In spite of the Federal Government’s N300 billion Intervention Fund, the aviation sector has remained unattractive to most Nigerian banks, as loan requests by major operators are hardly considered.

Airlines, which are the major beneficiaries of the government’s funds, are also the worst hit by the current banks’ apathy to financing activities in the industry, as aircraft, which they hitherto present as collaterals for loans are no longer accepted by the financial institutions.

The Guardian learnt that commercial banks in Nigeria have classified the airlines as the highest risk sector for lending.

And to curtail both insider abuses and other forms of fraud, banks have started complying with the Central Bank of Nigeria (CBN) order on ‘whistle blowing’ as enshrined in the apex bank’s corporate governance for them in post-consolidation era.

Whistle blowing involves reporting of incidents of misconduct involving or affecting an organisation to enable it take appropriate action.

In an 18-page presentation to the Senate, which The Guardian obtained, the Managing Director of Capital Airlines, Amos Akpan, said banks would rather lend to those seeking elective posts than an airline.

He said there were speculations that the CBN ordered the banks to “limit” the granting of fresh loans to airlines, alleging that aircraft have been deleted from list of acceptable assets for security by banks when considering lending.

According to him, government spending on infrastructure in aviation was justifiable, arguing that it enhances plough back through contract financing, especially to the ruling regime, while admitting that airlines could come and go depending on who is reining money and other assets to secure the purchase of aircraft and recruitment of foreign pilots and engineers.

Banks, which are enforcing the CBN order, had in memos to their members of staff, explained that “an effective whistle-blowing programme is a key element of good corporate governance and good fraud risk management,” adding that a major feature of the scheme is “the ability of whistle-blowers to report incidents anonymously and/or confidentially, if they so desired.”

The apex bank’s code of corporate governance for banks in Nigeria post-consolidation (CBN Code 6.1.12) requires the banks to implement whistle-blowing procedure.

The code states that “banks should establish ‘whistle blowing’ procedures that encourage (including by assurance of confidentiality) all stakeholders (members of staff, customers, suppliers, applicants etc) to report any unethical activity/breach of the corporate governance code using, among others, a special e-mail or hotline to both the bank and the CBN.”

The Guardian learnt at the weekend that almost all the banks have established hotlines and special e-mail addresses to receive complaints.

A CBN source told The Guardian that the establishment of such complaints avenues was not limited to the banks, as the apex bank had set up same apparatus to deal with such problems.

He explained that the apex bank took the initiative to encourage bank personnel to report unprofessional conduct of their management, noting that it would forestall any attempt by any financial institution “to sweep such matter under the carpet.”

According to one of the banks, the critical success factors of whistle blowing include confidentiality and anonymity, promising that all reports would be professionally attended.

It, however, cautioned users to avoid false and malicious allegations that cannot be substantiated because the sector is one of the busiest service industry worldwide and therefore cannot cope with frivolous calls.

The CBN has also sent circulars to the banks apprising them of the commencement of the risk-based supervision and the development of risk management system in the industry.

Signed by the apex bank’s Director, Financial Policy and Regulation Department, Chris Chukwu, the CBN said in its continuing efforts to provide a more effective process of assessing the safety and soundness of banks and other financial institutions, thereby, improving upon its supervisory functions, it is adopting a risk-based supervisory framework which encourages sound risk management practices in banks and other financial institutions (OFIs).

The risk-based approach to supervision, he said, is a proactive and effective supervisory process which enables the supervisor to prioritise and focus on significant risks or on institutions that have high risk profiles, adding that it entails a shift from the rigid rule-based supervisory approach to a more risk sensitive one, and seeks to encourage institutions to develop and continuously update their internal risk management system to ensure that they are commensurate with the scope and complexity of their operations.

On the poor funding of the aviation sector, Akpan frowned at the situation foreign carriers continue to increase frequency and capacity into and out of Nigeria while domestic airlines shrink in size and/or go out of existence.

Nigeria has been adjudged as one of the lucrative destination and routes for foreign airlines with the government freely granting them more flight rights (frequencies) and multiple designations.

Experts have also condemned the practice, which they said put Nigerian airlines at great disadvantage and worsen the plight of the indigenous carriers.

Consequently, the experts under the aegis of Aviation Round Table (ART) and Airline Operators of Nigeria (AON) have canvassed the review of the “lopsided” policy that put the local airlines at a big disadvantage.

A report of profit for 2010, shows that foreign airlines repatriated about N200 billion from Nigeria while local airlines made a paltry N4 billion.

On the astronomical cost of aviation fuel, otherwise known as JET A1, Akpan accused the government, which he alleged allows a “cartel” to frequently raise aviation fuel price from N18 per litre in 1999 to N125 per litre in 2010.

He further disclosed that, “only one “cartel member” sells the product at a time to influence uniform price through supply control, adding a schedule airline uses fuel whether passengers are enough to pay for the cost of operating that flight or not.

The price of aviation has since last month jumped to N148 per litre, a situation that has made it extremely difficult for the airlines to break even.

Source: Guardian