The banking industry appears so much under severe stress as people begin to imagine what may be the worst case situation of the raging global economic disaster. Actions and reactions of banks are closely interpreted to mean much of a reflection of the impending difficulty and the troubled times. For Nigerians that have been humbled by two doses of distress, their fears are that it may be yet another dose. But the banks are not excited, even as the rumour mills continue to grow. Nik Ogbulie writes.

Watching two major banks fail was a huge experience in itself.

Suffice to say that people who were part of the actions at the two periods (1998 & 2006) when over a total of 40 banks failed may be in the best position to explain to anyone what could be the best way to ruin any financial empire. In 1998, twenty six banks fell like a pack of cards in one swoop and in 2005, 14 others followed in a more graceful manner, a la consolidation. This figure is outside the solo collapses that were witnessed by banks such as Societe General and Savannah Bank.

The journey to banks’ death starts like a joke but assumes a crescendo in a matter of hours. When any effort to correct the ugly impression begins, the situation gets worse because the poor information the public has and the usually poor response time of regulators even fuel customers’ fears. This is a typical dialogue between two suspecting customers on what they have about a bank which major source cannot be verified. This is one very fast way through which banking distress can begin without much fuss because rumour moves sporadically in an underdeveloped environment.

Ebi: Some serious thing may have been happening and we wouldn’t know until it gets late

Kayode: what is the matter? Is anybody sick?

Ebi: No, Have you noticed that your neighbour that works in XYZ bank has been going to work by 9am these days,

Kayode: Yes o. Maybe that bank is sick. You can see he has withdrawn his children from that big school across the road and has taken them behind his house.

Ebi:  Even the wife has been looking so quiet unusually.

Kayode:  I noticed it. Their bank must have a problem. I think I will go and remove the little money I have there before it is too late.

This is usually the first step which kicks off the rumour from where a larger debate takes off and commands a very great damage capable of dealing a very dangerous blow, not only to the bank in question but to the entire institution where the ones that have slight technical difficulty will find it very tough to survive. This second level of debate is usually more disastrous and has been the one that makes banks vulnerable to failure.

Ayo:  Did you hear anything about bank XYZ?

Harouna: Not quite, by the way, I see people moving in and out of the bank and I suspect something wrong.  I also hear that one of the directors owes the bank so much. Last month they paid salaries on the 24th instead of the usual 23rd.

Ayo: That means something is really wrong. I must go and withdraw my money and let my wife know about it.

Haruna:    No wonder, last week, I spent up to 30 minutes just to pay electricity bill. They said their system is down. At the same time many people were there waiting to withdraw but they could not.

Ayo: That means trouble has started again.

This is why the industry is in some kind of trouble because many still think that when a bank delays the payment of withdrawals it simply means that the bank is distressed. The problem with the industry is that operators are inundated with falsehood from their various publics, to the extent that they really would not know which action to take so as to douse the rumour smoke that may envelope the industry.

Today, bank customers do not want to know about the critical measurement processes through which poor health of a bank could be fully determined. To them, the question of capital adequacy or liquidity ratio do not really have a permanent space in their minds as dependable indicators in assessing the health of a bank. According to the Central Bank, Nigerian banks, never before have witnessed the kind of stability they have garnered when placed against the quality of their liquidity ratios. It is heart warming that Nigerian banks have made non sense of the Basel 2 requirement by moving beyond the mandatory requirement of about 10 per cent to clock as much as 30 per cent. I really do not know what more somebody wants to hear or needs to be told so that he can come to terms with the real strength of the country’s banks at a time like this.

To explain the strength of rumour in the life of a bank, one can remember that the one time Financial merchant Bank collapsed weeks after its sister commercial bank, Republic Bank died because of the belief by people that since that one failed, the other one will also fail. It could be true that there were traces of poor management in these banks but the belief by many that the bank will die added more impetus in quickening its eventual collapse. Unfortunately bankers do not see the issue of rumour as a strong negative issue that must never allowed to play up in the industry any time. Haven seen its very strong disastrous nature banks and related agencies and regulator should have channelled a good percentage of their survival efforts in addressing the rumour mills so that the fundamentals will be allowed to showcase itself.

Twice in a focused session in Lagos and Abuja, the Central Bank governor had emphasised the strength

These rumour mills as having very negative impact to the good works that have been done in the industry .His intension was that there must be a way of curtailing such an over bearing market tendencies so that the industry would be made to observe some level of free-reign in the economy. Unfortunately the operators have not given that angle some serious thought as they have been busy pursuing deposits.

Given the level of comfort banks have gained in the last three years, it would be highly recommended that banks should rather give more time to educating people on how strong they are. Most of the adverts and the publicity stunts of banks these days do not emphasise their strengths but their products or services .Unfortunately, the issue of strength has been taken for granted as the emphases has shifted towards the area that will create new wealth without given a strong protection to what they already have. It is sad that banks have left their hard won battle at the mercy of street miscreants and hawkers who decide the level of stability of every bank in the country today.

Two major things are lacking in the industry today. There is a total absence of service institutions that pre-inform banks of very relevant and sincere developments that affect their existence. Such very sharp financial intelligence matters and bank-watch stuffs need to be fully carried out with the intention of quickly matching actions that can rattle the status quo and send the economy to sleep. Why should we spend our time in building very strong banks and only to allow charlatans to get them destroyed just by running their tongues.

To many who do not know, rumours kill banks faster than bad management or bad policies. But then, the banks must make sure there is no more information gap in the system: otherwise rumour will take over. Period.