Sometime in 2020, I picked up a new concept called ‘bankslaughter’, a term I found intriguing but had no immediate use for – until now. This week, it became relevant to write about it after the Central Bank of Nigeria (CBN) revoked the licence of Heritage Bank. Let me explain what it means and why it matters. Unlike with my WhatsApp friends, I won’t trouble you for a little adulation, so I’ll get on with defining the concept.
I learnt this concept from Paul Collier’s book “The Future of Capitalism.” Until 2020, I hadn’t heard of him, Collier, an Oxford economist and writer who has dedicated his life to alleviating global poverty. I discovered him through another of his works, Wars, Guns, and Votes: Democracy in Dangerous Places, which was recommended reading in my book club. Since then, I’ve admired his writing and insights.
Now, back to what matters.
Bankslaughter, according to the book, is the concept of bringing to justice individuals whose reckless and non-deliberate actions or behaviours cause a financial crisis that ruins public good, like the 2008 economic meltdown or recently, the crash of Heritage Bank. To illustrate, if a motorist kills someone through recklessness, it is classified as manslaughter, distinguishing it from murder, which involves intent. I am not a financial expert, so I won’t delve into the financial nitty-gritty, but I will address this from a moral citizen’s point of view.
But first, let me give you a brief download of the Heritage Bank crash.
According to Vanguard, the CBN explained that its decision to revoke Heritage Bank’s licence was due to the bank’s inability to improve its financial performance. Thisday newspaper itemised its failures as follows; inability to meet its liabilities, operated unsoundly, disregarded specific legal obligations, and was critically undercapitalised, posing a threat to financial stability. The paper further stated that Heritage Bank’s 2021 audited financial statements revealed a negative net interest income, high operating expenses, and a non-performing loan (NPL) ratio of 81.2%, leading to a massive loss of ₦82.928 billion and accumulated losses of ₦459 billion. With negative shareholders’ funds of ₦230 billion, Heritage was a dead carcass that no one was interested in buying for their customer bases or branch networks.
It is so absurd that an institution saddled with the fiduciary duty of protecting depositors’ money, continued issuing bad loans until losses reached ₦459 billion, argh! And there was little to no pushback from regulators until it got that bad. For context, Etim Etim in his Thisday article breaks it down simply: “out of every ₦100 it gave out as a loan, ₦81.2 was bad and unrecoverable.”
The scale of it is tantamount to malpractice, specifically loan fraud, a longstanding practice in Nigeria’s padi-padi financial sector. Loan fraud involves granting loans to unqualified borrowers with the help of senior bank staff, who may be relatives, friends, or business partners. These parties make false declarations with the intention to defraud the bank, which remains unproven in the case of Heritage Bank until they release the list of indebted individuals and entities. But the conversation among people in the industry suggests loan fraud with some alleging staff members took out loans to relocate out of the country (japa) without paying back. The sad reality is that banking malpractices are deeply ingrained in Nigeria’s banking and financial system. Although discreet, these unethical operations are noticeable and potentially vast in scope. The cumulative damages of these malpractices are widespread, indirect, and immeasurable, with regulatory control often lax, biassed, and ineffective. These malpractices reflect the fundamental issues within the Nigerian society itself.
At this point, you might wonder whether this qualifies as bankslaughter given that their actions seem outright criminal and intentional. However, due to the convoluted nature of Nigeria’s financial sector, proving intent to defraud the bank is challenging, but the situation still falls under the definition of bankslaughter.
The concept of bankslaughter, as introduced by Collier, is about holding bankers who he described as “wild fringe” and bank owners criminally accountable for reckless management and prosecute them for their decisions that lead to catastrophic outcomes for banks, regardless of intent. Therefore, it makes sense that bankers who approved loans for each other to japa from the country and senior bankers/management who approved loans for their politically exposed friends, business partners and family members without due diligence be prosecuted for their role in the bank’s collapse.
Right?!
Yeah! Not really.
John Carney of Business Insider disagrees with the concept of ‘bankslaughter,’ describing it as misguided due to its potential to cause over-deterrence. He argues that it would make executives overly cautious, stifling beneficial risk-taking, and unfairly punishing those whose decisions, while reasonable at the time, later fail. This approach, Carney suggests, could exacerbate economic downturns by making banks excessively risk-averse and worsening credit availability.
Do I agree with him?
Not really, but I felt it’s important for you to consider multiple perspectives to have a full picture of the concept. Carney’s stance is that bankers, despite their selfish motivations, ultimately benefit everyone when their decisions come good. Therefore, we should share the bad outcomes and not hold them solely responsible. However, as someone who has banked with Nigerian financial institutions for decades, and you will agree, that customers rarely see benefits even when banks declare massive profits, while being highly risk-averse. This is the more reason for accountability when their decisions lead to financial failures, as the positive outcomes solely benefit the banks themselves.
Needless to say, people need to be held accountable for the damage they have inflicted on the country’s financial system. I believe that BOFIA 2020 already has the framework to hold culpable owners of Heritage Bank responsible for any part they played in the bank’s downfall. If there’s one thing you can fault Nigeria for, it definitely isn’t a lack of necessary laws for any occasion but the lack of instruments to implement them effectively.
To conclude, let me echo Collier’s sentiment, “but, vengeful as we feel, the point of criminal sanction would not be to punish reckless behaviour but to discourage it.”
