The Nigerian South African Chamber of Commerce has applauded the reform initiative of the Central Bank of Nigeria (CBN) which is geared towards strengthening prudential regulations and supervision, Corporate Governance framework and Risk Management efficiency and soundness of the banking system.

Speaking at the January 2010 breakfast meeting of the Chamber held recently in Lagos, Dr. Kingsley Moghalu, and Deputy Governor of the Central Bank in charge of financial systems stability, said the reform process is just beginning. According to him, the banking system reform became inevitable because of the deteriorating financial conditions of some of the banks.

Moghalu who spoke on the theme: “Banking sector reform-implications for the Nigerian Economy” said the CBN’s overriding objective in embarking upon the reform of the banking sector is to promote a banking system that is sound, stable and efficient.

“This helps create a solid foundation that enables sustainable economic activity. CBN’s priority in all its actions is to safeguard the interests of depositors and creditors. All stakeholders, including shareholders, will be treated in a fair and transparent manner” he assured.

Aside already implemented reform programs which led to replacement of Chief Executives/Executive Directors of eight of the banks with competent managers, re-affirming guarantee of the local interbank market to ensure continued liquidity for all banks, guaranteeing foreign creditors and correspondent banks’ credit lines to ensure confidence and maintain important correspondent banking relationships, as well as fixing ten year term limit for MDs of the banks.

 Moghalu added that there are other activities being pursued to address the immediate issues of governance, liquidity and capital. These according to him include: Establishment of the Asset Management Corporation of Nigeria, Process for recapitalizing the affected banks, Implementation of specific regulatory reforms.

“One of the proposed solutions is to set up the Asset Management Corporation of Nigeria (AMCON) into which all banks can transfer bad loans. Banks transfer their bad loans into AMCON in exchange for a certain consideration that can be in the form of government bonds” Moghalu reiterated

He further submitted that the size and structure of the proposed AMCON is still being considered although it is estimated that the size of liens on the capital market is between N400bn and N500bn (as at 30 June 2009).The terms of the transfer of bad loans will depend on various factors including Perceived fair value of the bad loans, Risk-sharing arrangement between AMCON and the banks.

However, he expressed concern on the need for banks to recognise losses up front that would require agreement between banks on asset transfer values, different asset quality, provisioning policies by different banks and operational issues to transfer assets with a need for a new operational platform.

However, the apex bank deputy governor admitted that there was regulatory oversight due to over concentration on the consolidation exercise by CBN that led to the level of crisis in the banking sector.

As a result of this, he said the CBN has adopted self regulatory measures to check the excesses of the regulators. “One of such measures is that the governor or deputy governor of CBN cannot be appointed to the board of any bank under CBN’s supervision, five years after they left office instead of three years it used to be” Moghalu noted.

Also at forum, Dr. Koyinsola Ajayi (SAN), Managing partner of Olaniwun Ajayi and co., said that the CBN is trying to organize the society so that every body will be better for it. He advised members of the board of directors of banks to “Eat your bread and say your mind”.

He stresses that they may get all the benefits accruable to the position as board members, they should not hesitate say the truth at all times no matter whose ox is gored.

The legal expert decried the magnitude of losses caused by the banks to stakeholders, revealing that the total value of the budget of seven states in Nigeria is not up to the amount of bad loans provision made by one bank last year.

Konyinsola added that, there would been a major infrastructure projects, creation of thousands of jobs, new wealth and improvement of climate change, if just one bank’s loss was used to  finance infrastructure in one state.

Also expressing the Chamber’s support to the apex bank, Dr. Ebun Sonaiya, Joint Medical Director, Total Health Trust, said all Nigerians should contribute towards the efforts the CBN is making in sanitizing the banking system.