IMF backs ongoing reforms in Nigerian banking sector

• Source: Xinhua
• [17:40 September 16 2009]
• Comments

The International Monetary Fund (IMF) said on Wednesday that it endorsed the ongoing banking reforms by the Central Bank of Nigeria (CBN) which necessitated the removal of the chief executive officers of five banks last
month.

David Nello, the fund country chief and representative in Nigeria, updated this in a statement reaching here, saying the endorsement was a fallout of the meetings the IMF delegation from the United States held with top officials of the CBN, which threw more light on the banking reforms.

The CBN sacked the managing directors and executive directors of five banks over breach of corporate governance practices in their respective banks.

The apex bank hinged their on excessive high level of nonperformance loans due to alleged poor corporate governance practices, lax credit administration and a non-adherence to the banks' credit risk management practices.

According to the IMF official, the CBN intervention in some banks was essential to building a sound financial sector that can promote long term growth and development consistent with the goals being set for the Vision 2020.

"A core principle of an effective banking system is public trust -- trust that deposits will be safe, trust that banks
allocate financial resources to productive activities, and trust that banks will manage risk," he said.

"Underlying this trust is a public expectation that sound governance practices are employed in the banking system and these fundamental tenets enable the banking system to promote sound economic growth and development," he added.

The IMF chief said the central bank as regulator has the responsibility to ensure that the principles of banking enshrined in legislation and the CBN mandate are preserved.

"We support of the CBN public commitment to protect depositors and creditors," he said.

Nellor added that the immediate goals were to stabilize the banks, seek full recapitalization through loan recovery and new investors, and strengthen the corporate governance and credit practices in the banks.

"Over time these actions should enable the central bank to remove itself from both the management and balance sheets of the banks in a manner consistent with financial stability," he said.

The affected banks include Intercontinental Bank, Union Bank, Oceanic Bank, Afribank and Finbank.