CHAPTER ONE
INTRODUCTION:
With the devastating global economic and financial crises, which had seen to the collapse of stocks and banks in many countries of the world, it is the belief of management and financial experts that for any Nigerian bank to survive it, it must adopt a wholesome strategic management practices in its corporate governance.
Donli (2005) observed that traditionally, the role of banks whether in a developed or developing economy, consists of financial intermediation, provision of an efficient payments system and serving as conduit for the implementation of monetary policies. It has been postulated that if these functions are efficiently carried out, the economy would be able to mobilise meaningful level of savings and channel these funds in an efficient and effective manner to ensure that no viable project is frustrated due to lack of funds. The role of banks in economic development has been richly articulated in the literature. Pioneer contribution of Schumpeter (1934) was of the view that financial institutions are necessary condition for economic development. This view has been variously corroborated by other scholars like Goldsmith (1969), Cameron et al (19720, Patrick (1966).
In view of the importance of the banking sector in economic development and the imperfections of the market mechanism to mobilise and allocate financial resources to socially desirable economic activities of any nation, governments the world over, do regulate them more than any sector in an economy. These underscore the need for banking sector regulation. However, in addition, the nature of banking business (being highly geared and conducted with greater secrecy when compared with other real sector businesses) provides added reason for strict supervision. This is to constantly beam a search-light on the sector’s activities with a view to ensuring that operators play by the rules of the game and imbibe sound and safe banking practices. Furthermore, such an oversight is intended to assist supervisory authorities in timely identification of deterioration in bank financial conditions before it degenerates to threaten the stability of the banking system or even the economy.
Nwakoby (2004:156) observes that the Nigerian commercial banking system dates back to 1892 with the establishment of African Banking Corporation (ABC). The British Bank for West Africa took this over in 1894. This is today known as first Bank of Nigeria plc. Then came Barclays Bank in 1917 which is todays Union Bank of Nigeria. According to Uche (1997:3) “these institutions were registered in, had their head offices in, and were control from London, and consequently fell under the regulatory jurisdiction of London.
Nwakoby (2004:156) again reported that there was strong accusation among Nigerians that these expatriate banks, were discriminating against Nigerians and their businesses, by denying them banking services and loans. This brought about wide agitations for the establishment of indigenous banks.
Hence, came in indigenous banks into the Nigerian financial system, but most of these banks collapsed with the speed with which they were established, going down with billions of naira worth of innocent depositors’ funds. Some poor Nigerian depositor had been recorded to have committed suicide at the liquidation/closure of those banks, while others died gradually in their homes at the pains of such financial losses.
Even though, the former Central Bank Governor, Professor Chukwuma Soludo, tried out what he termed ‘Banking Consolidation by raising the liquidity ratio of a bank in Nigeria to N25 billion and thus squeezing out the crowd of many sick and small banks, recent revelations by the new Central Bank Governor, SanusI (2010) shows there is more cause for worry. According to his findings, the Nigerian banking industry is riddled with high-level corruption, mismanagement of depositors’ funds and falsehood in annual reports. From that, the breeze has blown and Nigerians have seen the anus of the fowl, that bank directors are actually feeding fat on depositors’ funds through some wicked boardroom manipulations and shady deals. For instance, Sanusi (2010) on a Nigeria Television interview reported that it is known to Nigerians that the Ibrus hold majority shares at Oceanic Bank. But during his recent investigation, it was revealed that the bank was actually registered with the name of Ibru’s housemaid and lawyer, and loans worth billions of naira withdrawn in the name of the said housemaid. Thus, revealing that the lender and the borrower were one and the same person (Ibru).
It is mindful of this that Uche (1997:11) catalogued some of the causes of distress or failure of Nigerian banks as follows:
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