As the banking reforms in Nigeria progress from one stage on to another, each new situation presents its own challenges. While some likely fallout of the reforms can be forecasted with certainty, others emerge with the passage of time. The 31st December 2009 common year-end has become a reality. The banks have forwarded their draft financials to the CBN. The CBN needs to confirm the integrity and completeness of the financial reports before approving them. This presents yet another series of challenges for the Regulator as this time around, their can be no excuses.
One of the reasons advanced for the crises in some Nigerian banks had to do with inaccurate financial reporting. It was adduced that some loss-making financial institutions not only declared profits but paid dividends using depositor funds. The multiplier effect of such actions on the future financials of a firm/bank is at most imaginable. With the common year-end and the adoption of International Financial Reporting Standards, a golden opportunity has arisen for the CBN to rectify these anomalies.
First and foremost, it is important that banks send in their reports using a common financial reporting system framework. This will facilitate the comparison of a banks’ financial performance over time and against that of other banks and the industry itself. The risk-based assessment of financial reports is thus simplified. It might be necessary for the CBN to further improve the quality of banks’ financial reporting beyond what already exists.
Secondly, it is vital that the ‘target examination’ of the banks being carried out by the CBN in this wake does NOT simply focus on ascertaining data integrity. There is absolute need to also focus on each banks’ financial system integrity. While recalling the popular phrase of ‘Garbage In, Garbage Out’, data integrity mainly focuses on data accuracy and completeness while financial system integrity focuses beyond data to all the other key elements of the financial information structure. Financial system integrity is definitely more holistic and reliable. To this end, a set of parameters for ascertaining system integrity might be required. The financial regulator must avoid a situation of garbage in garbage out of financial data, as that will fundamentally make inaccurate any information derived from the use of such data.
In addition to the above, perhaps it is also time for the introduction of a common financial accounting system framework for Nigerian banks. The framework should recommend the basic foundations or elements on which the entire financial accounting infrastructure of all banks should be based. This no doubt will take into consideration the nature of banking services in Nigeria. Recommendations for the scope of the charts of accounts, account classifications, internal control systems, financial accounting software, operating procedures/manuals and the likes should be paramount in this objective. Most of all, it is important that the whole system is simplified.
The Nigerian Government intervention which resulted in the injection of six hundred and twenty (620) billion Naira banking stimulus package is no doubt unprecedented. But the real challenge has to do with the implementation of the other remedial measures required to put the financial industry back on the path of recovery, growth and stability. Some of the above recommendations may represent necessary regulatory innovations. While some may argue that such measures will make the industry much more sophisticated, it is vital to note that if simplicity is considered as a guiding principle of the banking reform measures, complications are consequently eliminated.