Naming and shaming bank debtors: An Ace deterrent to growing non-performing Loans?

The apex bank, the Central Bank of Nigeria (CBN) recently issued a directive to deposit money banks to publish the list of customers with non-performing loans in at least three national daily newspapers from the end of July this year. According to the CBN, it is expected that this move would reduce the growing volume of non-performing loans (NPLs) and maintain the solvency and health of Nigerian banks.

 In light of the potential consequences of complying with this directive especially with respect to the implied duty of confidentiality owed by a bank to its customers in respect of information that comes into its knowledge by virtue of the banker-customer relationship, the questions that readily beg answers would be, first, are the apex bank’s regulatory powers that extensive? Second, would the obligation to comply with this directive suffice to absolve a bank from the liabilities that may arise as a result of that implied duty of confidentiality?

 Whilst on the one hand, there are no express provisions in its enabling statute; the CBN Act for that purpose, on the other hand, a cursory review of a few sections of the CBN Act namely sections 2(d) and 42(1) (c) of the Act might provide some answers. The former section identifies promotion of a sound financial system as one of the principal objects of the CBN and the latter empowers the CBN to seek the co-operation of other banks in Nigeria to, inter alia, further policies that it considers to be in the national interest.

 Indeed, a combined reading of both provisions may permit an interpretation that the apex bank is authorized to exercise its powers, in the national interest and for the preservation of the solvency of Nigerian banks. Consequently, to the extent that it can be argued that the CBN can issue such directive, the question then remains, what are the potential consequences of compliance with same on any bank especially with respect to its duty of confidentiality as identified above?

 On the face of it, compliance with this directive exposes such a bank to two potential risks: a claim in contract for breach of the duty of confidentiality and a claim in tort for libel by virtue of the publication in the newspapers. In order to determine whether compliance will open the flood gate of litigations on banks under any of these heads of claim, it is perhaps appropriate at this juncture to shed some light on one of the legal incidents of a banker-customer relationship.

 The banker-customer relationship, like any other contractual relationship, creates rights and obligations between the parties. The relationship, amongst other things, imposes a duty of confidentiality and secrecy upon the bank in relation to the customer’s information and data which comes to its knowledge in its capacity as a banker. This duty was first clarified in the English case of Tournier v National Provincial and Union Bank of England [1924] 1 KB 461 and by virtue of that decision, it is an implied term of the contract between a banker and a customer, that the banker will keep the customer’s information confidential. It is however important to note that this duty is not absolute but subject to a number of exceptions. Indeed, these exceptions were recently upheld by the English Court of Appeal in Christofi v Barclays Bank Plc [2000] 1 WLR 937 and they are as follows:

 1. where the disclosure of the information is required by law or by a court; or

2. where it is required in the public interest; or

3. where the disclosure is in the bank’s interest; or

4. where the disclosure is authorized by the customer.

 These exceptions notwithstanding, the chances that customers whose names and indebtedness are published in compliance with this directive, will make claims in contract and tort, are not in doubt. For instance, to successfully maintain an action in libel, which is a form of defamation, the claimant only has to prove the following:

 a.  that the imputation complained of is defamatory;

b.that the imputation refers to the claimant;

c.that the imputation was published i.e. communicated at least to one person other than the claimant by the defendant; and

d.that the claimant suffered some injury to his reputation as a result of the publication.

 In light of the foregoing and having regard to the nature of publication contemplated under this directive, there is no doubt that establishing a claim for libel may not be difficult for any aggrieved customer. What should ordinarily raise concern is the prospects/chances of the defenses available to any bank in the event such an action is instituted. Firstly, it is almost certain that banks would seek protection within the 1st part of the 1st exception or the 2nd exception to their general duty of confidentiality identified above.

 With the 1st exception, the bank may argue that disclosing the customer’s information (indebtedness) through the publication was required by law (albeit a directive of its regulator) and hence not a breach of its duty of confidentiality. In addition, a bank can also justify the disclosure by arguing that, compliance with this directive is in the public interest (prevention of systemic failure in the financial sector) and thus falls within the exceptions to its duty of confidentiality. In other words, disclosing the customer’s indebtedness would assist the CBN to cure the mischief underlying that directive, preventing a repeat of the 2009 banking crisis.

 Whilst the CBN may have the powers to issue the directive and those exceptions remain available to the banks as defenses against any claim, it is doubtful that naming and shaming these defaulting bank customers through the publication, would achieve the overall objective. This is especially so because a similar move in the past was just a flash in the pan and gave rise to protests by debtors who claimed that their accounts were not properly reconciled before the publication.

 Consequently, banks will do well to consider preceding any such publication with proper reconciliation of the debtors’ accounts. Put differently, it is necessary for banks to make certain that these debts are actually outstanding, and remain unpaid by the debtors, before any such publications are made. Finally, it is perhaps more important for banks to address the existing lapses in the creation of new loans and the management of existing loans in order to eliminate the need to have to comply with this kind of directive or resort to litigation to recover their delinquent loans.

Ugochukwu Obi

Ugochukwu Obi is a Senior Associate in the commercial law firm, Perchstone & Graeys