Strict credit managers at banks were replaced

MANAGERS at banks who were known for strict credit and risk management were replaced.

The Nyberg report also said there was no indication this was as a result of any policy to actively encourage risk taking, though it may have had that effect.

Bank management and boards in banks feared that if they did not yield to the pressure to be as profitable as Anglo, they would face “loss of long-standing customers, declining bank value, potential takeover and a loss of professional respect”.

The report also said it appears to have been difficult for individual members on boards — especially those without banking experience — to express and maintain a view contrary to the majority view on the board.

“In some cases, members indicated that their approach was to initially register their opposition to a particular decision, but to then adopt the majority view,” the report said.

The report said that the few who admitted to feeling any degree of concern at the change of strategy often added that consistent opposition would probably have meant formal or informal sanctioning.

“Bank management and boards generally gave in to this pressure, in the bigger banks more so than in the smaller ones. Strategies chosen included concentration on retaining market share, increasing earnings growth and protecting the banks’ franchise.”

The report said that boards adopted “general high-growth credit volume or profit targets” without apparently really understanding how they would be implemented in practice by staff. “It seems to have been quite generally accepted that — traditionally volatile — market funding would continue to be available to enable the achievement of growth targets.

The report said there is a need to make sure, both in private and public institutions, there exists incentives for staff to openly discuss and challenge strategies and their implementation.