As the Central Bank of Nigeria (CBN) steps in with new ground rules for banks’ rating and a uniform financial year for operators, the curtain may have been drawn on accusations of self rating by banks as the new regime will help throw-up the first among equals in the banking industry writes Simeon Ebulu.

Professor Chukwuma Soludo, CBN Governor

Railing accusations levied against banks for engaging in self rating to help project their image and gain respect in the eyes of the public would become history with the coming on stream of the apex bank’s set criteria for assessing banks performances. The Central Bank of Nigeria (CBN) has in exercise of its supervisory role over the banks and to infuse sanity, perhaps pencilled down three measurable criteria within which the health and performance of each bank would be assessed and graded so that the outcome of the exercise, could be compared vis-à-vis other banks performances to arrive at and attain a proper ranking of the industry’s key players, as against what obtains presently which has been largely criticised whereby almost every bank seemed at liberty to engage in self rating and self ranking adopting parameters that suited them.

Under the CBN criteria already adopted by the Bankers Committee, banks would be rated on the basis of customer service delivery, contributions to real sector support and development, market and product development as well as risk management and compliance. There is as yet no consensus, two years into the banking reforms why the CBN opted for a harmonisation of rating parameters at this time when many bankers have argued in the past about the favourable disposition of the CBN to the myriad of rating results by both national and international rating agencies, the outcome of which, more often than not, favours the correspondent banks.

In the dying days of 2007, the Managing director of the Nigeria Deposit Insurance corporation (NDIC) Alhaji Ganiyu Ogunleye raised, what some bankers termed an unfounded alarm at what he termed, self rating by banks. The NDIC boss had severely criticised the practice because according to him, the outcome of the rating exercises had no statistical backing and should be discouraged he argued. It has been the norm in the course of the past two years for banks which have attained some leverage over their peers in a given parameter to go public proclaiming, their leadership positions in the industry. It was common knowledge in the course of 2006 and 2007 to be inundated with such claims and acronyms as first Nigerian bank to attain $1 billion capital base, the most capitalised bank in terms of shareholders’ funds, Nigeria’s biggest bank in terms of total assets; branch network; profit, balance sheet size and a myriad of other largely loose parameters.

It was difficult going by the share number and frequency of the claims, to actually do any meaningful ranking. Beyond the claims, themselves, another loophole was the different time lags used in the assessments. Most of the claims could not be pigmented on a scale since they were done at varied times corresponding to each banks’ financial accounting year. As it became clear that the investing publics were swayed in favour of one bank or the other depending on which parameter(s) they were peddling, more banks joined the bandwagon, the result being that at any given time, several banks laid claims to being number one, or leading banks in more respect than one.

The practice, rather than lend credence and prestige to the banks, became most times, object of ridicule amongst the industry practitioners. CBN’s intervention by laying the ground rules and setting the parameters and time frame within which the assessments could be done, is seen as a welcome development and the way forward towards sanitizing an otherwise unwieldy rating classification. In furtherance of giving vent to the CBN new ground rules, the banker’s committee has already agreed to setting up a committee to determine high-performance banks on the basis of laid down criteria. Mr. Moyo Jacobs Ajekigbe, Managing Director of First Bank Nigeria Plc, who chaired the last bankers’ committee meeting at which the CBN new rating criteria were endorsed, stated that the membership of the committee will be drawn from the CBN, Nigeria Deposit Insurance Corporation (NDIC) Chartered Institute of Bankers (CIBN), Securities and Exchange Commission (SEC) and the Institute of Chartered Accountants of Nigeria (ICAN).

To ensure credibility of the outcome of banks’ assessment, the bankers committee would decide and engage reputable rating agencies to use and also include an audit firm as well as an independent person of high repute and integrity. The committee, being well represented, assured Mr. Ajekigbe, would deliver a good job as regards rating banks for the categories of awards mentioned. The other criteria that the committee would focus on in arriving at its judgement are risk management which would involve risk identification and the various ways they can be mitigated in addition to the industry’s operators' compliance with the Banks and Other Financial Institutions Act (BOFIA).

The committee would be saddled with the responsibility of determining the level or extent to which banks have complied with all abiding legal instruments. The seriousness with which the bankers committees has embraced the new rating regime seems to underline the fears already expressed in various quarters that the subsisting parameters employed by the rating agencies and their results appear to fall short of industry players’ expectations. Besides the lack of unity in time frame amongst the banks, as each bank’s financial year record differs one from another, the use of different parameters in a mumbo-jumbled manner also created distortions, making valid assessment amongst the banks difficult and ranking almost impossible. Consequently, the various scores and rating given most banks were seen, even amongst the players themselves, as being particular to the respective institutions commanding no respect in the industry or financial services sub-sector.

With the CBN intervention and the introduction of unified rating criteria, the road to ensuring institutional credibility and promoting healthy competition is already in the acting. Bankers who volunteered comments on the development but who nevertheless asked not to be mentioned, accede to the measure as a good one for the industry. The expressed the view that much as the CBN rating criteria would be adhered to, each bank would still devise its won strategy to optimise profit, ensure higher yields and good returns on investment.

The uniform accounting period, confirms one of the bankers, would make it easier for the CBN or its officials to capture figures and determine the true state and health of each bank, adding that the advice of the CBN to banks to direct increased credit to some sectors, was itself not a command, but purely a moral situation. "At the end of the day, say a hawker, banks will not necessarily give credit on the basis of CBN’s directive but largely ensure survivability, sustenance, growth and profitability. It would be left to each bank to determine which area to concentrate on how to drive the economy. Some banks, argues a banker, may prefer the telecommunications sector, others the banker believes may have a flair for the oil and gas, just as some may find their itch in agriculture and manufacturing. They however agree that the Central Bank’s initiative would no doubt bring security to the industry as it relates to ranking.