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Common year-end policy: Can it remove unwholesome practices?

And with their huge financial exposure to the Nigeria stock market, it seems to be an impossible task as banks embarked on aggressive deposits mobilization…

And with their huge financial exposure to the Nigeria stock market, it seems to be an impossible task as banks embarked on aggressive deposits mobilization drive, with short-term deposits rates peaking at 18 per cent per annum, an indication of the increased competition for deposits in the banking industry. CBN alleged that banks were fond of indulging in sharp practices. It cited issues such as: de-marketing, insatiable hunger to mobilize deposits, late disclosure of financial statements as some of the practices that banks indulged in. Also, the crisis in the nation’s financial industry affected the activities of banks. Most banks were said to have given out margin loans to stock broking firms.
The banks equally sweeten premiums on deposits against near capped loan rates.
These developments took their tolls on the equity market recovery too. The Nigerian capital market which had hitherto ridden on the back of growing local equity culture, largely driven by banks’ newly raised funds seeking opportunity for returns to investors, slumped. The market capitalization which was around N12.5 trillion around February went down to as low as N4.9 trillion by November 2008.  The market had been starved of the much needed liquidity, a run kick started by the CBN directive on margin lending.
There were series of calls and different measures to bring investors’ confidence into the capital market, all to no avail. There were even calls by major stakeholders to CBN to postpone indefinitely the proposed common year-end policy. Erstwhile CBN governor, Professor Chukwuma Soludo acted on the advice, suspended the policy until economy atmosphere was favourable to accommodate it.
Surprisingly, in its February 2009 monetary committee meeting, CBN directed the 24 banks operating in the country to adopt uniform common year-end financial account beginning from December 2009. Access Bank managing director, Aigboje Aig-Imokuede who read the communiqué at the end of the meeting said the essence of the re-introduction was to encourage banks to disclose their financial capacity and their level of margin loans into the nation’s stock market.
He said with this, it would provide a proper view of the health and liquidity available in the banking sector.
“This will definitely give a better view about the health of the banking sector. Since the suspension of the policy which was introduced last year by CBN, many banks have already adopted the common year-end policy for their financial accounting,” he said.
The policy was introduced last year but due to criticisms that greeted it and financial meltdown that faced the nation’s stock market, CBN was forced to suspend implementation.
However, with less than five months to go, the apex bank’s efforts seem to be paying off as most banks notably: Ecobank Nigeria Plc, Intercontinental Bank Plc, Access Bank Plc and Guaranty Trust Bank Plc said they had adopted the principle of a common accounting year in December.
Soludo was unequivocal about the decisions of the apex bank to ensure that banks complied with the directives on common financial year–end.
He said that CBN would not spare any efforts in ensuring that some of the abuses in the industry were checked, adding that the apex bank would be able to check the excesses of the banks through a uniform accounting year.
Based on this, CBN had been making efforts at ensuring that banks evolved a common accounting year to stimulate growth in the industry.
But the Director General of the Nigerian Stock Exchange (NSE) Ndi Okereke-Onyiuke, berated the apex bank for the re-introduction of the uniform year

end for banks, saying that the policy was not recommendable, considering the peculiar situation of the Nigerian economy.

According to her, the policy would pose serious challenges for banks as they would be struggling to meet up with deadlines and regulatory requirements, thereby putting pressure on the few auditing firms in the country and on their activities.

Okereke-Onyiuke said that the policy would also affect activities on the floor of NSE, as the approach of the year-end and the attendant expectations by investors would buoy activities in the market, while a lull would be recorded after the period, adding that, it would be advisable for the CBN to make it a double year end, instead of a uniform year end

However, other operators disagreed with Okereke-Onyiuke’s views. The Executive Director, Treasury and Financial Institutions, Ecobank Nigeria Plc, Mr Jubril Akpu said common year-end would help the nation’s banking industry by removing certain abuses.

He said, “The behaviours of the operators were erratic when the Central Bank of Nigeria declared its intention to have a uniform accounting year for all the banks. Banks are trying to outdo one another then. We saw that this development is not healthy for the industry. However, it has helped moderate the market. We should commend CBN for bringing in this kind of measure.”

Also, the Managing Director, Guaranty Trust Bank, Mr Tayo Aderinokun said complying with the common year-end directive was very important for the banking industry.

Aderinokun said that the bank had changed its accounting year-end from 28 February to 31 December. He said the measure was part of efforts at complying with the CBN’s directives.

He said the change would align the bank’s accounting year with those of its subsidiaries, adding that the development made the bank to present its 10th month financial statements in its annual report.

However, the former Deputy Director, Risk Management Department, Central Bank of Nigeria, Dr Jonathan Aremu said that there was no basis for putting in place a common financial year for banks in the country. Aremu said that it was not within the monetary policy of CBN to change the date on which banks closed their account books.

“CBN should put in place a good management system that would lead to the discovery of irregularities in the banking industry. When we say that CBN has the right to change the accounting year of banks, we are not being fair at all. By telling banks to synchronize their accounts, CBN is indirectly saying that it is not capable of managing the financial system,” Aremu maintained. Many analysts gave vent to Aremu’s assertions, demanding that CBN should allow banks to have separate accounting years.

Many have kept their fingers crossed to see whether this policy would be fully implemented and rid the banking sector of unethical practices.