Friday, August 21, 2009

Awards and Nigeria's troubled banks

The biggest casualty in the on-going crisis in the banks is the confidence that the ordinary man holds in the bank of his or her choice, but the integrity questions, which are being raised would require answers and explanations even from players outside the banking industry. It is a fact that the affected five banks enjoyed not just wide patronage but also the endorsement of the media, rating agencies and even the same Central Bank of Nigeria which passed the books and occasionally organized awards where it decorated the banks and commended them for efficient performance. Beyond the figures, and the trading of accusations in the last 48 hours, perhaps a close look needs to be taken, as part of a learning curve, at the place of awards and endorsements in the rating of institutions in the financial sector.

How? A bank with a shelf-load of local and international awards necessarily inspires confidence with the unwary customer made to believe that the awards carry much weight, and that they are clear evidence of the strength and dependability of the affected institution. But to then wake up overnight to be told that the same institution is shaky, and that its superstar managers are unreliable, can result in such psychological turmoil among customers and investors, the extent of which can be measured in the present instance in due course. The integrity of the awarding institution is, needless to state, also called into question. In a country where awards, like chieftaincy titles, have both social and cultural significance, this point may well be apposite.

In an attempt to double-check this line of inquiry, I had attempted a random review of some of the awards and commendations that some of the affected banks received in the last two years. In 2006, 2007 and 2008 Oceanic Bank was named the Bank of the Year in Nigeria by the Banker Magazine, a special publication of the Financial Times of London. Now, the Banker Magazine has been in the business of monitoring global financial intelligence since 1926. It is said to be "internationally recognised and acclaimed".

Last year, EMEA Finance, a UK based financial intelligence magazine also named Oceanic the best bank in Nigeria. Other achievements advertised by Oceanic Bank include being the 5th bank in Africa and 310th in the world in terms of Tier 1 Capital. Oceanic is also a recipient of CBN awards, and of an AA rating by both Agusto and Co and Global Credit Rating (South Africa). Intercontinental Bank as at July 2008 also claimed that it was among the world's top 500 banks and the second fastest growing bank in the world. Other awards include the Pearl Award for Sectoral Leadership in Banking and the best performing bank in the Nigerian Stock Market as at 2006. Also in the Intercontinental Bank resume is a Fitch Rating of B+.

According to Fitch, Intercontinental Bank is a "Low risk financial institution". This was in October 2008. The African Banker Magazine further named Intercontinental, The African Bank of the Year 2008, and as recently as October 2008, it became the Financial Brand of the Year 2008 according to the World Bank/IMF/ Renaissance Group awards. The managers of the bank boasted about becoming the number one bank in Nigeria and among the top 100 in the world by the year 2010! Similarly, Union Bank paraded a Fitch Ratings classification of A+ and F1 with the remark that this was for the bank's "strongest capacity for timely payment of financial commitments." The same Banker Magazine that seemed to feature in nearly every Nigerian bank's award list gave Union Bank an international rating of 502. Finbank may not parade many awards. Africa Report magazine which in June 2009 examined bad habits and stock market bubble in Nigeria's financial sector rated Afribank, "satisfactory." A month earlier, the senior management of Afribank visited the Edo state governor, Comrade Adams Oshiomhole. The comrade-Governor was so impressed with whatever he must have been told by Sebastian Adigwe and his team, that he spoke as follows: "key issue in banking is trust. Confidence is enhanced if you know the people behind an institution and can vouch for their character, I have confidence in Afribank's Board."

A most convenient cynical response is to dismiss both local and international endorsements of Nigerian banks even as recently as October 2008 and June 2009, as "arranged", or "organised " or based on "narrow criteria." But the evidence suggests that these events were taken as serious business within the industry and that the achievement sent reassuring signals to the shareholders and customers of the affected institutions. For example, The African Banker Awards 2008 was administered by a distinguished panel of judges; the nominees included banks from Morocco, Mozambique, Tanzania and South Africa.

At the award ceremony in Washington DC, United States, the chief Economist of the World Bank, Africa Region, Shantayanna Devajaran reportedly said: "2008 African Banker Awards give Africans and its investment allies opportunity to acknowledge the contributions African banks have made to African development over the years and to hopefully inspire even greater performance and investment in the years ahead." Such award ceremonies always saw many bank chiefs leaving town and traveling abroad with a retinue of well-wishers. Even CBN directors were not left out of the shuttle.

At the event under reference, then CBN Governor Professor Charles Soludo, seeing Nigerian banks and bankers taking all the top awards was so excited, he reportedly remarked: "recent developments in the global financial system have not affected African banks adversely and no African bank has either collapsed or suffered as a result of the crisis." This according to Soludo "underlies the resilience of African banks," adding that "the awards to the banks confirm their stability." (ThisDay, October 16, 2008, pp. 1 and 8). He is further quoted as having said: "What the rest of the world is now trying to do as the bailout option was what Nigeria did about four years ago, through pro-active initiative, the result of which we are celebrating today." Less than a year later, we are awaken to the reality that the banks are not so stable after all in Nigeria. The celebration is over!

What has gone wrong is a question that has not yet been fully communicated and since the initial disclosures, the CBN has not taken enough charge of the situation and it must do so in a transparent manner so it does not end up raising questions about the integrity of its procedures. Engaging in a shouting match with alleged debtors and aggrieved bankers could result in the kind of politicking that could derail what is clearly a desirable house-cleaning exercise. But the larger integrity questions must now be thrown in the direction of the panel of judges in charge of the so-called CBN awards, the Banker magazine awards, the African Banker Awards, and all those awards organized by local media organizations. It is ironic seeing the same media houses reporting the current debacle and rephrasing their headlines to suit the occasion. The web that has been spun points in the direction of a multi-faceted conspiracy against the shareholder and customer as well as high-level compromise.

One caveat though: award committees may have relied only on financial statements, doctored carefully and designed to impress both the international audience and the regulators, and this stealthily becomes the basis for assessment. But even if outsiders were fooled, how about CBN directors who also took tables at the special dinners where those awards were presented? Didn't they know the truth? Or the truth did not matter since those trips came with fat estacodes? Subsequently, they watched as the same awards were used to win public confidence and brand equity.

Some of the award-giving institutions and the rating agencies were almost always described as financial intelligence organizations. Their ability to look beyond the offered statements and ratios, provide correct forecasts and consider unstated qualitative factors is now suspect. One of the initial lessons that should be learnt in all of this is that those awards which formed the substance of pages of advertorials and self-congratulation cocktails may not be so true after all. Depositors and shareholders must now learn that what the banks, stock market managers, external auditors, and all those rating agencies say can no longer be taken too seriously. The golden rule, despite the CBN's current assurances, is a caveat emptor: let the buyer beware.