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Banks, losses and fears

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The resolve by the Nigeria Deposit Insurance Corporation (NDIC) to investigate some banks as a result of rising cases of fraud and forgeries involving employees of those banks is a salutary development. According to the reports, “the NDIC is to investigate some banks for the inadequate rendition of returns to the Corporation on instances of fraud, forgeries and cases involving members of their staff who were either dismissed or terminated on the grounds of fraudulent activities”.

The decision of NDIC to conduct the investigation derives from the most recent report from the Corporation’s Off-Site Supervision of Deposit Money Banks (DMBs), which revealed that “the number of fraud cases attributable to internal abuse by staff of banks increased from 231 in 2016 to 320 in 2017 or 38.53 per cent above the figure reported for the previous year”. The other reported outcomes from the same report include: 56.30% increase in the number of reported fraud and forgery cases from 16,751 in 2016 to 26,182 in 2017; 38% increase in the amount involved from N8.68 billion in 2016 to N12.01 billion in 2017; 1.03% decrease in the amount lost from N2.39 billion in 2016 to N2.37 billion in 2017; the number of e-banking (including on-line and ATM/Card) fraud accounted for 92.68% or 24,266 of all the reported cases in 2017; e-banking fraud also accounted for N1.51 billion or 63.66% of the losses sustained in 2017; 26 banks rendered 286 returns on dismissed/terminated staff as a consequence of their involvement in fraud and forgeries in 2017; the losses attributable to bank staff decreased from N760 million in 2016 to N682 million in 2017 or by about 11.43%.

From these revelations, there is hardly any doubt that fraud risk in Nigerian banks poses serious danger to the safety, stability and sustainability of the banks and the entire economy. To safeguard depositors’ funds is becoming a major challenge facing bank operators and regulators. If public trust and confidence must continue to be sustained in the banking system, and promotion of financial inclusion expected to yield bountiful outcomes would be ensured, it has become imperative that long-lasting solutions must quickly be found.

The NDIC’s resolution is therefore, commendable especially as the investigation is expected to unearth, among other things, the motivating factors, those involved and their collaborators, locations where the frauds occurred, channels used, actions taken against the involved staff/other fraudsters, and of course, how best to contain the malaise.

As a major stakeholder, with the daunting responsibility of insuring deposits of customers in banks and given that the insured deposits are now under serious threat by fraudsters, NDIC should extend the investigation to cover all forms of fraud and forgeries in the banking industry. To ensure a thorough, timely and successful investigation, it is essential to emphasize that banks and other stakeholders like Nigeria Inter-Bank Settlement System (NIBSS), Nigerian Communications Commission (NCC) and Central Bank of Nigeria (CBN), should cooperate with NDIC.

While the investigation goes on, operators of banks should pay more attention to preventive strategies in dealing with fraud and forgeries, especially with regard to delivery of electronic banking (e-banking) products/services. As has become very evident, banking transactions are speedily shifting towards electronic platforms. The need to adequately secure such platforms can no longer be overemphasized as information and communication technology that is powering e-banking is expected to be deployed to serve beneficial purposes.

It is shameful that employees who are entrusted with depositors’ funds and banks’ assets turn round to steal them. This is a confirmation that the industry has been infiltrated by persons without the requisite character of honesty and integrity.

The banking industry, without further delay, should identify and weed out such individuals and also develop ways to prevent questionable characters from being engaged by banks. In addition, enhanced security of technologies, strengthening internal control and compliance systems/practices and closer proactive supervision and monitoring, can go a long way in moderating, if not totally eliminating fraud in banks.

It is however, unfortunate that much of the technology being used by Nigerian banks are not developed domestically to cater for the people’s unique requirements. Consequently, operating with them may be part of the factors fueling fraud and forgeries. Banking software and related applications must therefore be developed locally to take care of the industry’s peculiar domestic environmental and social needs or challenges.

It has now become important for banks to commence fraud risk management activities right from staff recruitment to philosophies, policies, processes, procedures and practices. And for outsourced or casual staff, wisdom should dictate that caution is applied in deploying them to sensitive and critical areas.

Besides the foregoing, it is high time banks took time to watch the life- style of their employees and, where necessary, question life-styles that are inconsistent with the known income of the staff

Experience has shown that true professionals guard their names jealously and are thus, less prone to engaging in crimes. Therefore, banks should make it mandatory for their employees to become members of at least one of the recognized professional bodies in the banking industry. This will provide them opportunities to improve their banking knowledge, practices and skills as well as cause them to perform their duties within subsisting laws, regulations and codes of conduct.

Banks are obligated by law to take fidelity insurance cover against any staff infidelity. It should be a matter of interest to banks’ regulators, given the huge and rising fraud problems before the industry, to find out, for instance, whether: such insurance covers are being taken by banks; claims are being made; and payments are being received from the insurers. But it ought to be clear to banks that they must not, on the basis of the fidelity insurance cover, abandon their responsibilities of hiring only honest individuals.

Records have shown that Nigeria still has low level of knowledgeable banking public. With the momentum at which new products/services and technologies are being introduced in banks, there is the increasing need for consumer education. The industry, perhaps, through the Bankers Committee, should develop and implement strategies that will make consumers more financially literate.


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