The fresh attempt by the Central Bank of Nigeria and the Nigerian Deposit Insurance Corporation to blacklist chronic debtors of closed banks will reduce the default rate and make credit available in the banking system, but the policy implementation may raise concerns, reports Festus Akanbi.
For obvious reasons, last week’s resolve of the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC) to close the door of credit facility against a category of debtors of failed banks has continued to elicit reactions from members of the banking public.
In tightening the noose against chronic bank debtors, the regulatory bodies had disqualified all debtors of closed banks that had non-performing loans (NPLs) of a maximum of N250 million from accessing new facilities in any deposit money bank.
The new offensive against bank debtors, according to the Managing Director/Chief Executive Officer, NDIC, Alhaji Umaru Ibrahim, had been communicated to banks, meaning that the implementation of the directive was expected to commence in earnest.
The latest action is seen as a follow up to a similar directive to banks in 2012 to shut the door of credit against 113 companies and 419 directors/shareholders.
However, sources hinted that the latest drive was informed by the reluctance of some debtors to pay back their loans despite the purchase of the debts at an agreed price by the Asset Management Corporation of Nigeria (AMCON).
However, as laudable as the exercise is, financial market watchers said the process was not going to be easy.
According to the Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, who described the latest move as a way of compelling borrowers to tidy up their credit, its implementation will be difficult under the prevailing situation in the country.
He said: “It makes sense to blacklist bad borrowers and what it means is that you have to tidy up your credit. It will reduce the default rate and make credit available. In a way, it makes sense but the implementation is going to be very difficult because there is what they call cross default risk. If you default in one activity then you cannot take facility on the other name. The question to ask is that is it by name, by ownership or by entity? Although they are bound to use credit bureau but implementation is not going to be easy because it could bring a lot of problem.”
Another analyst who spoke on the condition of anonymity said: “You cannot bar people or companies from accessing credit, you can only downgrade their credit rating so that lending institutions can price credit to those people/organisations appropriately. This is what credit scoring/rating is all about.”
Credit Default Risk
According to him, “If you know the credit/default risk involved, then you are able to price the risk appropriately. That is the way it is done, it is immoral to deny people credit. You can kill the economy if these suggestions are followed because the credit market in Nigeria is very very small.
“People default on their credits for very different reasons and you cannot just tar every one of the defaulters with the same brush. In Nigeria, some bad loans are as a result of insider abuse.”
Not ruling out insider abuses, the analyst alleged that “Bank MDs extend credits to themselves and cronies knowing from the word go that the money was never meant to come back into the coffers of the bank.”
On the options before the regulators, he said: “What CBN and regulators should be doing is to strengthen due diligence and transparency. This is actually what Basel II and incoming Basel III accords are all about. The regulators should be able and willing to punish those who fall foul of the rules of the game. I know the Nigerian banking system to some degree, so the method that is being advocated here will punish the wrong people. We need to grow the credit market not squeeze it. We can only grow SMEs in an environment where credit facilities are accessible to all.”
In giving account of its stewardship, the NDIC said it recovered in 2012 a cumulative sum of N24.68 billion from debtors of Deposit Money Banks that were liquidated by the Central Bank of Nigeria.
The N24.68 billion represents an increase of N2.42 billion over the N22.26 billion recovered in 2011.
It also said that a cumulative debt sum of N42.90 million was recovered from the debtors of closed microfinance banks in 2012 as against N13.48 million realised in 2011.
The corporation gave the figures in its annual report and statement of account for the 2012 financial period, which was released last year.
The report stated that “The NDIC continued to play its role as the liquidator of closed DMBs through the payment of liquidation dividends to un-insured depositors and other eligible claimants during the year under review.
“In its debt recovery efforts, the NDIC had recovered a cumulative sum of N24.68 billion from debtors of the DMBs in liquidation as of the end of 2012 as against N22.26 billion recovered in 2011.
“Similarly, a total cumulative debt sum of N42.90 million was realised from debtors of closed MFBs in 2012 as against N13.48 million realised in 2011, representing an increase of N29.42 million or 218 per cent.”
According to the report, the total number of banks whose licences had been revoked by the Central Bank of Nigeria since 1994 stood at 48.
Out of this figure, the NDIC report stated that winding up orders for 45 had been obtained from the courts.
The revocation of the remaining three banks, according to the report, is still being challenged in court by their shareholders.
The banks currently under litigation are Fortune International Bank Plc, Triumph Bank Limited and Peak Merchant Bank Limited.
The report stated, “The decision of the corporation to pay the insured amount to the depositors of Fortune International Bank Plc and Triumph Bank Limited from August 2011 continued to subsist throughout 2012, utilising Access Bank as the agent.
“The judgement order affirming the revocation of the banking licence of Fortune International Bank was given in the last quarter of 2012, but the bank further appealed the judgement.
“Meanwhile, the litigation in respect of the revocation of the banking licence of Peak Merchant Bank Limited, whose case was reviewed in 2003, had yet to be resolved in 2012.”
In order to enhance the pace of debt recovery and payment of uninsured deposits, the NDIC said it would continue to use the services of debt recovery agents.
It also said that 11 accounts of large debtors of the closed banks with total book value of N3.85 billion were packaged and sold to the Asset Management Corporation of Nigeria in 2012.
AMCON, the report noted, offered to purchase the debts at a total value of N795.38 million, which was accepted by the corporation.
In the area of liquidation dividend, it also said a cumulative amount of N73.58 billion was paid to 250,209 un-insured depositors of closed DMBs in 2012 as against N73.55 billion paid to 250,119 depositors in 2011.
The NDIC had expressed frustration over debt recovery saying such debts “remain unrecovered since 1994.”
According to him, the challenges of lending in the Nigerian environment include, corporate governance, impact of fixed income securities on the financial position of deposit money banks and technological innovations such as mobile money payment remains topical.
In addition, he pointed out that there was need to focus on challenges faced by examiners in appraising banks.
Furthermore, Ibrahim argued that the future of banking would be more complex in terms of product offerings due to latest Information Communication Technology (ICT), saying it provides a compelling reason for examiners to be proactive.