Exposing chronic bank debtors

GIVEN the danger they constitute to the economy in general and the banking industry specifically, chronic debtors deserve the shame posture, which the Central Bank of Nigeria (CBN) is now adopting. The banking industry is too crucial to the economy for the kind of abuses currently believed to be going on in that sector.

An end must be put to it before shareholders and depositors’ monies are recklessly fleeced and greater damage is done to the nation’s economy. The CBN, along with the Bankers Committee, had the other day expressed deep concern over the increasing number of non-performing loans in the deposit money banks.

Accordingly, it decided to publish, from July, names of “chronic” debtors with a view to letting the world know whom they are with a view to compelling them to pay up. Although there was no categorization, the list should include companies, directors, subsidiaries and individuals. In addition to publicizing the debtors’ identities, they would also be barred from buying foreign currencies at the official interbank foreign exchange market.

All these are good measures to put an end to a phenomenon not too different from robbery, and for which the economy had suffered in the past. According to the apex bank, chronic debtors are those who have failed or refused to offset their liabilities.

The standard policy within the industry requires that non-performing loans must not exceed five per cent of the total facilities in the sector, which at the time of the announcement, was estimated at between N13 and N15 trillion. The new directive is to prevent the industry from getting to the prudential five per cent ceiling for non-performing loans, which is now believed to have reached 3.3 per cent.

There is also the additional measure of reducing cardholders’ annual drawing abroad on naira debit bank cards from the current $150,000 considering that customers have no limit in drawing from dollar domiciliary accounts.

With the increasing spending through debit cards abroad, settling the facility providers has constituted a drain on available foreign exchange for servicing industries. Furthermore, as the banking industry is attaining stability in foreign exchange, there is progress towards stabilizing the exchange rate with the convergence of the official and parallel market rates.

The financial industry is wittingly or unwittingly under-reported, under-monitored and under-regulated in Nigeria. In such a situation, there is a high risk of insider abuse, as has occurred several times in the past even leading to the collapse of banks.

Also, there are strict procedures for approving loans to ensure sufficient collateral that could be legally seized after all efforts to secure repayment might have failed, which, unfortunately, many banks overlook.

The failure of enforcement to stem chronic debts therefore, necessitates greater attention to corporate governance within the banks. With the total volume of loans in the banking industry now said to be in excess of N13 trillion, the danger signs are ominous. So far, the CBN has managed to keep the sector safe and sound in collaboration with members of the Bankers Committee, though available information has shown owing to the high indebtedness, the apex has got to act now, and concertedly, too.

So, from July this year, there will no longer be access by loan defaulters to foreign exchange as well as non-participation in government securities.

It is reassuring, therefore, that the powerful Bankers’ Committee (consisting of top management of the Central bank, Nigeria Deposit Insurance Corporation and the chief executives of banks) has decided to take these bold steps to sustain the health of the nation’s banking sector.

The extra measure of roping in the directors of defaulting corporate debtors would also ensure that even at the board level, appropriate decisions are taken by the company boards to stem recklessness.

Also, the ongoing Bank Verification Number would also go a long way to prevent defaulters from hopping from one bank to another. Individuals and companies that have access to loans, but default in the repayment, are certainly enemies of the economy. They must not only pay up, but equally deserve to be marked out as financial embarrassment to the country.