Polarised or Pulvarised? Corporate governance faux pas in Nigerian Banking

When I first penned down this article “The Nigerian Banking Recapitalization Experiment: Corporate governance faux pas?,” little did I know the Nigerian banking sector would be returning to square one.

Here’s what I said back then…

The Nigerian banking sector has undergone several reforms in the past but is still plagued with an entrenched malady whose symptoms include:

(i) a pervading low capital base;

(ii) high incidence of non-performing loans;

(iii) worrisome concentration of activities in just a few banks;

(iv) overdependence on public funds, and;

(v) poor corporate governance.

It is largely against this backdrop that the Central Bank of Nigeria (CBN) embarked upon a new minimum capital base of N25 billion (equivalent of £100 million at the time) in June 2004, in expectation of commercial banks’ consequent consolidation through mergers and acquisitions by the deadline of 31 December 2005. This was based on the premise that the main platform for strengthening the banking structure will be established, thus improving effective participation in local and regional business developments, as well as ensuring greater stability through better risk management and good corporate governance.

The banking reforms thus present a clear need to align the sector with the international norm under the framework of the Basel Accord/ International standards. Hence in its 13-point reform agenda, the CBN’s recapitalization experiment (consolidation being a misnomer in this case) was geared towards:

(i) the provision of better banking services;

(ii) stability of the banking sector; and

(iii) ensuring the safety of depositors’ funds.

This study undertakes a theoretical enquiry of the banking reforms policy initiatives around the world. In this qualitative analysis, the paper assesses the viability and sustainability of the Nigerian banking reforms by evaluating the rationale of the CBN’s recapitalization exercise-its primary objectives, timing, expected and actual impact on the economy, and highlights learning points from other emerging economies’ experiences.

Lo and behold, 15 years later… Polaris was recently “bailed out,” and sold to Strategic Capital Investment — many more are lining up due to the pervasive corporate governance faux pas in the sector.