A recent Central Bank of Nigeria report, which reveals that banks had a huge stock of non-performing loans to the tune of N649.63 billion in 2015, is ominous. It shows deterioration in corporate governance and a failure to learn from the recent ugly past. The regulatory agencies – the CBN and the Nigerian Deposit Insurance Corporation – should step up their oversight activities to avoid another crisis in the banking sector.
Details of the CBN Staff report, which was deliberated upon at the last Monetary Policy Committee meeting in Abuja, showed that 18 out of the 22 deposit money banks recorded increased bad loans, while eight banks exceeded the regulatory five per cent limit ratio of bad loans to total loans. Among them were three banks that recorded 10 per cent.
In 2014, the banks had N42.86 billion NPLs, which the CBN Director of Banking Supervision, Tokunbo Martins, described as “rising beyond tolerable limit.” Now, grossing N649.63 billion in 2015, the alarm bells should be ringing. Though the spike has been attributed to the fall in crude oil prices at the global market, decline in investor confidence and slow output growth, these arguments do not explain the whole mess. We believe that laxity in bank credit administration, poor risk management practices and poor surveillance by the CBN are at the heart of this stress signal.
It has happened before. The 2008/9 crisis in the financial sector led to the sacking of the chief executive officers of five banks, regulatory takeover of the affected banks and loss of shareholder values. The precarious outlook, according to the CBN, was because their managements “acted in a manner detrimental to the interest of their depositors and creditors.”
The CBN, therefore, should go beyond the veil of oil price volatility in understanding the crisis and facing the challenge. In the wake of the publication of the list of bank debtors recently, it was discovered that some banks never carried out due diligence before credits were granted, underpinned by some loan beneficiaries’ dodgy documentations and legal reactions that came to the fore. What has happened to collaterals that should underpin such transactions?
Depositors did not lose their cash in the near-total banks collapse eight years ago simply because of the N620 billion tier two capital, which the then governor of the CBN, Lamido Sanusi, injected into the system and the seizure of the banks by the CBN/NDIC. This is a luxury the country cannot afford now with the economy in a deep financial crisis. The 2015 stress symptom should not be allowed to morph into distress. Banks have become more of public trust in addition to being private business concerns.
It is, therefore, critically important that effective monitoring and policing of the banks be mounted by the CBN and the NDIC to unravel toxins in their systems before they cause irreparable damage; and those trafficking in insider-abuse made to face the full wrath of the law.
The delinquency of the regulators explains why 220 Nigerians owed the Asset Management Corporation of Nigeria N1.14 trillion as of February this year. AMCON had initially used N4 trillion to buy back the toxic loans of some banks, from which it has yet to recover. Nigeria is probably the only country where serial debtors are allowed to use their ill-gotten wealth to buy private jets and yachts, run their business abroad, and gallivant freely in the society.
With the year in the second quarter, dark clouds are not over just yet. The World Bank in its projection, said the 2015 negative trends will drag deep into 2016, in what it describes as “substantial risk contagion” to countries close to the BRICS – Brazil, Russia, India, China, South Africa – economies. From an earlier predicted 3.3 per cent growth rate for Nigeria, the bank has reviewed its forecast downwards to 2.9 per cent.
Therefore, the CBN governor, Godwin Emefiele, as the chief bank regulator, should ensure that banks are religiously guided by this austere horizon. Indeed, the geometric increase in banks NPLs of N42 billion in 2014 to N649 billion in 2015 cannot be easily glossed over. A fiery enforcement of the CBN revised guidelines for finance companies, which include, among others, corporate governance; risk management; lending limits; know your customer; is needed of him in 2016. This will save the banks and depositors the danger inherent in unduly high exposure to bad loans.
