•It signals a failing financial sector and general omen for the nation’s economy
The report by the Central Bank of Nigeria (CBN) that Deposit Money Banks recorded a N56.31 billion increase in non-performing loans as at end of August 2014, compared to a similar period last year, is worrisome. According to Dr. Stella Alade, CBN’s Deputy Managing Director, who presented the report, the 16.36 per cent increase in non-performing loans, represents an increase from N344.26 billion as at August 2013, to N400.57 billion, as at August 2014. The report also said that there has been an increase in gross loans by banks from N9.278 trillion as at August 2013, to N11.229 trillion as at August 2014, which amounts to 21.03 per cent increase.
Our worry is that not long ago, the Federal Government needed to create the Asset Management Corporation of Nigeria (AMCON) to buy off trillions of bad debts, to stave off a major collapse of our financial industry. The loans, like the emerging scenario, were non-performing loans which the banks could no longer manage. As AMCON’s Managing Director, Mr. Chike Mustapha Obi, boasted, the corporation has achieved the primary purpose for which its act was made, with a caveat that it shall no longer buy new non-performing loans.
Even before AMCON was created, the country witnessed a consolidation and clean-up of the banks under former CBN governors Charles Chukwuma Soludo and Sanusi Lamido Sanusi, as most of the banks were substantially under-capitalised, arising mainly from non-performing loans.
So, it is right to ask whether with the increase in non-performing loans, we are taking the same road to another round of crisis in the financial sector. Even a more poignant question is; why is it that borrowers in Nigeria always find it difficult to pay back loans they take from the banks? Could it be that the banks lack the competence to engage in proper risk assessment before giving out the loans, or is it a cultural habit which is encouraged by our weak recovery process and inadequate punishment for loan payment defaults? Could it also be a result of weak supervisory roles or connivance of the regulatory agencies, like the CBN? Furthermore, could it be that the very harsh business environment, substantially arising from unstable government policies and infrastructural challenges have turned entrepreneurship in Nigeria to a nightmare? Nigerians need to know the cause of these seasonal crises.
Interestingly the CBN report says that non-performing loans ratio stood at 3.57 per cent as at end of August 2014, representing a decrease of 14 basis points when compared with the corresponding period in 2013. The bank maintained however that banks in Nigeria remain adequately capitalised, with an average Capital Adequacy Ratio of 17.75 per cent as at end of August 2014, as against 18.1 per cent as at August 2013, using the Base II capital adequacy framework. She also said that under the Basel ll framework, the Industry Capital Ratio stood at 15.76 per cent as at end of August 2014, noting however that two unnamed banks fell below the prudential minimum of 10 per cent in the period under review.
We acknowledge that from the report, there is some stability in the industry, but our worry is how come non-performing loans is on the increase? To stem that, we enjoin the CBN to improve on its capacity to monitor banks, and to take adequate steps to steer banks away from cyclic failures. We also urge the governments to improve infrastructure across the country. No doubt the major challenge facing the entrepreneur borrower is the poor infrastructure, particularly the failure of the Federal Government to provide electricity for businesses in the country.
