THe Actual State Of Corporate Governance In The Nigerian Banking Sector Accounting Essay

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Chapter 5

Summary and Conclusion

5.1 Introduction

The previous four chapters in the dissertation outlined the main reasons to study corporate governance in the banks in Nigeria. Chapter one deals with the introduction to the study, objectives and importance of the study. Chapter two reviewed the literature relevant to the study of corporate governance of banks as well as corporate governance in Nigeria and United Kingdom. Methodology and methods was looked into in chapter three, giving account of the choice of research paradigm adopted in this research. Result of the content analysis was discussed in chapter four.

The chapter summarises the major findings of the study which attempt to answer the research questions presented in chapter one. The chapter is divided into three sections, the findings, limitation of the study and recommendation.

5.2 Major Findings

Disclosure can be defined as

"Whole array of different forms of information produced by companies,

Such as annual report which includes the director's statement, the Operating

And Financial Review (OFR) [1] , the profit and loss account, balance sheet,

cash flow statement and other mandatory items. It also includes all forms of

Voluntary corporate communications, such as management forecasts, analysts'

Presentations, and the AGM, press releases, information placed on corporate

website and other corporate reports, such as stand-alone environmental or

social reports (Healy and Palepu,2001, Jill Solomon,2007, pp.1444)

Jill Solomon posits that existence of asymmetry information results in mangers having more knowledge about the company in terms of company's activities and financial position than the current or potential investors. He went further that

"Without a structure system of disclosure, and in particular financial reporting

It would be very difficult for shareholders to obtain appropriate and reliable

Information on their investee companies. Such information could lead to

Moral hazard and adverse selection problems. By ensuring frequent and

Relevant corporate disclosure, shareholders are in better position to monitor

Company management".

The first research question raised in this dissertation is the actual state of corporate governance in the Nigerian Banking sector. The result showed that state of corporate governance in Nigeria is still poor state though there are some rules and regulations on corporate governance in the country. For instance, the code of governance for banks was published by the Central Bank of Nigeria in 2006. The study has shown that Nigerian banks

Analysed are complying with some aspect of the guildline issued by the Basle committee on banking supervision in 2003 especially, categories relating to Industry or counterparty type distribution of exposures and Geographic distribution of exposures. It was due to prudential guildline issued 1998 by Central Bank of Nigeria (CBN) which stipulates loan provision requirement. The one of the weakness of the code of governance for banks in Nigeria was that little detail was provided about the format of risk disclosure, it only stipulates that banks should have risk management committee. Banks in Nigeria are exposed to three types of credit risk, Margin loans (exposure to stock exchange), oil and gas and telecommunication. Banks in Nigeria that disclose information about credit risk do so voluntary. For instance, first bank of Nigeria writes in its annual report that

"First Bank of Nigeria Plc continued to make progress against the Goal

we set for ourselves - to set the pace in corporate governance by ensuring

that the level of risk management disclosure in the published financial

statements moves towards international best Practices. This level of

disclosure is not at present a requirement of the Nigerian Accounting

Standards Board, the Central Bank of Nigeria, the Nigerian Stock Exchange,

the Securities and Exchange Commission or any other regulatory body in the

country. However, the Board of Directors of First Bank took a voluntary

decision to move disclosure practices towards international standards,

borrowing from the guidelines of Pillar 3 of the New Capital Accord (Basel II)."

(First bank of Nigeria Annual report 2009 page 53)

This makes it difficult for investors to ascertain the solvency of the organization and compare one bank from another. The research confirms the fifth report of 2009 that banks in Nigeria have huge bad debts that they do not disclose in their annual report. From the content analysis none of the banks in Nigeria disclose the total gross credit exposure (bad debt)

The second research question is related to differences between corporate governance practises in the Nigerian banking sector and international corporate governance norms and principles. The result showed that there is a wide gap between information disclosed by banks in Nigeria and their foreign counter part and no uniformity in the information disclosed by banks in Nigeria. For instance, the mean number of pages of annual report of Nigeria banks was 126.4 whereas it was 304.4 for banks in United Kingdom. Visual inspection of the annual report released by bank in Nigeria showed that about one third of the annual report contains diagrams and pictures of chairman and other directors. This makes it very difficult for shareholders, investors and general public to make informed decision about the company and it makes it difficult for information to be accessible to a broad range of users, not just investors. Though, the Nigeria five banks analysed disclose enough information about geographic distribution of exposures and industrial distribution of exposures, the same cannot be said of other 20 banks in the country because these top five banks have branches outside the country especially in United Kingdom. They know the importance attached to disclosure of information and need to comply with financial service authority (FSA) guildline on credit risk. No bank out the five banks analysed disclosed its total risk exposure.

The third research question involved the obstacles to the closure of the gap between the current state of corporate governance in the Nigerian banking sector and International corporate governance requirement. The major obstacle to corporate governance in Nigerian banking sector is that annual reports produced in Nigeria are based on the local accounting standard which is out of tune with modern day reality. It only requires publication of quarterly pre tax earning and no provision on narrative disclosure. The disclosure of internal control is very weak in Nigeria. There is no way investors can know the processes used by management

For identifying, evaluating and managing the risk the company face. It makes it difficult for investors to determine future trend. According to Fitch report on Nigeria banks released on the 23rd of June, 2010.

"The present disclosure requirements of Nigerian accounting standard

Lag behind other emerging markets which make it difficult for

investors to assess the overall level of risks related to local Nigerian

banks, as banks have sought to access the international capital markets."

(Fitch report 2010)

They went further to say that the financial market will reward companies that disclose more information than others.

"Investors would like to see Nigerian banks improve the level of disclosure

in their annual reports by presenting supplementary information over and

above the minimum accounting standard requirements"

(Fitch report 2010)

5.3 limitations of the study

The most apparent limitation was the time constraint for the research. Three months is too short for a meaningful research on corporate governance in the Nigerian banking sector. I

Would have loved to use questionnaire with content analysis as a method of analysis.

I would have loved to have included more than twelve banks in my analysis but most banks in Nigeria only posted figures of the annual pre tax earnings on their website (just to comply with the directives of Nigeria stock exchange). Thus, if more time was available , it may have been possible to make the sample size larger and more representative. Also, this study did not have the benefit of enough literature on corporate governance ( in terms of credit risk) on the Nigerian Banking sector.

5.4 summary and suggestion for further study

The research attempted to investigate the actual state of corporate governance in Nigeria sector. It is clear that corporate governance in Nigeria is still in rudimentary state. Many challenges regarding corporate governance practises in Nigeria still remain. There is need to overhaul the supervising framework of banks in Nigeria. The Central Bank has not been able to establish a firm grip on banking supervision especially in the area of monitoring the risk management practices in banks. The current practice whereby CBN combines the Supervision of banks and other financial institutions with the performance of other Monetary/economic issue has not been very effective. The central has failed in its role to supervise banks in Nigeria. In a speech presented by the new Central Bank of Nigeria governor, Mr Sanuri confirmed that the agency since 2005 has not conducted a single examination of banks in the country. The government should set up another agency like the Financial Service Authority (FSA) in the United Kingdom to supervise and regulate banks in Nigeria.

The central bank of Nigeria should not waste time in adopting the recommendation of Basle committee on banking supervision on credit risk. Without adequate disclosures, it will be difficult for foreign investors to invest in banks in Nigeria because everybody wants to invest in an organization that he/she is sure of getting return and also, the Central Bank of Nigeria should make disclosure of narrative information mandatory for Banks in Nigeria because this help investors monitor the management activities, thereby increasing transparency. The National Association of Pension Fund (NAPF) in 2005 highlighted the importance of narrative disclosure of information.

"the internal control statement provides an opportunity for the board to help

Shareholders understand the risk and control issues facing the company, and

To explain how the company maintains a framework of internal control to

Address these issues and how the board has reviewed the effectiveness of

That framework".

(NAPF,2005 , Jill Solomon, 2007).

Questions concerning the importance of cultural factors in the Nigerian context (and Africa in general) and their relevance to corporate governance issue still remain, as do question regarding market and liquidity risk management. These questions could all be useful be considered for further study.