• Tuesday, February 27, 2024
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BusinessDay

Banks and delinquent debtors

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In the last two weeks or so, the public has been inundated with published lists of chronic debtors to banks. This followed last April’s directive by the Central Bank of Nigeria (CBN) to Nigerian lenders to commence the exercise from August 1, 2015 as a prompt to the debtors to pay up.

Among other things, the name-and-shame exercise for chronic bank debtors has brought to the fore the failure to imbibe corporate governance practices by directors of banks, leading to about N546.02 billion bad debts in the industry as at March 2015. For instance, operators of credit bureaus assert that credit history of the borrowers were at the disposal of the banks before they went ahead to grant the facilities. We, therefore, urge CBN to, as a matter of urgency, look into this matter. We believe that if the banks had followed the due process, it would have reduced the level of exposure.

The exercise has also revealed the fact that some directors, who allegedly sponsored various businesses with different names, may have aided the loan processes from banks where they work, as well as obtained loans from rival banks.

We align with CBN on the decision. However, we also draw the apex bank’s attention to the deteriorating macro environment which may have rendered some of the debtor firms moribund as well as the transient nature and financial stress of the states which could have made repayment difficult. This is in view of the argument by some industry analysts that companies were unable to meet banks’ obligations owing to the high cost of doing business in the country, unpredictability of government policy and the high risk in the economy. Besides, government is believed to be indebted to some local contractors, a development which they claim has hampered honouring their obligations to their banks.

Bismarck Rewane, managing director and chief executive officer of Financial Derivatives Limited, while agreeing that the development is a welcome one as it would help reduce delinquent loans as well as fight impunity in debt accumulation by bank customers, argues, however, that the challenge now lies with identifying those that are unable to pay because of the changing business environment and those that are unwilling to pay out of impunity.

We are also worried over the spate of counter-claims and denials by some of the alleged debtors. If truly they are not indebted to the banks as they claim, does it then mean that the banks had not taken extra care to verify the state of indebtedness or otherwise of their customers before publication?

While we appreciate the CBN’s move over the unwillingness of borrowers to pay back their loans, we also think the exercise would be more meaningful if the threat of blacklisting the companies and their promoters from access to the foreign exchange and further credit facility in the system is strictly executed.

More importantly, we urge closer supervision and monitoring of the banks to ensure that the issue of insider abuses which played a major role in the failure of some banks in the past is not allowed to rear its head again.