My Nigeria…

Investigations by our correspondents showed that fraud and forgeries in the banks included presentation of forged cheques, granting of unauthorised loans, posting of fictitious credits, fraudulent transfers or withdrawals, outright money theft and loss of money to armed bandits.

A number of banks have also been indicted for money laundering and round-tripping.

Round-tripping is illegal arbitrage involving the sale of forex obtained from the CBN by banks at the parallel market.

Economic and Financial Crime Commission sources also disclosed that many cases involving huge sums of money were currently under investigation and that some bank officials had been arrested in recent weeks.

The source said, “The problem is that their (bank) staff do deals with customers to get money from the system. You have people getting loans that are bad from day one, cheques being paid without cash backing and so on, so we are investigating these cases and the banks have been largely cooperative.”

He, however, did not mention the cases and the banks where the frauds were perpetrated.

The Deputy Director, Corporate Affairs, CBN, Mr. Festus Odoko, who also confirmed that there were cases of fraud in banks, said internal mechanisms had been put in place to minimise them.

“Every system needs to minimise fraud, which is why corporate governance and internal control systems have been put in place in the banks,” he told one of our correspondents on the telephone on Friday.

“The CBN and the Nigerian Insurance Deposit Scheme ensure that internal audits are carried out in banks but the problem cannot be eliminated, it can only be minimised,” he added.

Odoko also pointed out that the EFCC and the police have investigated several cases and sanctioned errant bank workers.

He warned that any bank worker found to have been involved in fraud would not only be sanctioned but would be barred from taking up a job in any other bank or financial institution.

It was learnt that the CBN was concerned that in spite of expectations that the banking sector consolidation would usher in a more robust risk management in the banking industry, fraudsters had continued to beat internal checks to perpetrate fraud in the banks.

Before the consolidation exercise in the banking sector, CBN officials had attributed the high incidence of fraud to weak risk management systems in the unwieldy 89 banks then operating in the country.

But the operations upgrade, in line with the consolidated banks’ higher capitalisation status, has not done much to reduce fraud cases, particularly in the face of the current global financial meltdown.

The NDIC, in its 2007 annual report, stated that insured banks in the country reported 1,553 cases of fraud and forgery to the tune of N10bn.

It said actual loss to the banks was N2.87bn recorded in 825 cases, adding that there were 1,553 reported cases of attempted frauds and forgeries as against 1,193 cases the previous year. Losses to banks in 2006 amounted to N2.7bn, the report said.

The report said, “There was a higher incidence of planned and successful fraud in the year under review than the previous year, indicating that the banks need to pay more attention to operational risk management.

“The loss components of the reported cases of frauds and forgeries were those whose probability of recovery was low as well as those not fully covered by Fidelity Insurance Bonds.”

Former Managing Director of First Bank of Nigeria Plc, Mr. Jacobs Ajekigbe, recently accused bank workers for conniving with fraudsters to commit fraud in the nation’s banking industry.

Ajekigbe had said, “Two other challenges facing the industry today are high incidence of fraud, especially electronic fraud and high rate of armed robbery that has resulted in the loss of lives and properties.

“Unfortunately, some of these frauds and robberies are staff-induced and this calls to question the loyalty of some of the employees of our banks, even though one may argue that it is a reflection of the larger society.”

An insider in one of the big banks, who pleaded anonymity, said there were more fraud cases than those reported to the NDIC,

The source added that on a regular basis, some banks’ workers were being queried over the disappearance of huge sums of money from their banks’ vaults.

He noted that the situation had, however, become more disturbing to the banks due to the global credit crunch.

Meanwhile, the Central Bank of Nigeria has issued fresh guidelines for the computation of banks liquidity and capital adequacy ratios in an apparent bid to clean up banks’ balance sheets.

Our correspondents gathered on Sunday that the move was to allow the apex bank get a clearer picture of the true financial state of banks against the backdrop of the superlative performance figures being churned by them in spite of their estimated N600bn loss to the stock market crash.

The Governor of the CBN, Prof. Chukwuma Soludo, had said that bank’s capital adequacy ratio was about 22 per cent, compared with an average of eight per cent for United States and European banks.

The CAR is the ratio of a bank’s risk assets to its capital.

In a circular to all banks , the CBN noted that henceforth, the format for the computation of the liquidity ratio and the capital adequacy ratio by all deposit money banks would be on the basis of the liquid assets and liabilities specified by it.

It also offered specific definitions on qualifying capital and risk assets in the computation of CAR.

The circular marked BSD/DO/CIR/GEN/VOL.02/044 was signed by the Acting Director of Banking Supervision, Mr. D.A.N Eke.

It listed 12 liquid asset classes that would now be used in the computation of liquidity ratio. These include cash at hand, balances held with the CBN, net balances held with banks within the country, Nigerian Treasury Bill and Certificates, CBN registered certificates and inter bank placements.

For the current liabilities to be used in the computation of liquidity ratio, it listed nine items including adjusted total deposit, certificate of deposits issued (of not more than 18 months of maturity), net balances held for other banks, net money at call and inter bank placements held for other banks.

For the components to be used in the computation of the capital adequacy ratio, it listed 35 items to include cash in hand and reserves with the CBN, current account with CBN, items in the process of clearing, overdue balance with other bank and money at call secured with treasury bills.

The CBN also classified the items to be used in computing first tier and second tier capital.

For the first tier capital it listed 10 items to include ordinary shares, statutory reserves, share premium, general reserves, reserves for SSI and other reserves.

For the second tier capital, it identified seven items to include fixed assets revaluation reserves, forex revaluation reserves, general provisions, minority interest, hybrid capital instruments, preference shares and debenture stocks.