Bismarck Rewane: Managing Nigeria’s Debt Dodgers

FAMUREWA: Reflect on how effective it is as a policy to get bad debtors to the table?
REWANE: First of all the first time it wasn’t industry-wide so, there was no question of it having that kind of impact, it was selective, and there was a lot of push-back and fights from all sorts of interest. This is disclosing the names and directors of companies that have been in default over a period of time, the argument last time was that there was a breach of confidentiality. They have committed the act of bankruptcy of being in default and if a customer is in default, you will be advised to go court, going to court will make it public so, the breach of confidentiality is not an argument. The impact it has is that it actually sends a signal to those who are intending to go in that direction that they cannot get away with it.

FAMUREWA: Where does that culture comes from?
REWANE: There is the willingness and ability to pay, some people have the ability to pay but are not willing to pay and some have the willingness but do not have the ability to pay. Those who have the willingness but not the ability can be accommodated and restructured because when they have the ability they would pay and those who have the ability and not the willingness are those that are chronic, acute debtors that have to be taken out of the system and actually send the signal, I think that it would reduce the capacity, propensity and potential for people trying to default for as much as 90% so, the only defaulters you would have are those who are willing to pay but do not have ability.

FAMUREWA: I think this issue just brings to the fore the judicial system, because really at the end of the day they can’t pay their debts, the fall back should be the collateral, shouldn’t banks realise the collateral of many companies?
REWANE: The enforcement of laws in Nigeria is extremely difficult, sanctity of contracts is in question. Furthermore the banks are to have some blame because they are lazy, if a facility is going bad you start with the restructuring process, first of all you have to identify it, secondly, it becomes an opportunity to restructure it. In the US so many people file up for bankruptcy, they restructure and then pay their debts. The fact is that if you are in default what would you do? There are so many ways to do it that would not cost either the tax payer or the bank who lend the money that much in the sense that it would have a new structure and the new structure would be able to service the debt that is the first process to force a lot of people to come to the table.
FAMUREWA: You mentioned earlier that to some extent the banks are to blame, is there a problem with entrepreneurs in Nigeria in terms of how people feel?

REWANE: Fundamental economics says in an inflation environment it’s better to be a debtor than to be a creditor because I am paying you with tomorrow’s dollars which are less valuable with today’s dollars, secondly, the debtors think that the intrinsic value of their assets are far in excess of the debts so by the time they settle you will find out that the company may worth more, thirdly, they think that the banks under pressure will grant their waivers and discounts so, there are a lot of things that build up to this culture of financial impunity but this is the beginning of the zero tolerance, they have to look for constructive rights and ethical ways of restructuring your debts and putting themselves back to credibility.
FAMUREWA: How do you think some of the CBN’s initiatives such as the Bank Verification Number could help in addressing this issue? What are your thoughts about this?

REWANE: Once you have a verification process that brings about integrity, it reduces the propensity for electoral fraud. By doing this BVN you are narrowing down the possibility of having multiple identities and when this is narrowed down, people have to do the right thing and when they do, banks will make money and it will send a signal to the society that deviant behaviour will not be tolerated.

FAMUREWA: That’s a very good infrastructure for consumer loans.
REWANE: Banks will now feel more comfortable, you can’t run a country with a leverage factor, total debt to GDP is 18%.
FAMUREWA: Let’s talk about the creativity of banks, do you think they are creative enough in terms of how they approach the market?
REWANE: No, they are not creative. When you have an over valued exchange rate, the tendency is to go for import related transactions, trade. If the exchange rate was in equilibrium and the international trade is not as lucrative as it is, relative to the real sector, you will find that banks and financial institutions will have no choice but to go to the real sector because that is where the opportunity is. There is creativity but there is also mental lethargy in the sense that people are lazy.

FAMUREWA: What are your broad expectations about this? Do you think it will bring people to the table? Do you think there will be any positive impact from this?
REWANE: Public officers, ministers, governors, party chieftains are being investigated, everybody is jittery, you then talk about impunity with bank loans now what is the impact?, the impact is that before borrowing from a bank you have to be sure about the source of payment and if you are unable to pay it, you can have a fall-back position, so the money must be used for the project and the project must be run by professionals so, probability of project failure and probability of absconding with borrowed money becomes very low.
FAMUREWA: Thank you so much Bismarck.