CBN Disagrees with FRC over Stanbic IBTC

Posted by African Examiner Banking & Finance, Business News, Latest Headlines Tuesday, November 3rd, 2015

The Central Bank of Nigeria on Tuesday faulted the regulatory decisions taken by the Financial Reporting Council of Nigeria against Stanbic IBTC Holdings Plc.

The position of the CBN was contained in a letter written to the FRC dated November 2 and signed by the governor of the bank, Mr. Godwin Emefiele.

The letter, with reference number GVD/GOV/CON/DGF/93/113, was copied the National Office of Technology Acquisition and Promotion, Securities and Exchange Commission, and Ministry of Industry, Trade and Investment.

The FRC had on Monday suspended the Chairman of Stanbic IBTC Holdings, Mr. Atedo Peterside, and three directors of the company from signing any financial statement over allegations of improper disclosures in the bank’s financial statement for the 2013 and 2014 financial periods.

Also suspended were the Managing Director/Chief Executive Officer, Stanbic IBTC, Mrs. Sola David-Borha, Mr. Arthur Oginga and Dr. Daru Owei.

Furthermore, the council ordered the Stanbic IBTC directors to withdraw the company’s financial statements for the 2013 and 2014 financial years, insisting the statements were not prepared in line with the International Financial Reporting Council, hence were misleading.

The FRC claimed that Stanbic IBTC misrepresented its operational expenses by concealing important expenses in its financial statements.

The decision of the council had resulted in 18 per cent drop in the value of the shares of the bank on the floor of the Nigerian Stock Exchange.

But in the CBN letter, Emefiele stated that while the bank understood that both the Final Notice and Regulatory Decision of the FRC were based on the FRC Act No. 6 of 2011 and Regulation 21 of the FRC guidelines, its review revealed that the bank had not committed any serious infraction in its financial statements.

For instance, in the area of financial issues raised by the FRC, the central bank said contrary to allegations that Stanbic IBTC did not obtain approval from NOTAP for the payment of the software licence, a review revealed that the bank actually obtained the necessary approval from NOTAP.

The approval, according to the governor, was granted to pay affiliate software licence from Standard Bank South Africa for a period of three years covering June 1, 2012 to May 30, 2015.

With regards to the allegation of non-disclosure of intangible assets, the CBN said the bank adequately recognised the software as an intangible asset in its 2011 financials and sufficiently disclosed the disposal of the software in the 2012 financials.

The central bank said, “With regards to the allegation of lumping several expense items under ‘others’, we are of the view that the items were not material enough to appear as line items in the income statement and that the non-disclosure of the items did not materially affect the true and fair view of the financial statements.

“We agree with the FRC that SIBTC erred in the classification of some line items. However, the identified misclassification did not understate or overstate its assets and liabilities, neither did it increase nor decrease its income or expenditure, such as would have caused a material misrepresentation of the financials.

“Contrary to FCR’s conclusions, our review of the International Accounting Standards 37 and IAS 32.19 indicate that SIBTC had an obligation to accrue the relevant provisions toward the settlement of the franchise and management fees as agreed between it and the SBSA.”

In respect of the legal issues raised by the FRC, the CBN expressed concern over what it described as the apparent failure of the council to follow due process as laid down by the FRC Act.

On the implication of the FRC actions on Nigeria’s financial system stability, the governor said, “We are seriously concerned that such a drastic regulatory decision could be taken on an entity under the regulation and supervision of the CBN without any form of consultation.

“Such a regulatory decision and the manner of the announcement is not only capable of eroding investor confidence, but also inimical to the financial system stability.

“Indeed, the FRC’s action has already precipitated a fall in the value of the shares of Stanbic IBTC by about 18 per cent since the announcement of the regulatory decision.

“In the light of the foregoing facts, which clearly show that the FRC did not follow due process, the Bank (CBN) regrets to inform you that it is unable to accede to your request to take disciplinary action against SIBTC.

“Indeed, the CBN does not see any reason to advise/compel SIBTC to obey the sanctions meted to it by the FRC.”

Emefiele said the CBN would continue to take all necessary steps to protect the interest of depositors and to ensure the safety and soundness of the financial system.

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