Trust Deficit In Banks

Recently, the Ikeja Special Offences Court sentenced a Nigerian banker to four years and two months in prison.

This ruling came after the banker was arraigned by the Economic and Financial Crimes Commission (EFCC) on fraud charges. Earlier in 2020, the FCT Police Command paraded gang members, including a bank employee, Larry Ehizo, 30, Timothy Joe, 21, Princewill Obinna, 24, and Elijah David, 19, for attempting to rob an old-generation bank in Mpape, a suburb in Abuja.

Ehizo, who allegedly drove the gang members to the bank, claimed he was blackmailed by the suspected gang leader, Ernest, to carry out the heist.

At the 17th Annual Banking and Finance Conference last year, the EFCC chairman, Olanipekun Olukoyede, said some major and mind-boggling financial frauds were committed through the banking industry.

While describing the scenario as disturbing and unacceptable, he categorically stated that about 70 per cent of financial crimes in Nigeria are traceable to the banking sector.

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This paper recalls that in the second quarter of 2024, Nigerian banks dismissed 49 employees involved in fraudulent activities, reflecting a sharp 40 per cent increase compared to the 35 terminations recorded during the first quarter.

According to the report, 58 bank workers were involved in the 11, 532 cases of fraud reported in the period under review.

The alarming data, detailed in the ‘Fraud and Forgeries in Nigerian Banks’ report by the Financial Institutions Training Centre (FITC), has brought to light, the persistent issue of internal fraud in Nigeria’s banking sector.

The report highlighted a variety of fraudulent activities perpetrated by the dismissed employees. These ranged from unauthorised transactions and identity theft to insider collusion aimed at exploiting systemic vulnerabilities.

Similarly, Olukoyede broadly categorised banking frauds into those perpetrated inside and outside.

According to him, the inside-related fraud comprises outright selling of customers’ deposits, authorising loan facilities, forgery and several other kinds of unhealthy and criminal practices.

The outsider-related ones include hacking, ATM fraud, and conspiracy, among others, which include collaboration among the bankers and the outsider (s).

We recognise that while these insider fraud cases represent only a portion of the total fraud incidents reported, their impact on customer trust and investor confidence cannot be understated.

As of December 2024, 331.6 million Nigerians had active bank accounts, a 122.3 million increase from January 2024. This is based on data from the Nigeria Inter-Bank Settlement System (NIBSS).

According to the FITC, Nigerian banks lost N42.33 billion to fraud in the first half of 2024; a significant increase from 2023, when banks lost N9.4 billion to fraud.

Fraudulent activities in branches increased by 31 per cent, computer/web fraud increased by 1,560.3 per cent, cheque-related fraud increased by 36.67 per cent while 11,532 fraud cases were reported.

The amount lost to fraud increased from N2.9 billion in Q1 to N56.3 billion in Q2 of 2024, while fraudsters attempted to steal N115.9 billion

The report attributes this surge to the increasing digitization of financial transactions, which, while enhancing convenience, has also provided fraudsters with a wider playing field.

For us, the rise in fraud-related terminations underscores the urgent need for systemic reform in the Nigerian banking industry.

We recognise that the financial sector is the backbone of any economy, driving transactions, investment, and growth.

Though successive EFCC chairpersons have oft lamented the roles of financial institutions in aiding financial crimes, vowing to take drastic steps against it, the situation has not changed.

The financial crimes commission said its investigations of financial crimes involving members of the profession revealed gross contempt for regulation, which bothered on impunity.

We urge the Chartered Institute of Bankers of Nigeria (CIBN) to step up its regulatory oversight of its members to adhere to the codes of professionalism.

Specifically, the FITC advised  banks to strengthen their access controls by limiting access to settlement files to only a small, vetted group of authorised personnel given the appropriate clearance and are regularly trained on the latest security protocols.

But beyond all these, there’s need for banking institutions to begin to vet those they want to engage  before employing them.

Bankers have a variety of skills and traits, including analytical skills, sales skills, and adaptability but the most critical trait is the ethical integrity.

Unarguably, integrity and ethical values form the bedrock of trust in the finance sector; ensuring transparent and honest dealings with clients, colleagues, and stakeholders.

We know that their ethical integrity fosters confidence and credibility in their professional relationships.

We recall that on assumption to office in March 2021, the former chairman of EFCC, Abdulrasheed Bawa, announced that bankers and officials of financial institutions would be compelled to declare their assets to check their contributions to facilitating financial crimes.

He set 1 June 2021 for the officials to begin compliance with the directive, which he anchored on an existing but little known Bank Employees, ETC. (Declaration of Assets) Act 1986.

He added that the penalty for violating the Act, as spelt out in section 7(2) of the law, includes imprisonment for 10 years and shall, in addition, forfeit the excess assets or its equivalent in money to the federal government.

In our considered opinion, more needs to be done to checkmate the activities of these nefarious elements in our financial institutions.