Emma Ujah
20 August 2008
The Managing Director (MD) of the Nigeria Deposit Insurance corporation (NDIC) Mr. Ganiyu Ogunleye, has called for a reduction of the 20 per cent single obligor limit in banks.
Single obligor limit of shareholders' fund provides that no bank can give out loans to a single customer beyond 20 per cent of the shareholders' funds. It means that a single individual can obtain a N20 billion loan from those banks that have hit the N100 billion shareholder's funds.
In Mr. Ogunleye's view, the 20 per cent was too high given the current enormous shareholders' funds in the nation's 24 banks, post consolidation.
"In the context of risk management, I believe the present single obligor limit of 20 per cent of shareholders' unimpaired by losses requires a downward review. This is necessary in view of the huge shareholders' funds of many of our consolidated banks", he told stakeholders at the 4th Conference of Regulators and External Auditors of Financial Institutions, in Abuja, yesterday.
The NDIC boss maintained that the present limit could induce unintended concentration of risk and that steps should be immediately taken to address what could turn out to be a loophole that could be exploited by unscrupulous individuals.
He also urged caution on the massive incentive structures in banks as it could encourage risk-taking, saying, "boards should recognize that rewarding employees for performance without regard for losses that may emerged later, is a risk to shareholders."
"It is time we assess the impact of incentive structures in banks on their risk-taking propensity", Mr. Ogunleye said, adding that Nigerian banks should be focused on the Basle II Capital Accord which three pillars are: regulatory capital, supervisory review and market discipline.
In his address, the Governor of Central Bank, Prof Chukwuma Soludo who was represented by the Deputy Governor Operations, Alh Suleiman Barau, said hat President Umaru Yar'Adua had given formal approval for the implementation of the Financial Systems Strategy (FSS) 2020 and that the target of making Nigeria a financial hob would received renewed efforts.
According to him, to achieve the objectives, there was need to develop the right level of political will to see the initiative through to ensure the continuity of the initiative through all new regimes.
"We desire to build an implementation plan, identify and adopt quick-wins, obtain support from relevant institutions and provide adequate and timely funding.
We require communication infrastructure such as transportation, telecommunication, technology and adequate educational coverage, availability of credible, comprehensive and timely data. We will ensure adequate participation and buy-in of all stakeholders and convert passive stakeholders into active advocates for the change" he said.
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