The Asset Management Corporation of Nigeria, which was established a decade ago to recover bad loans in the banking sector, recently painted a grim prospect: Nigerians could end up bearing the burden of a whopping debt of N5 trillion. Of this, only 20 wilful defaulters owe over 50 per cent of the total debt. Those who gobbled up the loans must be made to face the consequences of their actions.
Many Nigerians suffered huge losses from past bank failures provoked largely by the borrowing binge of a few people and organisations. Before the bubble burst, many banks resorted to manipulating their income-earning potential and overstating their capital bases, making them appear stronger than they really were. In 2018, when Skye Bank Plc (since renamed Polaris Bank) tottered, shareholders of the bank took a severe beating. Two years before then, the Central Bank of Nigeria had sacked Skye Bank’s board of directors and constituted a new board, saying the moves became inevitable in view of the persistent failure of the bank to meet minimum thresholds in critical prudential and adequacy ratios. It said its liquidity and non-performing loan ratios had been below and above the required thresholds, respectively, for quite a while. Such distress could have been avoided if the industry had learnt lessons from the 2009 banking sector crisis that led to the creation of AMCON in 2010.
Generally, the two major assets in which banks invest depositors’ funds are securities and loans. Credit losses on securities are minimal because the bulk of these holdings are government securities with little or no default risk. But loans are a different story. Reserve for loan loss account is established and maintained by periodic charges against earnings. The trouble begins when the banks and regulators compromise their responsibilities. It is extremely worrisome that despite years of efforts by AMCON to recover the bad loans it bought over from banks, more than N5 trillion remained unrecovered, even as the COVID-19 pandemic has slowed down the pace of debt recovery.
The amount that will ultimately be recovered from written-down or charged-off loans depends on the financial health of the borrower, the borrower’s willingness to pay, the value of any collateral, the strength of guarantors or consigners, and the ability of the bank’s workout department or that of the individual loan officer assigned to the account. In all of this, the only factor militating against the debt recovery is the reluctance of these debtors to pay. AMCON had recently raised concern that some debtors had “wilfully maintained recalcitrant postures while also adopting unscrupulous means of avoiding recovery.” The top 20 debtors who owe over 67 per cent of the N5 trillion debts, according to the corporation, have the wherewithal to pay but have intentionally refused to clear their debts.
This is both a serious economic sabotage and a huge financial fraud.
Total recoveries by AMCON stood at N759.05 billion as of December 2018, consisting of cash, N366.85 billion; shares forfeiture, N128.47 billion; and property forfeiture, N263.73 billion. The carrying value of its liabilities increased from N4.53 trillion at the end of June 2018 to N5.43 trillion as of December 2018, according to the CBN. Among others, the corporation invested N898.45 billion in Polaris Bank, a bridge bank created by the CBN to take over the assets and liabilities of the now-defunct Skye Bank.
Last year, the Federal Government set up an inter-agency committee, including the Economic and Financial Crimes Commission, the Nigerian Financial Intelligence Unit and the Independent Corrupt Practices and Other Related Offences Commission, to expedite the recovery of the outstanding debts owed to AMCON. The Senate Committee on Banking, Insurance and Other Financial Institutions said in November that it had resolved to join hands with AMCON to push for the recovery of the N5 trillion debt. The committee described it as “troubling and unacceptable that after spending N4 trillion to take over non-performing loans of banks, AMCON had only realised N800 billion.”
The corporation said in July that it had to disengage some of its receiver managers due to non-performance, and developed a new receiver framework for its recovery agents. It warned that if at sunset, it was unable to recover its outstanding debt of over N5 trillion, the burden would automatically become the debt of the Federal Government and taxpayers’ money would be used to settle it in the end. Why should ordinary Nigerians be made to bear the brunt of loan defaults by the so-called VIPs and organisations? There are claims that not a few people and organisations that took loans from banks or benefitted from government intervention funds such as the N300 billion Power and Airline Intervention Fund, see the borrowed money as their share of the ‘national cake.’ They must be disabused of this ludicrous notion because to allow them to go scot-free is to set a dangerous precedent. Some of the debtors have private jets and luxury houses in Nigeria and other countries such as the United Arab Emirates and the United Kingdom.
The AMCON experience is a clear indication that the debt repayment culture in the country leaves much to be desired. Dodgy Nigerians are adept in manipulating the weak and compromised institutions to their selfish advantage. This must stop. The bad debts in Nigerian banks are a concern because if they become toxic, this will have ripple effects on many Nigerians. Although banks’ non-performing loans ratio decreased to 6.58 per cent at end-April 2020 compared with 10.95 per cent in the same period of 2019 due largely to recoveries, write-offs and disposals, it is still above the CBN benchmark of 5.0 per cent.
The total credit from banks to the private sector, according to the CBN, rose to N18.90 trillion as of June 2020 from N15.56 trillion at the end of May 2019 on the back of the Loan-to-Deposit Ratio policy introduced in July last year. This mandates deposit money banks to maintain a minimum LDR ratio of 65 percent in a bid to improve lending to the real sector of the nation’s economy. Now, given the economic fallout of the COVID-19 pandemic, the ability of many businesses to repay loans is not guaranteed.
The pandemic, which has taken a huge toll on businesses and households, prompted the introduction of several intervention funds, including the N100 billion Healthcare Sector Intervention Fund and the N50 billion Targeted Credit Facility for households and SMEs. While these funds are necessary to cushion the impact of the pandemic on the economy, the CBN and commercial banks must ensure that the loans are given to those who can demonstrate the capacity to repay.
The need for a strong financial discipline in the country is evidently urgent. The CBN has a huge role to play. The apex bank should make sure that wilful defaulters are deprived of bank loans and facilities. The CBN should be empowered in its annual inspection report of banks to include the names of chronic wilful defaulters as it is done in India under the Banking Regulation Act and the Reserve Bank of India Act. It is critical that banks should not advance loans to anyone, including high-profile persons, without asking for sufficient collateral. AMCON should strengthen its debt recovery strategies. It should publish the details of these large loan defaulters at regular intervals in order to make the defaulters feel embarrassed. There is also a need for judicial processes to be streamlined to fast-track asset forfeitures. The CBN should ensure that the recently introduced Global Standing Instruction aimed at enhancing loan recovery in the banking sector is fully implemented.