CBN sends Bill on Commercial Courts to National Assembly

[NewsCaster]

[The Guardian] - HIGH courts in Nigeria, which at the present handle debt-related cases, are likely to lose or share that responsibility with commercial courts being planned by the Federal Government.       

Faced with rising cases of loan default and protracted litigations in courts, which often affect the operations of banks, government is therefore looking for a leeway out of the quagmire. It is the thinking of government that if the period debt cases spent in court are reduced, Nigerian banks could promptly recover such debts thereby making them more stable and less susceptible to high risks.           

This can however be done if the existing legal frame-work in which the banks operate are reviewed. Therefore, all legal instruments that border on loan recovering, credit fraud, and insider abuses are to be reviewed.

Among others, the transfer of such cases to the commercial courts is expected to bring reprieve to the high courts, which now grapple with huge debt cases.       

Through the Central Bank of Nigeria (CBN), the government is first tightening the legal frame-work on financial risk management with the planned courts empowered to quickly discharge cases of loan defaults and ancillary matters.

To achieve this, the CBN has sent a bill to the National Assembly on the setting up of the commercial courts. The apex bank has also taken steps to beef up security around bank directors over their alleged harassment and blackmail by loan defaulters.       

At a risk governance programme for members of boards of directors and senior managers of banks and companies yesterday in Lagos, the CBN's Deputy Governor and Head of Financial System Stability Directorate, Kingsley Moghalu, who unveiled the initiative, said the special courts would ensure quick resolution of cases of loan default, encourage banks to give credit facilities to the agricultural and the manufacturing sectors of the economy.

Moghalu, who fielded questions from participants at the event organised by the Global Association of Risk Professionals and AME&T Group, said the industry regulators and legislators are pushing for improvements in risk governance and reporting in financial institutions.           

He said the effectiveness of risk governance depends on three things: The integrity of board directors, their risk intelligence, and their risk reduction.

"We must appreciate the enormous responsibility before us, including legal liabilities imposed on directors under the relevant laws in Nigeria and elsewhere."

Moghalu further said the new drive by the CBN is to embed risk management in Nigeria's banking culture, which would be done through a four-pillar reform meant to enhance the quality of the banks, establish financial stability, enable the evolution of a healthy financial system, and ensure that the banking system contributes to the real sector of the economy.

According to him, board directors are expected to provide risk oversight and make risk management a priority for the executive team, providing insights and feedback to support strategic decision-making as well as assessing the impact of both.

Moghalu continued: "While there is no one-size-fit-all risk governance model for all financial institutions and situations, a well-articulated risk governance framework in which the board plays a leadership role will help a great deal in ensuring that the mistakes and shortcomings that led to the financial crisis are not repeated.         

"The board must set the direction and tone at the top so as to ensure that the required risk culture cascades down the entire organisational hierarchy.

"Board members and senior managers should begin to think outside the box by seeking to find solutions to thought provoking issues on risk governance in our financial institutions. We must appreciate more than ever before the enormous responsibilities, including legal liabilities imposed on directors under relevant laws in Nigeria and elsewhere.

"Also, the implementation of the New Prudential Guidelines, the Revised Banking Model, migration to Basel 11 and 111 and adoption of International Financial Reporting Standards (IFRS) by 2012 would significantly enhance transparency, which will ultimately impact on risk governance in our banks," he said.

Moghalu also said the CBN would continue to evolve reforms that will ensure that among other stakeholders in the banking industry, depositors are protected because to the apex bank, they are rated highest among the operators.

He said to avoid a repeat of the financial crisis Nigeria now grapples with, the country needs a well-articulated risk governance framework, in which the board of directors plays a leadership role as the era of considering risk governance as the exclusive preserve of senior management was over.

Moghalu maintained that boards of directors of companies, particularly financial institutions, now have no option than to be actively involved in risk governance and ensure that risks are evaluated in the appropriate strategic context observing that there is still much more talk and form than substance in risk management in banks.         

He said but for the recapitalisation carried out by former CBN Governor Chukwuma Soludo, "most Nigerian banks, if not all, would have gone under."

Although universal banking has its challenges and exposed Nigerian banks to a lot of risks, it saved them from going under when the economic meltdown occurred, he stated.

Source: Govt plans courts for bank fraud, loan default