02.20.08
Fraud in quoted companies: is this a trend?
The recent problems at WEMA Bank bring to two, in less than a year, the number of banks with credibility problems. Remember Spring Bank? And four public companies if you add Nampak and Cadbury.
After the bank recapitalisation exercise, two key things were supposed to happen: one, we have bigger and stronger banks and two, the regulatory authorities, the CBN and NDIC are better able to perform their oversight duties, as there are fewer banks to monitor. These, unfortunately, have not been the case. While we have 24 big and ‘supposedly’ strong banks the oversight duties have not measured up.
In the cases involving the two banks, one notices a disturbing trend. In both cases, the CBN/NDIC foot-dragged, were indecisive and sloppy in their handling of the situations.
A chronology of events will suffice here:
One, both Spring Bank and WEMA Bank were said to have breached banking ethics and due process by awarding unsecured loans to officers of the banks, apart from other sins.
Two, both banks were also accused of internal wrangling and power play.
Three, the authorities knew all this in both cases and failed to act speedily and decisively. The CBN Governor, Charles Soludo, admitted, in the Spring Bank case, that the apex bank’s “maiden examination of the bank [Spring] as at June 2006 queried the bank’s reported shareholders’ fund.” Yet, no action was taken until over a year later or - if we allow for the six months of grace CBN said it gave the bank to “beef up its capital” - more than six months after the expiration of the grace period. In this recent case, a senior staff member of WEMA claimed the authorities carried out “22 months of thorough and contentious auditing.” That is roughly two years.
Four, these lengthened periods of indecision naturally led to suspicion of bias on the part of the authorities. Thus, there were claims and counterclaims by stakeholders of a hidden agenda by the authorities
Five, due to a lack of prompt action by CBN/NDIC, both cases were said to have been taken before the country’s highest law officer, the attorney-general.
The shareholders were made to eventually suffer the ineptitude of the authorities, as hundreds of millions of naira were lost.
This, no doubt, is a sad commentary on CBN/NDIC. We believe CBN, particularly, should be more alert to these shenanigans and be more decisive in their rejection, if it is to be seen as an unbiased umpire and defender of the economy. For shareholders sake, bank must be made to produce their results: quarterly and yearly at the appropriate time and in details. CBN must insist on this and adopt a zero tolerance for violation.