Why Senate Must Reject CBN’s Demand For Sweeping Powers

By Tiko Okoye

A new bill to replace the Banks and Other Financial Institutions Act (BOFIA() of 2004 has reportedly passed second reading, meaning that it could soon become law. And such a likelihood is giving the top management staff of the CBN sleepless nights, vis-à-vis what they consider “omitted provisions.” These include the creation of a Credit Tribunal, right to intervene in the process of managing a failing bank and revive a financially distressed bank, and sweeping powers to freeze crime suspects’ accounts. According to a multiplicity of reports, the CBN Director of Legal Services, Kofo Salam-Alade, demanded last Wednesday (15/7/2020) at a Senate Committee Public Hearing that the “missing” provisions to be reinstated.

Let be categorically declare that I completely support a review of the existing BOFIA. The financial architecture and landscape have changed significantly since when it was enacted sixteen years back. There is too much emphasis on deposit money banks and not enough on microfinance banks, primary mortgage banks and other specialised financial institutions and the concept of one size fits all, especially by way of sanctions and penalties, has constituted a big drag on the deepening of the banking sector as a whole.

I fully support of the creation of the Credit Tribunal. I support granting the CBN unabridged powers to intervene in the management of failing/financially distressed banks with a caveat. But I am totally against granting the banking regulator sweeping powers to freeze the accounts of individuals willy-nilly.

Data published by the Asset Management Corporation of Nigeria (AMCON) – the ‘toxic loans bank’ – clearly reveal that the total amount of non-performing assets is about equal to the federal government’s annual budget. They also reveal that less than 15 percent of the total number of borrowers are responsible for the messy situation.

The cop-out argument that loan application appraisals by banks are poorly conducted is strictly not true. As a matter of fact, barring force majeure happenstances, big-time borrowers have the ability and capacity to repay their loans; what is missing is a willingness and motivation to do so.

The lethargic pace of conventional courts in treating such cases constitutes another major impediment to economic growth and development. It is not uncommon for a lawsuit brought against a defaulting bank customer to be ‘sterilised’ at the court of first instance for as long as 7-10 years, talk less the entire appellate process! The “big” men and women involved would rather spend funds contracting expensive lawyers with considerable influence to compromise the judicial process by exploring every loophole and trick in the book than repay the loans they owe. But the widely renowned capacity of banks to create credit is unduly curtailed when cases of high levels of nonperforming loans remain intractable over long periods. The Senate should therefore seriously consider the establishment of a specialised Credit Tribunal to serve as an efficient and effective regime for the recovery of eligible loans of banks and others financial institutions and enforcement of rights over collateral securities in a very timely manner.

If it is true that the powers of the CBN to intervene in the process of reviving a financially distressed bank was omitted in the bill under consideration, it portends grave consequences for the stability of the banking and financial sector, and the omitted extant provisions should be reinstated – but with a vital caveat. A provision must be made for how the shareholders and directors of a financial institution whose fortunes plummet from bad to worse/irredeemable as a result of proven cases of mismanagement on the part of CBN during the takeover period can be adequately compensated.

This foregoing would go a long way in checking impunity and a cavalier management style on the part of those designated by the apex bank to resuscitate the financial institution. Then again, there must be a signed recovery plan outlining the problem(s), causative factors, objective(s) to be attained, restorative measures and timelines prior to any takeover or guided intervention.

Grant the CBN sweeping powers to freeze so-called crime suspects’ accounts. No! No!! No!!!

I must say that it reeks of gross insensitivity for the apex bank to be making such a demand at a time the nation is being regaled with horrendous tales of the corrupting influence of the misuse of power. It essentially portrays the CBN top management staff as living in a time bubble on an alien planet.

Besides, it is difficult to tell what the apex bank seeks to achieve. Is the management claiming that they would do a better job than institutions like the EFCC and the Police Fraud Department already statutorily empowered to play the same role? An English adage posits that too many cooks spoil the broth. The last time I checked, the CBN was not designated a crime-investigating agency so why not leave the job of ferreting out criminals through diligent investigation to institutions and personnel best suited for the task?

The CBN is already imbued with enormous powers to conduct monetary policy by virtue of both the Amended BOFIA and the 2007 CBN Act. Any additional powers would make it operate like a state within a state. English historian and politician Lord John Acton succinctly put in this manner: “Power tends to corrupt, and absolute power corrupts absolutely.”

A case I am very familiar with makes me even more apprehensive about how the apex bank is likely to misuse and abuse such sweeping powers and act like a tin god. The apex bank was once invited by a financially distressed national microfinance bank (name withheld at this stage) to shore up its weak capital base (eroded by a huge internal fraud) and reinstate it back to sound financial health through the provision of a relatively small bridging loan. But the CBN in its wisdom decided to completely take over the management in view of what it perceived as an “embedded systemic risk.”

The exited directors and management staff kept writing memos to the apex bank pointing out that the course they had embarked on would ultimately lead to the bank’s demise. But the imperial CBN gave no heed to their warnings. About 10 months after taking over the bank, it was liquidated! The senators must creatively insert new provisions into the Act that make the apex bank accountable for its wrong-headed decisions and compensate hapless shareholders in proven cases of gross dereliction of duty.

Why is it only now that the apex bank is seeking powers to freeze accounts of “suspected criminals”? Is it not a recognition of the fact that it was fully aware that it had no such powers when it decided to freeze the accounts of some top management staff of the affected microfinance bank without valid court orders? The exited MD/CEO filed a lawsuit at an Abuja High Court seeking the reversal of the illegal act but it was extirpated for “lack of diligent prosecution.” Why? Because he could only afford to ‘pay’ the pupil lawyer representing him a “fuel allowance” of N5,000 each time he appeared in court on account of the illegal blocking of his account. Meanwhile, the CBN easily expended taxpayer’s money hiring as many as three Senior Advocates of Nigeria (SANs), with one frequently flying first class in and out with his team from Lagos!

If the CBN could easily commit an illegality without blinking when it had no powers to do so, one can only begin to imagine the mayhem it would create if given such sweeping powers. The Senate must, therefore, refrain from reinforcing asymmetrical patterns of supervision that foster impunity and highhandedness! No institution in a constitutional democracy – the CBN inclusive – can and should be allowed to be both prosecutor and judge in its cases!