Dayo Ogundipe (not real name) is a private school owner. Before Covid-19 pandemic, his office as an administrator/proprietor of a renowned private school in Lagos was an attraction point for many bankers who jostled for audience to manage the school’s various accounts.
Before now, private schools’ bank accounts were lucrative and worth hunting for because of the students school fees worth millions of naira paid every academic term (three times within a year) through the bank accounts.
Not until the Covid-19 pandemic made governments shut schools did Ogundipe realise that not all the financial institutions would be there for him in times of need.
“Students went on vacation as schools were shut. My teachers managed to go home with just a month pay. Barely one month into the Covid-19 lockdown, I approached my bank for a short-term facility to aid payment of my teachers’ salaries at least to cushion the effect of the lockdown. I was surprised my request for the facility was not granted as my bank insisted that uncertainty over schools resumption remains a big risk,” Ogundipe said.
Reacting to BusinessDay questions on this information, a banker who prefers anonymity, said, “Banks lend against cash-flow and the decision to approve or disapprove a loan request is based on expectations and comfort about the viability of the future cash-flows, against which banks lend. Without sentiment, no bank will want to lend against an uncertain cash-flow.”
He further stated, “While there is always an element of risk in the realisation of future cash-flows, against which a bank lends, a situation where there in absolute uncertainty on the future cash-flows of schools puts banks in difficult situation to approve loans, without clarity on resumption date.”
Incidentally, the cash-flows of schools may also be relatively weak on resumption, given the current slowdown in the economy and waning income levels, which may affect the ability of some parents to pay their wards’ fees as at when due.
“Hence, banks may have taken this hard decision to wind down exposure to schools to mitigate the already rising Non Performing Loans (NPLs) from the education and a number of other sectors, as the economy gradually emerge from the unprecedented challenges of the Covid-19 pandemic,” our banking source said further.
The haste in which banks declined the request for overdrafts to school owners at this period of Covid-19 was very disheartening, Onyeka Jalobo-Ojigbo, owner of Nemvas Schools, Lagos, said.
According to Jalobo-Ojigbo, even though the banks may be acting in their own interest, “the decision to deny her and other school owners at their point of needs is really not good for business going forward.
“If my bankers cannot support me at the slightest business challenge, there is no point staying with them once things become normal again.”
Even though banks are in business to make money, “their decision to assist should be merit-based; they should look at the inflow and outflow of the schools,” she noted.
Oyindamola Egbeyemi, executive director, Foreshore School, Ikoyi – Lagos, observed that the past seven months had not been rosy for school owners, stressing that these were abnormal times.
Egbeyemi said, “It is important to have opened a line of communication with banks before and during the Covid-19.”
Commenting further, she noted that she realised that “banks don’t give out loans or overdraft blindly; they look at the inflow and outflow of the schools.”
The running of school comes with its own high risk, she said, adding that a lot of school owners fail to realise that they cannot gain the support of financial institutions if they do not keep an eye on their bottom-line.
Uju Ogubunka, president, Bank Customers Association of Nigeria (BCAN), said banks denying private schools access to facility could be grouped into two categories, including schools that operate credit account and that of overdraft facility.
Generally, he said banks cannot deny access to a private school that had pre-arranged credit facility that had not expired. But for a school that operates within the limit of what it has with the bank, and wants an overdraft, banks can deny such one access, he said.
Johnson Chukwu, managing director/CEO, Cowry Asset Management Limited, said, “Lending decision by banks is on a case-by-case basis. It is never a blanket decision because a particular sector is going through this…
They will appraise each of the customers based on their credit worthiness or credit standing. So, I don’t think that if they are rejecting, it is across all schools. I believe that those schools with strong financial position and good recording would have gotten financial accommodation of their banks.”
The Federal Government has asked states and school administrators to start making preparations for the full re-opening of schools in the country.
