury, there is what we call lifting the veil of incorporation. When you lift-develop incorporation, you get to the root of the reason behind the transaction. In that case the beneficiary of the shareholding, if it is the government that funded it, then it belongs to the government. For me, the intervention did not come as a surprise, he said.

Considering the CBN's action's implications, he stated that if there had been a systemic challenge but not a systemic problem, the other banks would have been involved. Other banks are unaffected by their exposure to the interbank market because they are still able to fulfill their responsibilities.

“For the economy, since the ownership of the commercial institution is not affected….unless the new owner is involved in an unethical business practices or begin to grant unsecured loans or engaged in transactions or trade that are fraudulent, I do not think it can affect the economy,” Chukwu said.

Muda Yusuf, chief executive officer at the Centre for the Promotion of Private Enterprise, said, “We must concede that the CBN is in a better position to determine the scope and severity of infractions and regulatory breaches that have been committed. However, it is important to stress the imperative of fairness, equity and justice to all stakeholders [depositors, shareholders and employees] in the unfolding regulatory review.”

According to him, confidence is the foundation of the banking system, which makes the financial sector extremely vulnerable to events that can erode depositor and investor faith.

“This is why the handling of current investigations concerning these banks needs to be done with utmost discretion, caution and care. We cannot afford to ruin any of our banks at a time like this. The economy is still grappling with very challenging macroeconomic headwinds,” Yususf said.

He states that extreme caution should be used in handling the matter if there are established violations in the management or governance of the banks in order to prevent sending the wrong message and endangering the stability of the financial system.

“Meanwhile, it is comforting that the CBN had assured depositors of the safety of their funds. The shareholders also deserve to be assured of the safety of their investments, without prejudice to the consequences of proven infractions or breaches of the law. This is very critical for the preservation of investors’ confidence in the economy,” he added.

Ayodele Akinwunmi, relationship manager, corporate banking at FSDH Merchant Bank Limited, said, “The CBN gave reasons for the actions and the apex bank has the power to do what was done. The CBN has also assured the public that all depositors’ funds are safe in the affected banks.”

According to Bunmi Lawson, managing director and CEO of EdFin Microfinance Bank, the CBN must inform bank clients in a straightforward manner about the implications of this acquisition. "In order to provide reassurance and prevent the spread of rumors that could ultimately destabilize the banking system, it needs to be ongoing and specifically target middle-class to lower-class households," she stated.

Different bank customers have different things to say about the development. Customer Boluwatife Kolawole of Union Bank stated that he considered switching banks after the bank's board of directors dissolved.

“I get unnecessary deductions on my account, and I’ve had a situation where I have had to email the bank incessantly. Last year, I had a friend who had a similar experience; we didn’t have any money to spend because our money was with Union Bank and we could not access it,” he said.

“All of this, and the dissolution of the leadership of the bank created this skepticism in my mind, and I’m contemplating removing my money from the bank,” he added.

Another Union Bank client, Queen Ibaningo, stated that even though she doubts the honesty of all banks, she isn't moving to a new one.

“I generally don’t feel safe with banks because you can’t be too sure, but I’ve never heard any issues about Union Bank. Banks have been keeping people’s money, so I don’t think I’ll change the bank since I have no issues with them,” she said.

Hussein Aromashadun, a Polaris Bank customer, said that the development is not new, and is no cause for alarm.

“I heard the news from my friend in Polaris Bank, and at first, I was scared. But when the CBN announced it, I figured it was like when the name was changed from Skye to Polaris Bank. They have the records; It’s our money, and it is safe. So, I don’t need to remove my money,” he said.

Tajudeen Kamorudeen, a Keystone Bank customer, also said that he had no cause for alarm. “I have no cause for alarm, especially because I have no issues with the customer service. I have been using this bank since 2009, and it has been a wonderful experience for me,” he said.

Asiwaju, a full-stack engineer on X (formerly Twitter) said, “Sacking the board doesn’t in any way affect the staff nor the customers. The bank is still running its day-to-day activities, no cause for alarm at all”, he posted.