Lagos Chamber cautions banks over publication of delinquent debtors

The Lagos Chamber of Commerce and Industry has cautioned deposit money banks in the country over their intention to publish names of ‘delinquent debtors’ in at least three national newspapers, in compliance with the directive of the Central Bank of Nigeria (CBN).

In a statement signed by Remi Bello, president, LCCI, the chamber admitted that given the adverse consequences of non-performing loans (NPLs) for the stability of the financial system and its the risk to depositors’ funds and the sustainability of the banks, there is a compelling reason to take some drastic actions to avoid the grave consequences of mounting bad loans, estimated at over N400 billion.

But it added that it is important to avoid sweeping generalisations and examine the context of default on a case by case basis as there are varying causal factors for loan default which should be taken into account in matters of this nature.

“The LCCI recognises two broad categories of debtors,” the statement said.

“There are defaults that have arisen as a result of genuine business failure [some of which are irreversible] which affected the capacity to repay. There are also defaults that have arisen as a consequence of deliberate intent not to repay. The latter borders on character quality, which is what the Know Your Customer [KYC] concept is meant to address,” LCCI said, adding that it is important to distinguish between these two categories of debtors in order to guide the choice of debt recovery strategy.

The frontline advocacy group enumerated some of the possible factors in business failure in recent times as shocks and dislocations which arose from the sudden depreciation in naira, sudden drop in crude oil prices as well as challenges in the power sector.

“There is also huge indebtedness to contractors by governments at all levels which has impeded the ability of contractors to repay the loans from the bank. Combined indebtedness to local contractors by the federal, state and local governments is well in excess of one trillion naira,” said the chamber.

LCCI  further said the stock market collapse, which has led to huge losses by investors in the capital market as well as the consequent inability to service margin loans, should not be ignored.

“In some of these instances it may be difficult to exonerate the banks as the credit appraisal processes may have been compromised. The degree of banks’ culpability should be ascertained and this should attract appropriate sanctions,” LCCI said.

“There are bad borrowers and there are bad lenders. The CBN should deal with both sides of this equation and be seen to have truly done justice,” it added.

The chamer said there are global best practice principles in debt recovery, stressing that publishing names of debtor companies and their directors in national newspapers is unorthodox and unprofessional.

“Entrepreneurs have a very strategic role to play in wealth creation and generation of employment. We should not discourage investors from taking risks and should refrain from actions that could undermine the spirit of enterprise in the Nigerian economy,” LCCI said.

ODINAKA ANUDU