Develop risk-based pricing model to drive profitability, CBN advise Banks

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Godwin Okafor
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CBN to sack CEOs, chairmen of banks with delayed accounts

Any bank which fails to publish its annual account 12 months after the
financial year end will have its chief executive sacked, the Central
Bank of Nigeria (CBN) has directed.

Also to be fired is the chairman of such a bank.

This directive is contained in the CBN’s Monetary, Credit, Foreign
Trade and Exchange Guidelines for Fiscal Years 2018/2019 released at
the weekend. It was signed by CBN Governor Godwin Emefiele.

The policy aligns with the provisions of the Bank and Other Financial
Institutions Act (BOFIA) 1991, which require banks to, subject to the
written approval of the CBN, publish their audited financial
statements- financial position and comprehensive income- in a
national newspaper printed and circulated in Nigeria not later than
four months after the end of each financial year.

Besides, to allow the implementation of consolidated supervision, the
CBN directed all banks, discount houses and their subsidiaries to
continue to adopt December 31 as their accounting year end.

”The CBN will continue to hold the Board Chairman and Managing
Director of a defaulting bank directly responsible for any breach and
impose appropriate sanctions, which may include barring the Managing
Director or his/her nominee from participation in the Bankers’
Committee and disclosing the reason for such suspension.”

“It will also include suspension of the foreign exchange dealership
licence of the bank and its name sent to the Nigerian Stock Exchange
(in the case of a public quoted company) and removal of the Chairman
and Managing Director/CEO from office if the accounts remain
unpublished for 12 months after the end of the bank’s financial year,”
the report said.

One Systematically Important Bank (SIB) with offshore subsidiaries in
three countries has failed to publish its financial statement for the
past three years. Its last published financial statement was for the
third quarter ended September 30, 2015.

Also, based on the new CBN’s policy on financial account publication,
any bank that fails to publish its 2017 financial statement by the
close of business today will be sanctioned by the regulator.

The new CBN policy spells out borrowing terms and liquidity positions
for commercial, merchant and noninterest banks. It says the minimum
liquidity ratio for commercial, merchant and non-interest banks should
be retained at 30, 20 and 10 per cent, subject to review from time to
time.

“In the 2018/2019 fiscal years, discount houses will continue to
maintain a minimum investment of 60 per cent of their total
liabilities in government securities. The ratio of individual bank
loans to deposits is retained at a maximum of 80 per cent. The Net
Open Position (NOP), long or short, of the overall foreign currency
assets and liabilities taking into cognisance both on and off-balance
sheet items will not exceed 10 per cent of shareholders’ funds
unimpaired by losses,” it said.

It said the aggregate foreign currency borrowing of a bank, excluding
intergroup and inter-bank (Nigerian banks) borrowing, will not exceed
125 per cent of shareholders’ funds unimpaired by losses. “Banks are
expected to hedge borrowing using financial market tools acceptable to
the CBN; borrowings must be subordinated debts with prepayments
allowable only at the instance of the bank and subject to prior
approval of the CBN; and all debts, with the exception of trade lines,
will have a minimum fixed tenor of five years,” it added.

On discount window operations, the CBN specified that all eligible
markets players may borrow funds from or lend funds to the CBN on
short-term basis, to meet their temporary shortage of liquidity
occasioned by internal or external disruptions or deposit their excess
funds, respectively. “The window, through the Standing Lending
Facility (SLF) and the Standing Deposit Facility (SDF) will be
accessible at a stipulated time at the end of the business day to
enable the institutions square up their positions overnight at
appropriate rates tied to the Monetary Policy Rate,” it said.

It advised banks to seek profitability by driving down cost and
charging competitive rates instead of charging excessive rates of
interest. Therefore, banks are expected to develop and implement a
Risk-Based Pricing Model in line with the provisions of CBN.

The CBN will continue to maintain and upgrade the Real-Time Gross
Settlement (RTGS) System for settlement of inter-bank fund transfers
and time-critical payments and categorise banks into settlement and
non-settlement banks for the purpose of clearing and settlement.

The settlement banks are to participate directly in the clearing
houses and receive their net clearing position in their settlement
account with the CBN while non-settlement banks receive their net
clearing position through the settlement account of their settlement
bank.

“Any bank applying for direct participation as a settlement bank will
be required to possess the capacity to provide the required clearing
collateral of N15 billion, subject to periodic review. Such lender
will also have ability to offer agency facilities to other banks and
to clear and settle on their behalf and have adequate branch network,
in all the CBN locations,” it said.

On capital adequacy, the CBN said the minimum ratio of total
qualifying capital to total risk-weighted assets will remain at 10 per
cent for regional and national banks, and 15 per cent for
international banks in the 2018/2019 fiscal years.

”Not less than 66.67 per cent of banks’ capital will comprise paid-up
capital and reserves. Banks will also maintain a ratio of not more
than one to ten (1:10) between adjusted capital funds and total credit
net of provisions. They are encouraged to maintain a higher level of
capital commensurate with their risk profile. Banks and banking groups
are required to comply with the appropriate guidelines for the
measurement and calculation of capital requirements.”

The differences resulting from the comparison of expected losses
determined under International Financial Reporting Standards (IFRS)
with all losses determined under the prudential guidelines will
continue to be adjusted under the statement of changes in equity,
through the non-distributable regulatory reserve.

The CBN said it will continue to enforce the stipulated penalties for
noncompliance with regulatory guidelines, as well as the provisions of
the CBN Act 2007 and the BOFI Act 1991 (as amended), in the 2018/2019
fiscal years. “Any financial institution that fails to comply with
extant guidelines and other directives that may be issued by the CBN
will be sanctioned accordingly,” the CBN said.

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