LCCI cautions CBN over planned bank debtors’ publication

Citing the need to avoid sweeping generalisations and examine the context of defaults in its intention to penalise loan defaulting companies and their subsidiaries, the Lagos Chamber of Commerce and Industry (LCCI) has urged the CBN to exercise caution in its efforts to address non-performing loans in the banking sector.

According to the chamber, while it is compelling for the apex bank to address the grave consequences of mounting bad loans, there are varying causal factors for loan default which has to be taken into account in matters of this nature.

Rather than name and shame, the LCCI urged the CBN to explore best global practices in its actions noting that loans are supposed be collaterised and a foreclosure invoked in the event that such loans are not redeemed.

The chamber in a statement made available to The Guardian and signed by its President, Remi Bello, expressed the importance of distinguishing between the categories of debtors in order to guide the choice of debt recovery strategy, adding that many businesses defaulted in the their loan repayment scheme due to the real business environment challenges they were exposed to in recent years.

“The LCCI recognises two broad categories of debtors. There are defaults that have arisen as a result of genuine business failure [some of which are irreversible] which affected the capacity to repay; and there are defaults that have arisen as a consequence of deliberate intent not to repay.

“The latter borders on character quality, which is what the Know Your Customer [KYC] concept is meant to address. It is important to distinguish between these two categories of debtors in order to guide the choice of debt recovery strategy. While some investors have been exposed to real business environment challenges that could have resulted in unintended loan defaults, the second category of debtors have deliberate plan to default, as this class of debtors took loans and from the very beginning did not intend to repay”, the statement read in part.

Urging the CBN to reconsider its actions, Bello said: “Entrepreneurship is about risk taking. Sometimes profits are made, at other times losses are suffered. It will be unfair to portray business failure as an act of criminality, which is what the publication of names connotes. The reputational cost to such businesses is also very high. In any event, loans are supposed be collaterised and a foreclosure invoked in the event that such loans are not redeemed. This is the best practice approach to debt recovery.

“The private sector is the engine of growth in any dynamic economy. Entrepreneurs have a very strategic role to play in wealth creation and generation of employment. We should not discourage investors from taking risks and should refrain from actions that could undermine the spirit of enterprise in the Nigerian Economy”.

The chamber further identified shocks and dislocations which arose from the sudden depreciation in the naira exchange rate and the attendant shocks to business, especially businesses with high exchange rate exposure; defaults caused by import duty waivers granted by government, which put many businesses at very serious competitive disadvantage; Sudden changes in fiscal policy especially import tariffs, import prohibitions, import duty waivers, policy reversals on incentives; and prohibitive interest rates and charges by banks are possible factors responsible for loan defaults.