- CBN must check the rising incidence and prosecute culprits
It is a cause for worry and these figures should set off the danger alarm in any economy. It is not only that the level of bad loans in Nigeria’s banking system has risen rather dramatically by 50 per cent in less than one year, but it took another agency and not the apex bank to take note and bring it to public knowledge.
Last Monday, the Director, Banking Examination Department of the Nigeria Deposit Insurance Corporation (NDIC) Mr. Adedapo Adeleke, disclosed the dire state of banks in Nigeria going by the quantum of bad loans in their portfolios.
Adeleke made this troubling revelation in a presentation: “Curtailing the Growth of Non-performing Loans in Banks – The role of Regulators and supervisors.”
The report, which reviewed the status of bank credits up to last September notes that while the ratios and volume of non-performing loans (NPLs) continued to grow, the total loans advanced decreased in volume as banks curtailed further lending in their quest for loans recovery.
Holding back on fresh credits on its own portends serious deleterious effects on an economy which is still in the throes of recession. But since December 2015 to the end of third quarter (September) this year, NPLs have risen astronomically by about 50 per cent, amounting to about N2.4 trillion.
According to the data emanating from the NDIC, NPLs grew from N1.639 trillion in December 2016 to N2.424 in September, this year. Though the Central Bank of Nigeria (CBN) stipulates that banking industry NPL-ratio- to- capital should be five per cent, this capital adequacy requirement has been overshot and it now stands dangerously at 15.8 percent. What this means is that for some banks, their shareholders’ fund is far below the amount of bad loans in their books.
This is truly worrisome.
The issue of bad loans in Nigeria’s banking sector has almost always been a cause for worry. Just about one year ago, the CBN had to order banks to publish the names of customers with non-performing loans. That exercise was carried out in national newspapers causing so much rumpus in the public space.
But instead of denting the volume of bad loans in the system, many banks merely ended up with a trail of litigations and a few public apologies were issued to certain individuals and companies. The list was mired in controversies, meaning that books had not been properly kept by banks. More remarkable, the real big fish defaulters could not be named for obvious reasons.
While banks are their own worst enemies, so to speak, depositors’ and shareholders’ funds are the victims of bankers’ insouciance. Banks hardly respect the statutory obligor limits which stipulate certain maximum level of exposure to one particular client or sector.
But in banks’ books, sectors like oil and gas and telecommunications are given the chunk of loans.
Again, directors-related loans may be said to be the bane of banks in Nigeria. A most recent example is Skye Bank whose former chairman had allegedly accessed loans almost far in excess of the bank’s shareholders’ fund.
The CBN must come down hard on the issue of insider abuse if it must end the malaise of bad loans. We suggest that loans by any individual or firm serving in any bank must, as a matter of regulation, be made open to the CBN and put under special scrutiny by a body comprising of the CBN and NDIC.
We also susggest a special documentation by the credit bureau or such agency that must warehouse director-related loans.
All said, some of the directors who have been found to be remiss recently and have abused their positions should be prosecuted and jailed if found to have fallen foul of the law. This will send a strong message to others and help curb the rampaging impunity of bank directors who trifle with other people’s money.