Banking ethics play a crucial role in maintaining the integrity and trustworthiness of the banking profession. However, there are instances when insiders, in collusion with customers, compromise these ethics for personal gain, disregarding credit controls and mitigants. This unethical behavior often leads to a significant increase in the initial loan amount, as interests and inflation kick in with time. The consequences of such compromised ethics, accentuate the importance of integrity, ethics, and rules in the banking industry.
In recent times, the banking profession has witnessed instances where insiders, in cahoots with customers, have compromised banking ethics for personal gain. This unethical behavior involves ignoring risk acceptance criteria, credit controls and mitigants, resulting in a substantial increase in the NPL of Nigerian banks. Such practices deviate from the principles of integrity, ethics, and rules that once governed the banking industry. The negative consequences of compromised banking ethics lead to prolonged legal proceedings that sometimes come to naught.
Erosion of Trust: When insiders collude with customers to manipulate loan amounts, it erodes the trust that some customers and shareholders place in the banking system. Stakeholders rely on banks to act in their best interests and provide fair and transparent services. However, when unethical practices come to light, it damages the reputation of the entire banking industry. For example, the 2008 financial crisis was largely fueled by unethical practices within the banking sector, leading to a loss of trust among customers and the general public. This led to the sacking of the executive management and take over of eight Nigerian banks in 2009, by the Sanusi Lamido Sanusi led Central Bank of Nigeria and the setting up of AMCON.
Financial Instability: Ignoring credit controls and mitigants can have severe consequences for the stability of the financial system. By granting loans of doubtful values ab initio, insiders and customers create a false sense of financial security, which can lead to unsustainable debt levels. This, in turn, increases the risk of defaults and financial instability. The collapse of major financial institutions, such as the Africa Continental Bank, National Bank, Oceanic Bank, IMB, ICON, NAL, Century Merchant Bank, Finbank, Ivory Merchant Bank, Chase Merchant Bank, just to name a few, serves as a stark reminder of the devastating impact that compromised banking ethics can have on the national economy.
Legal and Regulatory Consequences: When banking ethics are compromised, it often violates legal and regulatory frameworks put in place to protect customers and maintain the integrity of the banking system. Insider trading, fraudulent loan practices, and money laundering are just a few examples of the illegal activities that can result from compromised ethics. These actions not only harm the reputation of the banking profession but also lead to legal consequences for those involved.
The compromise of banking ethics by insiders in collusion with customers, leading to the disregard of credit controls and mitigants, is a clear violation of the best practices in the banking profession. Such unethical behavior erodes trust, destabilizes the financial system, and invites legal and regulatory consequences. It is essential for the banking industry to uphold the principles of integrity, ethics, and rules that were once the cornerstone of the profession. By doing so, banks can regain the trust of customers, ensure financial stability, and contribute to a more ethical and sustainable banking industry.
NB: Iroche is an investment banker of over 30 years experience and a 2022-2023 Senior Academic Visitor at the African Studies Centre of the University of Oxford. UK Twitter: @IrocheSonny.
