Nigeria: CBN to Sanction Erring Directors of Microfinance, Mortgage Banks

Jul 2009
Nigeria, July, 27 2009 - Worried by the increasing wave of insider abuses and falsification of documents by directors of microfinance banks (MFBs) and primary mortgage institutions (PMIs), the Central Bank of Nigeria (CBN) has threatened to sanction directors of these institutions with outright sack and prosecution.

The apex bank, at a meeting with the operators at the weekend in Lagos, expressed displeasure over exposure of MFB chairmen, non-executive directors, chief executives, top management staff and external auditors to high levels of insider-related credits, which in most cases are far beyond limits stipulated by the law governing their operations.

CBN, in another breadth, bemoaned chairmen, directors, managing directors and staff of all PMIs for issuance of false/forged statements of accounts on behalf of their customers to facilitate visa applications.

Officials of CBN from Lagos spoke extensively on the malpractices being perpetuated by the operators and promised that such acts would not be tolerated going forward. They warned the operators from Lagos, Ondo, Ogun, Osun, Edo, Ekiti, Oyo and Kwara states in attendance to either sit up or ship out as the police and the Economic and Financial Crimes Commission (EFCC) will be invited to intervene any time any trace of malpractice is noticed.

The regulators also blamed the poor quality assets on the sharp practices that are on the increase, adding that about 20 percent of their loan portfolio is non-performing.

“You must all go out to recover outstanding loans to your customers while at the same time ensure that you maintain quality assets from now.

“About 46 MFBs have not rendered their returns for the past six months. You all know that the action is criminal and could be sanctioned with revocation of license, and that may assist in reducing the number of operators in the country.

“We are also aware that the sub-sector is bedeviled with poor quality of staff and all must be done to effect changes urgently. The issue of corporate governance is topical now and most of you are flouting it. The law will soon catch with those of you that are involved,” an official CBN warned. 

The apex bank subsequently, issued a directive to all directors to complete and execute the code of conduct forms, a copy of which should remain in the director’s personal files in the banks. 

Part of the circular to all chairmen, directors, managing directors and staff of all PMIs and community banks/MFBs, and signed by Olufemi Fabamwo, acting director, Other Financial Institutions Department, CBN, reads: In spite of the earlier CBN circular No. OFID/DIR/CIR/GEN/VOL.01/001 of 25th June, 2007, it has recently been observed that some PMIs and MFBs continued to issue falsified or forged statements of accounts on behalf of their customers (and even non-customers) with a view to exaggerating or misrepresenting the financial standing of the affected persons. 

“In particular, our attention has been drawn to false/forged statements of account issued by some PMIs and MFBs for presentation to embassies and high commissions in support of applications for entry visa to the affected countries.”

Another circular to all chairmen, non-executive directors, managing directors, top management staff, all operators and external auditors of all micro finance banks reads:

“It has come to the attention of Central Bank of Nigeria (CBN) that many microfinance banks are exposed to very high levels of insider-related credits, far beyond the limits stipulated in the Banks and Other Financial Institutions Act (BOFIA), 1991 as (amended).  

“Consequently, all loans, advances and other credit facilities exceeding the stipulated limits should be repaid or brought within the stipulated limits within three (3) months from the date of this circular, failing which appropriate sanctions shall be imposed on the affected directors and MFBs.”

CBN also threatened to sanction any non-performing director-related facilities. According to the apex bank, where any director-related facility remains outstanding for more than 90 days, a letter of warning shall be issued by the board of directors to the affected director. It added that where the facility remains for more than 180 days, the director shall vacate his seat on the board, or be removed by the CBN, in accordance with Section 33(a) (D) (I) and section 44 (2) (b) of BOFIA, 1991 (as amended) and subsequently blacklisted.

The circular further observed that these measures are necessary to curb the excesses of some directors and to preserve the safety and soundness of the institutions in the overriding interest of depositors and the financial system.  

“These immoral, unethical and illegal acts undermine the integrity of the financial system in general and the other financial institutions (OFIs) sub-sector in particular.

“For the avoidance of doubt, any staff of any financial institution found to be engaged in this act shall be blacklisted and referred to the Police and the Economic and Financial Crimes Commission (EFCC) for further investigation and prosecution, while the affected institution shall be appropriately sanctioned.”

Source : Business Day

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