ONU OKORIE writes that the nature of banking sector makes it paramount for operators to embrace corporate governance as sine qua non to survival of the industry
DIFFERENT SCHOOL of thoughts have been expressed about the concept of corporate governance, in modern society. According to report of the Committee on the Financial Aspects of Corporate Governance (the UK Cadbury Code), London, 1992, “Corporate governance is the system by which companies are directed and controlled.” Another definition of corporate governance refers it to the structures and processes for the direction and control of companies. Corporate governance concerns the relationships among the management, Board of Directors, controlling shareholders, minority shareholders and other stakeholders. Good corporate governance helps companies operate more efficiently, improve access to capital, mitigate risk and safeguard against mismanagement. It makes companies more accountable and transparent to investors and gives them the tools to respond to legitimate stakeholder concerns such as sustainable environmental and social development. Corporate governance also contributes to development. Increased access to capital encourages new investments, boosts economic growth, and provides employment opportunities. Writing on the Corporate Governance and Profitability of Nigerian, Banks AKINYOMI Oladele and OLUTOYE Ebenezer Adedayo of McPherson University, Ogun State, , Afe Babalola University, Ado Ekiti, Ekiti State, Nigeria respectively stated that with globalisation vastly increasing the scale of trade and the size and complexity of corporations and the bureaucracies constructed to attempt to control it, the importance of corporate governance and internal regulation has been amplified as it becomes increasingly difficult to regulate externally. There is no doubt that the banking sector in the country needs to integrate corporate governance in order to instil confidence of customers and achieve more banking inclusion in the system. It is against this backdrop that Management of Jaiz Bank Plc has been advised to strengthen its corporate governance in order to weather the storm of economic challenges that is currently facing Nigeria’s banking industry. The MD/CEO of Nigeria Deposit Insurance Corporation NDIC, Alhaji Umaru Ibrahim gave the advice to the newly appointed Managing Director of Jaiz Bank Plc, Mallam Hassan Usman and some of his top Management staff. Alhaji Ibrahim said that good corporate governance was very crucial to the bank at a time of planning to expand its operations following its recent issuance with a National banking licence by the Central Bank of Nigeria CBN. While congratulating the bank on its issuance with the National banking licence by the CBN, the NDIC Boss also advised the bank to be careful in its expansion plans in order to ensure seamless service delivery to its customers. According to him, as a pioneer in non-interest banking, the bank Between corporate governance and survival of Nigerian Banks should partner with its peers such as Stanbic IBTC and Sterling banks which have non-interest banking windows in order to explore more sharia compliant instruments. He also drew the attention of the bank to the interest being shown by muslims and non muslims to its banking products and advised the bank to step up its public enlightenment efforts on the benefits of its products and services in order to increase deposits’ mobilisation. The NDIC boss also noted the challenges being faced by the bank in investing its excess liquidity due to the absence of sharia compliant investment windows, such as the “Sukuk” (project financing) and other Islamic bonds and portfolios. He noted that while a lot of countries had tapped into the “Sukuk” investment window, Nigeria was still lagging behind in exploring such shari’a compliant investment opportunities. He therefore urged the Jaiz Bank’s Management to collaborate with the Bankers’ Committee, Securities and Exchange Commission (SEC), Debt Management Office (DMO) and other relevant agencies toward the introduction of “sukuk” and other shari’a compliant investment products in order to be competitive. MD Jaiz Bank Plc, Mallam Hassan Usman who assured the MD NDIC that the Bank had established and maintained high standards of corporate governance said that the system is driven by checks and balances to ensure that insider credits were not only performing but also kept within the approved regulatory limits. Mallam Usman emphasized that apart from the bank’s board oversight, its Advisory Committee of Experts ACE, also looked into every aspect of the bank’s operations and transactions to ensure compliance with financial regulations and Islamic principles. In terms of the challenges of investing the bank’s excess liquidity, he informed the Corporation that the bank had made submissions to the Debt Management Office DMO and the Federal Ministry of Finance in order to expedite the process of developing sharia compliant investment instruments in Nigeria. As part of NDIC making the sector more reliable, NDIC has also been granted approval for an upward review of its maximum deposit insurance coverage MDIC for Primary Mortgage Banks PMBs. NDIC also received approval for an extension of differential premium assessment system (DPAS) to the PMBs. Under the new regime, NDIC will pay N500, 000 per depositor in the event of a failure of PMBs. Until the new approval, depositors of PMBs are entitled to initial payment of N200, 000. The approval, which was granted by the Minister of Finance, Mrs Kemi Adeosun, emphasized the need for the Corporation to ensure that all the DMBs, PMBs and MFBs strictly adhere to sound risk management practices and entrench compliance to the CBN approved code of corporate governance standards. As part of its statutory functions as a deposit insurer, Section 20 (2) of the NDIC Act 2006, empowers the Corporation’s Board to periodically review the maximum deposit insurance coverage for licensed banks and other deposit taking financial institutions in accordance with changes in deposit structure, income levels and in line with global best practices. The MDIC review is carried out through studies and surveys and is aimed at ascertaining the adequacy or otherwise of the deposit insurance coverage level for insured institutions in Nigeria. The outcome of the most recent survey that was conducted in August, 2015 revealed the compelling need for the upward review of the current MDIC for the PMBs from N200, 000 to N500, 000 per depositor. The survey also revealed that the MDIC increase would cover 99 per cent of depositors of the PMBs in Nigeria. Analysts said the adoption of DPAS in assessing the annual premium payable by PMBs will promote better risk management in the banks in line with international best practises. Presently, over 120 countries across the globe have adopted DPAS as an objective method of insurance premium pricing. Oladele and Adedayo fad noted that Nigerian banking environment is a vibrant and challenging financial environment and is endemic with systemic governance problems, capacity constraints and defaulting in compliance and implementation of laws which has inhibited economic growth. In their study that focused on association between organizational governance and profitability of deposits money banks in Nigeria revealed that a non beneficial and non-significant association exists between directors’ interests and profitability in the Nigerian banks. With relevant information extracted from audited financial statements of the selected banks the Authors stated that the results of the regression analysis revealed the existence of positive but non- statistically significant association between board composition and profitability on one hand; and board size and profitability on the other hand.