FINANCE MINISTER PETITIONED OVER CBN REVERSAL OF BANKS’ UNIFORM YEAR END

A corporate lawyer, Mr. Roy Bassey Ukoh and a forensic accountant, Mr. Ori Adeyemo, have, in a joint petition forwarded to the Minister of Finance, protested the reversal of the adoption of common year end by commercial banks as earlier directed by the Central Bank of Nigeria.

The two petitioners said they were compelled to write to the Minister in the overall interest of the banking public and asked for the reversal of the cancellation of the uniform accounting year end for banks in Nigeria which, according to them should have started in December 2008.

Describing the earlier directive contained in CBN Circular No. BSD/DIR/CIR/GEN/VOL2/008 issued on August 25, 2008, as laudable, the petitioners insisted the CBN Governor made an unpardonable somersault of his laudable policy of making December 31 of each year, the uniform accounting year end for each bank starting December 31, 2008.

Stating that such change of policy is not in the best interest of the general public but a compromised attempt to serve the parochial interest of the banking cabal, who are the Managing Directors of the 24 banks operating in Nigeria in other to cover their apparent lapses, the petitioners argued that CBN rationalizing the cancellation of the directive to the desperate mobilization of deposits and which led to the hiking of interest rates by banks, according to the two petitioners is not accepted and grossly untenable.

“We consider both excuses given by the CBN Governor as totally unacceptable and crassly untenable. It further goes to confirm our unassailable conviction that the Nigerian banking industry is not only weak, in dire state of distress but also desperately needing surgical operations to survive irrespective of the spurious splendid financial results that these fraudulent banks churn out from time to time (in active collaboration with the CBN) all in order to continually deceive the gullible unsuspecting Nigerians to invest their hard-earned money in the thrash shares of these sinking banks.” The petitioners reasoned.

Making further assertions on the impropriety of the cancellation of the common year end for banks, the petitioners asserted that: “It is a classic endorsement that the consolidation of the banking industry which the CBN carried out on December 31, 2005 has irredeemably failed if after telling Nigerians that it now has mega-banks; these same banks are still in hot pursuit of deposits at whatever costs not also minding the fact that these same banks had gone to the capital market times without number to mobilize funds. The question now is: what has happened to all the billion of Naira mopped up by Nigerians banks from the capital market from year 2004 to date? Nigerians need to know.”

“The CBN Governor has always been aware that Nigerian banks have been defrauding their customers through the passage of spurious and illegal bank charges into the accounts of innocent customers thereby leaving behind unpaid debts leading to the deceitful foreclosures of collaterised assets of the customers or the settlement of bogus debts at extremely high costs. For the unfortunate ones, it has always been a tale of woes leading to the collapse of businesses, ill-health and sometimes paying the ultimate price of untimely death. To worsen matters, whenever a report of the nefarious and illicit actions of the banks is brought to the attention of the CBN; an illegal referral is made by the CBN to the committee of Ethics & Professionalism which is a sub-committee of the Bankers’ Committee made up wholly and exclusively of bankers with nobody protecting the interest of bank customers thereby making banks judges in their own case.” The petitioner further asserted.

Making further allegations, the petitioned observed that: “Another very important point to deliver is the fact that the CBN Governor is in the knowledge that banks have surreptitiously been stealing Federal and State Governments funds through non-remittance of 10% Withholding Tax on declared dividend as well as interest on deposits, 5% Value-Added-Tax (VAT) as well Personal Income Tax yet have blatantly refused to call them to order knowing fully well that by virtue of Section 3.2.5 of the CBN Monetary, Credit, Foreign Trade & Exchange Policy Circular No. 37 of January 02, 2004, it is the responsibility of the CBN to collect these deductions from the banks for and on behalf of the Federal Government of Nigeria within seven days of collection. The various excess and spurious bank charges clandestinely laid into the accounts of both arms of government all in a bid to defraud in billions of Naira cannot also be wished away.”

“As investigative accounting consultants, we are in the knowledge that the books of these Nigerian banks have all along been cooked and spiced accordingly in order to present fake excellent performances. A veritable way of doing this is to aggressively mobilize deposits at the adopted scattered year ends and also to temporarily put a stop to lending when the accounting year end of banks is near.

“The banking cabal has also made it a point to be shifting deposits among themselves in order to help out each other and they are aware that a uniform accounting year-end will put a final stop to this unwholesome malpractice.

Alluding to one of the reasons the common year end would have done the banking industry some good the petitioners observed that: “Nigerians will recall that prior to the announcement of the uniform accounting year end for banks; every bank in Nigeria was always celebrating any achievement that they can think of from the mundane to the unimaginable. At that time, it was commonplace to find banks celebrating best bank with highest deposit base, the first bank to deploy certain banking software in Nigeria, the first bank to hit the trillion Naira asset base, the bank with the highest turnover and all what not. However, we note that with the announcement of the common accounting year-end, all this rubbish has stopped.

“We must not forget the so-called compromised ratings given to banks by the foreign rating agencies based on the falsified financials published, which these banks would then celebrate as if they have won the football world cup. It was either the banks were awarded A+++++ or AAAAA or some stupid figures by their collaborating foreign rating agencies without looking at facts behind the figures published.

“We wholly support this uniform accounting year-end for banks since it will enable Nigerians and the whole world to be able to separate the chaff from the grains but this laudable and well-thought-out policy by the CBN is being killed before it is born and therefore every attempt must be made to stop the unwarranted and self-serving shift or cancellation of the uniform account year-end.”

“It cannot be disputed that the capital market in Nigeria has lost over N3.5 trillion due to depression with the Nigerian banks accounting for over N2 trillion thereof. You will also admit that this was what led the CBN to issue a guideline allowing the banks to reschedule margin accounts by at least one year. We sadly note that even with this understanding, the CBN is yet to fully inform Nigerians as to the extent of the loss incurred by the banks as a result of their participation vide gambling with depositors and investors monies in the capital market.

“Our submission is that with the full implementation of this uniform accounting year-end policy by the CBN; Nigerians will be able to know the healthy banks from unhealthy or dead-woods because as things currently stand, the adopted scattered year-ends gives latitude for fraudulent and creative accounting manipulations, which undoubtedly amounts to corrupt malpractices which the CBN is now advocating and encouraging through the back door.

“It is an understatement to say that if you are allowed to have your way by shifting or out-rightly canceling the uniform accounting year-end of these banks, you would have succeeded in postponing the doomsday, which would eventually come considering the whole lots of unwholesome and unprofessional malpractices being daily perpetuated by these banks unrestrained.

“We cannot but state once again that the financial state of these banks is in sordid state and the earlier that the CBN and the banks come clean to tell Nigerians the truth the better.” The petitioners concluded.

REAL ESTATE INVESTMENT MAY BE IN TROUBLE SOON – EXPERTS WARN

Many investors have taken a flight to the safety of real estate in the aftermath of the worrisome protracted correction that had turned the Nigerian stock market into the grazing ground of the bears with stock prices continuously hitting new bottoms by the day.

Analyzing the prospects of a downturn in the real estate sector, a second tier bank managing director explained that the frenzy of investors’ movement to the real estate sector would end up in creating artificial value for property which, as result, will lead to a correction in the sector.

“Everybody is now rushing to the real estate sector because the stock market is no longer providing the kind of capital appreciation we witnessed up to March this year.” The bank’s MD observed.

“But the problem I see is that not many people are giving consideration to proper valuation of property. Like it happened in the stock market, the herd mentality is being enacted in the real estate sector, especially those that are rushing to take position in highbrow areas. For instance, in the Lagos area, most investors think that properties in the Lekki-Ajah corridor would continue to appreciate forever. This is a wrong notion because the price of these properties is high at this moment for reasons of high demand pressure.

“What I believe will eventually happen is that properties would soon be priced out of reach of usage. When you get to that point, people that had bought into these properties with intent at trading them off may not be able to free their investment because there would be nobody to buy, even letting may no longer be feasible because of over pricing. When we get to this scenario, the only plausible response would be another desperate bid to get out of the sector; the consequence would be too many properties asking to be bought by too few buyers. This leads to price crash” The MD argued.

“I will counsel that anybody who wants to go into property should consider newly developing areas that are just growing so that they can buy cheap and tend the properties with a medium to long term view.” He advised.

Mr. Ori Adeyemo, a forensic accountant, however, reviewed his consideration of the fate of the real estate sector from the background of the banking credit relationships with their customers.

“The logic is simple enough. The two most reliable forms of collateral for Nigerian banks are stocks and properties. Now with the protracted fall in the stock prices, stocks that have been pledged as collateral to banks have become more or less worthless such that stocks are no longer popular with banks as collateral.

“But there is a tie-in somewhere in the credit transaction between banks and their credit customer. Most customers had pledged their properties as collateral to secure credit to finance their stock market transactions, some had gone ahead to use the money from the credit transactions from their banks as margin participation funds with their stockbrokers and in some cases, their banks.

“Of course, I had always warned that the stock market was headed for a crash, but not many people heeded my call. Now that we found ourselves in this situation of price falling endlessly, it translates to mean that banks cannot redeem their funds from selling pledged stocks, so the next would be to start offering the properties pledged as securities in the open market in the desperate bid to recover their money from their credit customers. You will expect that so many properties would be in the market at the same time competing with those other properties investors had taken position in. The result is a saturation of the properties market on the supply side. What I see is properties prices falling drastically.

“At this point in time, I advise the average investor to remain calm and proper evaluation of whatever is his or her next investment step because situations tend to change drastically at time like this.” Adeyemo suggested.

ANOTHER BANKING CRISIS IMMINENT!: MOVE YOUR MONEY TO STRONG BANKS…EXPERT ADVISES

Mr. Ori Adeyemo, a Forensic Accountant and crusader for best practices in the banking industry, has warned that the Nigerian banking industry is facing an imminent collapse unless urgent and reasonable measures are taken by the Federal Government to curtail the slide into what he described as anarchy and chaos. 

“By the nature of my job, I am privy to the fact that the books of most Nigerian banks have been in very bad shape over a long time, not minding the spurious financial returns that they post to deceive gullible Nigerians from time to time.

“I am aware that anytime the year end of a bank is months away some banks stop all lending activities to embark on aggressive mobilization for deposits and engage vigorously in short-term inter-bank placements in order to jerk up their balance sheets.  I am aware that it is at this point in time that spurious bank charges unashamedly suddenly appear in the account of the customers if only for the purpose of declaring huge profits to the shareholders at the next Annual General Meeting (AGM).”

Questioning the survival strategy of the affected banks at declaring huge profit while yet not engaged in lending activities which is supposed to be the primary activity of a commercial bank, Adeyemo said: “I reliably gathered that some banks no longer lend money to their customers, this is a palpable sign of distress just as some do not lend beyond three months maturity period.  Now, with their stupendous overhead to defray on a monthly basis, how are they supposed to cope? Most banks have lost huge sums to the stock market while actively engaged in trading their shares. That was when most Nigerians wrongfully thought that the stock market was a ready treasure till.”  

In a review of how banking activities had impacted on the downturn in the capital market and had also thrown banking industry into worries of losses of huge sum, Adeyemo explained: “Over the past few months when the obvious slide in the stock market started, investors have lost not less than N3.5 trillion as a result of the depression in the market.  I understand that the loss came about from the maturity of the credit facilities which were taken by investors to buy FirstBank Plc public offer from other banks for which various collateral security such as share certificates, landed properties, etc; were deployed.  It must also be stated that FirstBank Plc returned over N600 billion of unallotted shares after holding the funds for over eight months at a paltry five per cent  per annum interest rate.  Meanwhile, the aggregate of charges which customers would have borrowed the returned funds from other banks cannot be less than 25 per cent  per annum.  The effect is that at the expiration of a credit facility, a demand is made on the investor to pay up or sell off the shares by the exposed bank thereby leading to a supply glut in the market as desperate investors simultaneously besiege the market looking for how to dispose various shares.  The net effect is a continuous loss of value on a daily basis.

“The investors who operate margin account with these banks are worse off since the exposed banks would have been mandated to dispose of the collaterised shares once the price drops to a threshold usually set at about 130 per cent of purchase price not minding the initial equity contribution made by the customer.

“It is a hidden truth that the hitherto astronomical rise in the price of the shares in the Nigeria Stock Exchange is as a result of price manipulations by banks.  These banks I understand give money to stockbrokers who they mandate to transact in the shares of the sponsoring banks thereby jerking up the price sequel to the bank entering into the market to source for fresh funds.  For example, a bank may give say N1 billion each to five stockbrokers to be trading in its shares.  These stockbrokers are given a target to meet within a specified period of time, say six months prior to a public offer.  The brokers then set out to buy and trade in the bank’s shares in the market in order to create an artificial scarcity thereof leading to a continuous upscale in market price.  After say six months, when the price would have risen to the desired height, the bank would then announce its entry into the market with fanfare whilst discounting the new offer price after the shares would have been put on technical suspension.  There and then, you will see gullible Nigerians rushing over themselves to buy these over-priced shares with huge funds secured from the banks.

“Now, with the loss of value of shares at the Nigerian Stock Exchange, banks have lost a lot of money but they are keeping quiet about it.  Also, the money which they lent to customers for the purpose of margin account has been wiped away having drastically dropped to a dismal level of say 20 per cent of initial purchase price.  In other words, these banks cannot even sell the collaterised shares as doing so will erode whatever security that they can rely upon since the share certificates have become worthless papers.  The banks too cannot bully the margin account customers to defray their debt whilst charging interest at an illegal default rate.  If the total loss of value in the stock exchange is N3.5 trillion, then the contribution of the banks alone cannot be less than N2 trillion being the most active players

“Is it not curious that at this point in time no bank can tell their percentage of risk exposure? This helps the banking public to know which banks are in good standing and which ones are not.”

Last week, after a period of assuring Nigerians that all was well with their banks, chief executives of banks decided to formally request the Federal Government to intervene in the nation’s financial sector to forestal the effect of the ongoing global financial crisis on the system.

Meeting under the aegis of the Committee of Banks’ Chief Executives, the bankers agreed to request the Federal Government to intervene in the nation’s financial market through a package of measures similar to those introduced in developed countries and that the Central Bank (CBN) should continue to support the interbank money market.

In response to the request for bail-out from government by the banks chief executives, Adeyemo observed: “I am not against bail-out of the banks that we have in Nigeria. My worries border on the unethical conducts of the banks that rather than focus on dispensing professional banking service would rather be engaged in all sorts of things like printing, security guards, stock-broking, estate developing, recharge card sale, telephone handset vending, etc; while neglecting its core functions of banking.  The bail-out will certainly salvage the economy while at the same time reinforce citizens’ confidence.  However, I am against allowing some of the present day fat-cat cocky executives from benefiting from their fraud and corrupt malpractices after ruining their so-called vast empires.

“I can tell you that things have become so bad that some ranking officials of some banks have started moving their own deposits away from their own  banks to some of the first generation banks. On the whole I see that just about six banks of the 24 operating banks would cross the healthy mark if a thorough examination of their books is conducted today. So, I need to warn Nigerian depositors to start conducting their own due diligence on their  banks.

“Depositors should start asking questions, they have to interact with other customers to know how the bank is attending to them. Do they have issues with facilities, are their issues with immediate payment of withdrawals and others.”

Adeyemo said in the light of saving depositors’ fund, he subscribes to a Federal Government initiated bail-out of the banks, but has his own suggestion on how it should be applied: “I subscribe to the Federal Government buying preference shares of maximum 30 per cent into the banks on a temporary basis of say a five-year period. The FG must not, however, attain majority shareholding in the banks.  This way, the board of the affected bank would be restructured with the Federal Government’s representatives on the board on a minority scale.  The Government may then sell off their investment as situation improves.”

Adeyemo noted with regrets that if the National Assembly had heeded his warnings when he petitioned it to probe banks, perhaps the present time reality would have been avoided: “It is a sorry case that the chicken is coming home to roost so shortly.  I candidly recall that it was in November 2007 that I forwarded two petitions to both the Senate and House of Representatives warning that with the present bad and precarious financial state of health of these banks, there was a need to institute a probe into their activities, otherwise the Federal Government may be required to bail them out in due course.  This petition led to the probe of the banking industry in May/June 2008 until the probe process was compromised.  I believe that if the probe had been conscientiously and painstakingly executed, maybe we would not find ourselves in this mess.”

EXPERT DECRIES BANK CHARGES ON RETURNED CHEQUES AS ILLEGAL

Mr. Ori Adeyemo, a forensic accountant and crusader for streamlined bank charges, has decried bank charges on returned cheques and described the fee deducted from accounts in consequence of returned cheques as illegal.

“It is trite that by virtue of Section 10, subsection of the defunct Central Bank of Nigeria (CBN) Bankers’ Tariff, a bank is allowed to charge N1,000 for a returned corporate cheque whilst debiting N300 for a returned individual cheque (to be borne by the drawer),” Adeyemo said.

“It is also true that by the provision of Section 11, subsection 6 of the subsisting CBN Guide To Bank Charges effective January 01, 2004, a returned cheque attracts 0.5 per cent of amount, maximum N5,000 (to be borne by the drawer).

“In both cases,” Adeyemo argued, “the CBN guidelines stipulate that only the drawer of a cheque should be penalised for a returned cheque and not the supposed beneficiary (who never took value for consideration anyway.)  Unfortunately, we all know that this situation is not true in Nigeria as banks whimsically charge both the drawer and drawee for a returned cheque, thereby amounting to double-jeopardy especially for the drawee who never took any benefit.”

 Affirming the contradiction in the statutes relating to fees sanctions as a result of returned chques, Adeyemo said: “I must emphasise that the CBN is wrong to have inserted returned cheque fee into the defunct Bankers’ Tariff as well as the subsisting CBN Guide To Bank Charges being in crass breach of the Dishonoured Cheque (Offences) Act of May 20, 1977, which makes it a nullity for the following reasons:

a.     That a returned cheque is a criminal offence and not a civil offence.

b.    That only the injured party (that is, the supposed beneficiary) has a right to complain about a returned cheque to the Nigeria Police or better still, the Economic & Financial Crimes Commission (EFCC) and definitely not a bank.

c.     Returned Cheque Fee is a penalty which only a court of competent jurisdiction can impose on a citizen of the country. 

d.    No party to a contract can impose any form of penalty/fine on other parties to a contract as doing so is repugnant to natural justice.  

e.     That a bank has no special or pecuniary interest in a returned cheque being just a clearing vehicle for a deposited cheque.

f.     That Section 9 of the subsisting CBN Guide to Bank Charges, clearing of cheque or draft in Nigeria is free.  Moreover, no bank can charge any fee for collecting any deposit in Nigeria.

g.    That according to the Dishonoured Cheque (Offences) Act of May 20, 1977, upon conviction; an individual is liable to two-year jail term without an option of fine while for a body corporate a penalty/fine of not less than N5,000.

h.     Only the Attorney-General of a state (without excluding the Attorney-General of the Federation) has a right of criminal prosecution of a defaulter and definitely not a bank.

i.      That Section 25 of the Interpretation Act (which provides that a person shall not be punished twice when guilty of an offence under more than one enactment) shall apply in respect of offences under this act.

j.      Since this Section 11.6 of the subsisting CBN Guide to Bank Charges as it relates to a bank charging its customer Returned Cheque Fee is in breach of the Dishonoured Cheques (Offences) Act being a legislation of the National Assembly, the Dishonoured Cheques (Offences) Act will prevail.

“In simple language, I am saying that since a bank is not a party to a returned cheque, then such bank cannot lay claim to it.  We should cast our mind to the law of privities of contract wherein it is clearly stated that only parties to a contract can sue for the enforcement of a contract and not even those in whose interest the contract was made,” Adeyemo insisted.

“You will agree with me that the initial beneficiary of a clearing cheque is the bank that went to clear the cheque that should have taken custody value for the drawee but that alone does not give room for the bank to lay any claim on the money since the bank is not the real beneficiary of the fund but just a mere custodian.

“Therefore, I cannot but submit that the present CBN Guide to Bank Charges, is fraught with illegalities to the crass detriment of bank customers thereby allowing banks to smile away at all times, leaving the customers short-changed.  In fact, this was one of the issues I had wanted to address in May 2008 at the House of Representatives’ probe of the banking industry until it was fraudulently compromised by the banking cabal working in concert with the then leadership of the House Committee on Banking & Currency.”

Adeyemo argued that on account of the subsisting convention of fee sanctioning for returned cheques, he had been demanding a review of the CBN Guide to Bank Charges: “I cannot but request for a thorough review of the CBN Guide to Bank Charges wherein the opinion of every stakeholder in the industry will be accommodated as against the present one which was drafted by Mr. Jim Ovia, the Zenith Bank Plc Managing Director and so wholesomely adopted by the CBN without any input from the bank customers, thereby skewing the graph in favour of the banking industry.

“In simple words, I submit that it is totally illegal for any Nigerian bank to penalize a customer for a returned cheque, as doing so will translate to the fact that the banks have become laws unto themselves, having illegitimately taken over the job of the judiciary,” Adeyemo submitted.