Fundanga assures nation over Access Bank

Fundanga assures nation over Access Bank
By Joan Chirwa
Thursday July 24, 2008 [04:00]

BANK of Zambia governor Dr Caleb Fundanga has assured the nation that the Central Bank took necessary steps before issuing a licence to Access Bank of Nigeria. And Nigerian High Commissioner to Zambia and Malawi Folake Marcus-Bello said Zambia remains one of the most organised and stringent countries in Africa in terms of licensing, a guarantee that only genuine businesses are allowed entry on to the market.

Dr Fundanga said the process of licensing a bank was a rigorous one, with the objective of ensuring that a stable financial system is maintained as a precondition for economic development.

He was commenting on media reports in Nigeria that 22 Nigerian banks are currently under probe on allegations of fraud.

“The process of licensing a bank is a rigorous one which involves a detailed assessment of an applicant to, in as far as possible, determine whether or not the applicant is fit to be granted a banking licence,” Dr Fundanga said. “The stability of a financial system is dependant upon, amongst a number of factors, the integrity of the market players.

The Bank of Zambia therefore applies internationally accepted practices and criteria in establishing the “fitness and propriety” of each applicant before allowing them entry into the financial system through the issuance of a licence.”

Dr Fundanga said although the current assessment system may not provide an absolute guarantee, it gives reassurance that necessary diligence had been exercised by the licensing authority.

The Central Bank recently licensed Access Bank of Nigeria, which is expected to begin operations before the end of this month.

But Patriotic Front president Michael Sata recently said the government should exercise serious caution when licensing banks in order to safeguard the country’s economy.

Sata said there was no need for the government to bring other banks like Access of Nigeria because the existing banks had already created healthy competition in the banking industry.

But the application by Access Bank, according to Dr Fundanga, was duly subjected to the aforesaid fit and proper review.

Dr Fundanga said banks are expected to operate within the provisions of the existing banking laws, including the BoZ’s Corporate Governance Guidelines once granted an operating license.

“Failure to comply with any banking laws is liable to attract supervisory action from the Bank of Zambia. The supervisory action will be commensurate to the supervisory breach and may include the removal of management where it is deemed necessary. A case in point was The United Bank of Zambia whose management was removed after they were found to have been engaging in unsafe and unsound banking practices,” said Dr Fundanga.

And High Commissioner Bello said Access Bank underwent several security and economic checks before it was granted an operating license by BoZ.

“The population of Zambia may be small but the country still remains one of the most organised countries. I’m regularly briefed on what Access went through to secure a license. The same security checks were applied to the application by Dangote Group of Companies which will establish a cement manufacturing plant here,” said High Commissioner Bello in an interview.

And on Sata’s recent comments regarding Nigerian banks, High Commissioner Bello said the Nigerian government would ask the opposition leader to offer a public apology at an appropriate time.

“His statement does not only affect Nigeria but because it was not well thought out, he rubbished the entire government of Zambia as well,” High Commissioner Bello said. “Such leaders have a tendency to discourage investors that are willing and able to come. Africa is for Africans, and Africans must therefore develop Africa.”

On media reports in Nigeria that 22 Nigerian banks are currently under probe on allegations of fraud, High Commissioner Bello said she coulzd not comment on the matter, saying it was an “internal problem.”

She said the Nigerian banking industry was one of the highly rated in Africa as most banks provided certain services that some international banks did not offer.

The Saturday Sun, a Nigerian publication, recently reported on how some banks in that country allegedly rip off customers and submit conflicting audited reports to different regulatory authorities.

The Saturday Sun quotes forensic accountant Adeyemo Olukoya, who said the 22 indicted Nigerian banks, had perfected a creative means of charging interest on credit facilities over and above the agreed interest rates between the lending bank and its borrowing customer.

The paper cites an example where if the agreed interest rate is 18 per cent per annum, the lending bank, exploiting the financial gullibility of the borrowing customer, may decide to charge 40 per cent per annum.

It is alleged the banks engage in sharp practices by illegally charging commission on turnover (COT) on returned cheques, transfers to other accounts belonging to the same customer and bank generated charges, all with a view to inflating the COT income accruable to a bank. COT is based on valid bank withdraws. The newspaper report indicates that Nigerian banks are nonetheless creating spurious and irrecoverable debts, through their illegal incomes being earned.

“Unfortunately, nearly every bank in Nigeria is deeply involved in this unholy action. So far, we have indicted over 22 banks in Nigeria for this illegal excess bank charges offence.

It is not that the remaining banks are clean; it is just that they are yet to be reported to us,” said Olukoya as quoted by the Saturday Sun. “The Central Bank of Nigeria (CBN) and the Nigerian Deposit Insurance Corporation (NDIC) cannot be divorced from the “rot” in the banking industry since they were supervisors of the banks.”