CBN, NDIC Begin ‘Target Examination’ of Banks

In a bid to verify the integrity of the data of the December 31 common year end results, the Central Bank of Nigeria (CBN) and the Nigerian Deposit Insurance Corporation (NDIC) will today begin a joint target examination of the 24 banks in the country.


The banks will, however, not be taken unawares, as they have received a letter to this effect.

The exercise, THISDAY learnt, is to enable the banking watchdog to approve the financial accounts of banks for the year ended December 31, 2009 which when published must state both the income and expenditure of the respective banks.

The exercise is expected to be completed within the next three weeks.

According to sources, officials of the banking supervision department of the CBN and NDIC had their pre-examination meetings in Lagos last Thursday with a view to working out what members of each group would be looking for when they get to their respective banks.

In banking parlance, target examination is meant for a specific purpose – the examiners are only expected to scrutinise the accounts of banks for the year ended December 31, 2009.

However, if they find anything suspicious while carrying out their duties, they may call for a special examination.

Other types are routine examination, which is conducted once a year by CBN in collaboration with the NDIC, and maiden examination which is conducted six months after a new bank has been established.

Confirming these developments, a top official of the CBN said banks need not fear as this was the standard practice.

“Everytime when the financial statements of banks are ready, we usually look into their books. We cannot afford to just seat down in Abuja and approve whatever figures they send to us.

“We have to keep checking and make banks realise that there are consequences of giving false reports,” she said.

The official noted that many of the rescued banks were making losses but declaring profits and using depositors’ funds to pay dividends.

“Because many of them are owners of the banks, if they declare losses, they won’t have money to pay their own dividends. So over the years, they’ve been paying through depositors’ funds,” she said.

As a result of the regulations requiring greater provisions for possible loan losses, following the accumulation of over N1.4 trillion toxic assets from failed loans granted to buy stocks and investments in oil and gas sectors, only seven banks made profits in their third quarter ended September 30, 2009. The remaining 17 banks declared losses, with the shareholders going home without dividends.

THISDAY had exclusively reported that both the CBN and the NDIC commenced a risk-based examination of all the banks using two banks with large cross border expansion scheme as a pilot system. Before now, supervision of banks was compliance-based.

The newspaper had also exclusively reported last Saturday that the CBN withdrew its resident examiners from banks preparatory for the risk-based supervision.

The new system is intended to be pro-active as the current compliance-based examination does not have the capacity to detect risk-based issues.

Under the risk-based supervision, the CBN can visit banks as many times as possible depending on the institutions’ risk profile.

It was originally part of the 13-point agenda of the former governor of CBN, Professor Chukwuma Soludo, but it was not implemented before he left office.

The examiners are expected to work closely with banks with a view to understanding the nature of their businesses and categorising the risks associated with it.

But the exercise, which has now been extended to other banks, created an uneasy calm in the banking industry.

Some bankers and market watchers are mixing up the issue of risk-based examination with bank audit – that requires a thorough scrutiny of banks like those of the August and October 2009 respectively – that necessitated the removal of eight managing directors and their respective executive directors and injection of about N620 billion in nine banks.

They had questioned why the apex bank ordered an examination of all the banks including the 14 it cleared on August 15 and October 2, and queried what could have changed in the financial positions of these institutions since then.

But the risk-based supervision, a CBN official had told THISDAY, was intended to spot early warning signals rather than the current “medicine after death”.