Says bankers' pay still too high
THE Central Bank of Nigeria (CBN) Governor Sanusi Lamido Sanusi has warned against reliance on the ratings given to banks by agencies, saying they do not reflect the true health status of the banks.
According to him, such ratings are financed by the banks which commission them. He also warned money deposit banks against the continued huge salaries for their staff because this in itself was risk-taking.
Sanusi gave the warning in Abuja at a training organised by the regional economic think tank, the West African Institute for Financial Management (WAIFEM).
Sanusi who spoke through the Deputy Director, Risk Management Department of the CBN, Dr. Dozie Okwuosah who represented him at the WAIFEM training session said the central banks were in a better position to rate banks and other financial institutions that they supervise because they have their profiles.
He said: " Given that credit rating agencies measure the probability of default, they should not be heavily relied upon to validate the health of financial institutions. They are paid by the institutions to give them the rating that they want. The best rating agency should be the Central Bank of the country because it has the bank's profile. In Nigeria, the best rating agency of banks is the CBN.''
He revealed that to beat banks in Nigeria to their games, the CBN had begun the training of sectors-specific examiners to be able to unearth the activities of operators.
Sanusi said: " The nature and complexities of banks pose serious challenges to supervisory authorities. Therefore, risk-focused supervision which is institution-specific must be adopted by supervisors. Supervisors must ensure that their risk-assessment systems take into consideration industry-wide risk trends.
"It is important and appropriate for regulators to understand the risk profile of institutions and accordingly set minimum capital and liquidity requirements. Regulators should consider the adoption of counter-cyclical measures by financial institutions in their jurisdictions.
"Financial innovation has increased the lack of transparency of financial institutions. Regulators are usually far behind the operators' knowledge curve. For instance, it took regulators several months to discern the magnitude of the crisis. It is therefore a matter of urgency that regulators build capacity in a manner that would match the speed and innovation of the industry.
"Another issue brought to the fore by the crisis is excessive remuneration which no doubt was partly responsible for excessive risk-taking. Compensation incentives should not only be focused on short-term gains, but should take cognizance of long-term profitability. Addressing these perverse incentives is and has traditionally been the responsibility of financial institutions. Given that this approach has not worked, it is critical that regulators provide guidance,'' the CBN governor further advised.
WAIFEM held the training of financial institutions' regulators ahead of the 2015 new target deadline set by the five economic converging countries of West Africa for a single monetary union.
The training is being done for financial institutions' regulators of five countries including Nigeria, Ghana, The Gambia, Liberia and Sierra Leone on strategies to be ahead of banks and other financial institutions that they regulate in the affected countries.
The aim according to the Director-General of WAIFEM, Prof. Akpan. H. Ekpo is to keep the level of the banks' risk exposure in the converging countries low and ensure a virile banking sector under the planned monetary union by the target date. Under the planned second single monetary union for the ECOWAS region which has suffered several postponements since the last decade, the five converging countries would have a single economy with a common currency, called the 'Eco'; a common central bank to be led by a governor and a chairman or president of the union as the case may be, just like in the European Union and the Francophone-speaking countries of ECOWAS where there is the Cfas as common currency.
Ekpo said yesterday: " The idea is that we want to make sure that by the time we integrate the region, all the countries would have skills, so that we can work together in all aspects of economic activities. We don't want a situation where we would have challenges among the countries in terms of skills, particularly in regulation of risk challenges. That is why we are training staff of the central banks; ministries of finance and economic planning and the like.
" You know in the region, we have two post-conflict countries: Sierra Leone and Liberia, they are gaining a lot from WAIFEM. Again, the reason for this course is due to the recent global financial crises and financial meltdown as a result of complicated financial derivatives. We want to now update the skills of the regulators and even those in operations of the banks in the region, so that they can better manage their portfolios.
"We hope that at the end of the programme, they would have been able to know the new developments and framework for dealing with risk, such that if you are a regulator, you can be if not ahead, at least close to the level of the operator. The course is designed to upgrade the knowledge and skills of participants in the assessment and management of financial risk as well as enhancing their understanding of the principles of good corporate governance practices". Ekpo, who is also the immediate past President of the Nigerian Economic Society (NES), further explained the rationale for the training.
Source: The Guardian.