Post by Trade Coach on May 2, 2017 10:56:56 GMT 1
In the last few months, some banks have come under the regulatory spotlight following one infringement or the other. Last year, the new management of the Nigerian Ports Authority (NPA) alleged a fraud of about N11billion trapped in some banks, including Skye Bank, Heritage Bank, First Bank and First City Monument Bank (FCMB) in violation of the presidential directive on the enforcement of the Treasury Single Account (TSA). UBA PLC dealt with an international public relations disaster over its purported role in funding about $2billion to coup plotters in Turkey, an allegation the bank denied vehemently.
Fidelity Bank briefly appointed an acting Managing Director after its MD, Mr Nnamdi Okonkwo was arrested by the Economic and Financial Crimes Commission (EFCC) for alleged money laundering. He was accused of helping the former petroleum minister, Deziani Allison-Madueke launder about $115million which was intended to bribe security agents and election officials in the run-up to the 2015 general elections. Skye Bank had its leadership changed by the Central Bank of Nigeria (CBN), a move that spooked depositors and investors. GTB and Zenith Bank had their share of negative publicity when politically exposed persons were alleged to have used their banks for money laundering purposes. Governor Ayodele Fayose of Ekiti State and Zenith Bank traded allegations over the source of funds for the 2015 general elections which has been linked to the $2.1billion arms scandal while witnesses in the trial of Senate President Bukola Saraki testified to how they paid millions of naira into Saraki's GTB account multiple times daily. Both banks denied any involvement in shady dealings with the politicians.
Although many expect the CBN to wield the big stick on erring banks, others believe this could lead to a re-examination of correspondent banking relationships between scandal-tainted banks and their international correspondent banks. The reason is not far-fetched. Since the 2008 financial crisis and the rise of terrorism in recent times, international banks have become circumspect in dealing with local banks in countries believed to have weak regulations. Indeed, they have been fined heavily by American and European regulators since the crisis; many of which enter into a plea bargain for fear of losing their license. According to figures from KBW, an investment bank, regulators in America have raked in about $219billion in fines from 188 settlements with banks even as many more are expected.
To this end, many international banks weary of heavy fines are gradually severing their ties with local banks in jurisdictions deemed unsafe. Barclays Bank had earlier signaled its intention to leave Africa after about 90 years of banking services rendered on the continent. However, its planned exit has more to do with its poor financials in recent times after it was fined $5.8billion along with five other banks. In the last few years, international banks such as Citi, JP Morgan, HSBC, BNP Paribas, UBS and Standard Chartered among others have received heavy fines from regulators for infringements.
JP Morgan is said to have reviewed its correspondent banking relationship with about 500 banks out of 4000 in 2014. With scandals that allegedly tainted some Nigerian banks, such relationships will come under increased scrutiny. "These scandals have a way of affecting banks' relationships with their correspondent banks. Some of these banks don't want to pay fine for something that their counterparty did wrong," says a staff of First Bank who pleaded anonymity. Many international banks had previously ignored these shady deals, but the fines have altered their behaviour.
Interestingly, severing correspondent banking relationship runs both ways. Some Nigerian banks weary of sanctions avoid having such relationships with banks from some countries such as Russia, China and even the Middle East. It was gathered that based on fear of falling foul to sanctions imposed on Russia, terrorist financing in Middle East and shady deals of Chinese banks, Nigerian banks steer clear from having correspondent relationships within these regions.
This could lead to most Nigerian banks losing out from other benefits such as line of credits and trade guarantee. "Nigerian banks borrow in foreign currency at interest rates of about six percent and lend same to Nigerians at about 19 percent. So they rake in huge profit," says Martins Uwa, a financial analyst. Banks who forfeit such relationship risk losing lucrative avenue to make money. Although there is no known withdrawal of such relationship from a bank in Nigeria, observers believe even if it happens the affected banks will be quiet about it.