Still on losses, bad loans and debts

Recent media reports have indicated that Nigeria has lost huge revenue in various segments of the economy, including the agricultural and financial services sectors.

For instance, the Federal Government has spent a total of N3.49 trillion on domestic debt servicing and payment between January 2015 and September 2017.

In the same period, the country paid a total of $1.07 billion (about N326.69 billion) to service foreign loans obtained by both the federal and state governments.

This shows the wide gap between the size of domestic borrowing and foreign borrowing, which has seen the government spending much of its revenues, especially during the just exited recession on debt servicing.

The recent growth in the external debt component reflects the Federal Government’s move to take more foreign loans as against the acquisition of costlier internal loans. According to the Debt Management Office (DMO), the current plan to raise $5.5 billion from the external debt market will save the country N166 billion if it should borrow the same amount of money from the local debt market.
 
The Director-General (DMO), Patience Oniha said the plan is to increase the ratio of the country’s external borrowing to 40 per cent and reduce the size of domestic borrowing to 60 per cent. Meanwhile, at the moment, the ratio stands at 76.96 per cent for local debt and 23.04 per cent for external debt.
 
In a painful irony, the National Economic Reconstruction Fund (NERFUND) is under investigation over its N17 billion debt. The House of Representatives has commenced investigation into the role played by the Central Bank of Nigeria (CBN) in the failure of NERFUND to recover the debt owed it by Small and Medium Scale Enterprises (SMEs) stakeholders.

Chairman of the 19-member ad hoc committee, Ayodele Oladimeji, stated that in addition to investigating the roles played by commercial (intermediary) banks, the committee will seek out high profile debtors to the Fund as well as conduct a survey on the conditions of the projects that benefited from the loans.
 
The legislator describes as highly suspicious, the inability of NERFUND to recover its debts as the laws establishing it gives the CBN power to debit the accounts of intermediary banks.
 
The level of non-performing loans in the Deposit Money Banks, according to the Nigeria Deposit Insurance Corporation (NDIC) data, has risen by 50 per cent from N1.639 trillion in December 2016 to N2.424 trillion by September this year.

The CBN’s non-performing loans ratio in the banking industry is five per cent, but the banks NPLs have moved from 10.13 per cent to 15.18 per cent within the period, the financial returns of the DMBs compiled by the NDIC revealed.

The data, however, showed that total loans and advances by the banks decreased within the period before rising again.

The Director, Banking Examination Department and NDIC, Mr. Adebayo Adeleke, in a presentation entitled: Curtailing the growth of non-performing loans in banks – The role of regulators and supervisors, disclosed that the total loans and advances decreased from N16.183 trillion in December 2016 to N16.076 trillion in March 2017 and N15.783 trillion in June, before rising to N15.976 trillion in September.

The rise has been largely attributed to the fall in crude oil price and production levels arising from the militancy in the Niger Delta, he said.

The Financial Stability Report issued by the CBN as of December 31, 2016 indicated a disproportionate credit allocation to the oil and gas sub-sector by the Nigerian banks.  Analysts attribute the causes of the rising NPLs in the banking sector to bank’s lending policies, which had been relatively unselective and competition-driven, with little consideration for associated risks.

Others are inadequate appraisal of loans and poor assessment of obligors and sectors in which they operate, leading to loan concentration and lowering of under-writing standards; rapid credit growth associated with lower credit standards; and poor GDP growth rate, which became negative in the first quarter 2016 and resulted in recession by the second quarter of the year.
 
In the agricultural sector of the economy, the nation has witnessed the loss of about $15 billion due to post-harvest losses. It has been mentioned by stakeholders who spoke at the 2017 Agra innovate West Africa in Lagos that the continued inadequacy in storage, processing facilities and wastage in tomatoes value chain, cost Nigeria about $15 billion post-harvest losses annually.

Nigeria is Africa’s second largest producer of tomatoes with nearly two (2) million tonnes annually, yet up to 40 per cent of the crop never makes it to market, impacting food security and smallholder farmers’ incomes.
 
While monetary policies can be deployed to manage cases of bad loans and debt, the Federal Government should prioritise its needs on foreign and domestic loans on projects. The proposed increase in minimum wage for instance, when the country’s borrowing is on the increase, may not be a feasible idea on the current economic reality.

The system should also look inward on reviving the economy through various initiatives including Public Private Partnership (PPP) and feasible tax incentives.