EDITORIAL OF THE DAY

THE move by the Central Bank of Nigeria to publish the names of chronic bank debtors is doubly ominous. For one, Nigerians are rightly worried that the rising volume of banks’ non-performing loans, if not quickly arrested, could presage fresh systemic stress in the financial sector. Second, many will view the “name-and-shame” option as tepid. The prevailing national mood, however, demands vigorous measures by the regulators to protect the system and recover all loans from recalcitrant debtors.

The decision to publish the names of serial bank debtors was taken at the 322nd meeting of the Bankers’ Committee last month and a deadline of August 1, this year set for culprits to start meeting their loan repayment obligations or be shamed by media advertorials laying bare their financial burdens in public. According to Tokunbo Martins, CBN’s Director of Banking Supervision, the measure is in response to mounting non-performing loans, which he said had risen to N490 billion sector-wide. It is reassuring that the CBN has spotted danger in the figure, though it amounts to just 3 per cent of the N13 trillion total bank credit. Godwin Emefiele, the CBN Governor, should follow through to ensure that NPLs do not reach the 5 per cent ceiling of total credit in the market set by the apex bank.

Though Martins was quick to say that the 3 per cent NPLs level signposted “stability” in the financial sector, Nigerians, especially depositors and shareholders familiar with cycles of systemic stress – the most recent being in 2009/10 – will only be reassured when they see very firm, very aggressive measures within the ambit of the law being taken to recover all outstanding loans.

We expect that the “name-and-shame” phase will only be a prelude to stronger actions. Experience has shown that merely publishing the list of debtors has neither shamed the chronic ones nor induced them to pay their debts. It was firm action, including arrests and threat of criminal prosecution that compelled many to come forward to repay when the CBN under Lamido Sanusi clamped down on impunity in the banking sector in 2009. There are many reasons why chronic debtors and reckless bankers should be handled with a strong hand.

Loan losses are inevitable in today’s sophisticated financial market. However, lending and borrowing come with collateral where the borrower pledges property or assets to the lender in case of repayment default. Strict risk management regulations by the CBN should, therefore, normally cover some credit default and help lenders minimise their loan losses. But poor risk practices, along with insider abuse and corruption among bankers, contributed in large measure to the systemic stress of 2009, according to the Nigerian Deposit Insurance Corporation. Bankers are expected to undertake strict due diligence in granting loans and should be made liable for losses arising from infractions of regulatory or in-house guidelines. Corrupt bankers who collude with unscrupulous lenders should not go free.

To combat high profile debtors who troll the banks acquiring multi-billion naira NPLs, Sanusi had forbidden banks from granting them additional loans, only for this novel measure to be squelched by a conniving Presidency. One serial debtor collected N35 billion from an aviation intervention fund and left the carcass of his airline for creditors; another had part of his debt “forgiven” by Asset Management Company of Nigeria, freeing him to borrow more to buy a power generating firm. There should be a deliberate effort to recover all loans taken by the well-connected debtors, who operate with impunity.

Emefiele, should work strenuously to avoid NPLs running out of control as it did in 2008/9 when bad loans reached N4.3 trillion, rendering some banks insolvent and prompting strong regulatory actions, including CBN takeover of eight banks, injection of bail-out funds and creation of AMCON to buy up bad debts. NPLs have been rising; from N344.26 billion in August 2013 to N400.57 billion a year later, and N490 billion as of May 2015. Sarah Alade, a CBN deputy governor, who revealed this, also said total banks’ credit rose by 21.08 per cent from N9.27 trillion in August 2013 to N11.22 trillion a year later, and N13 trillion as of June this year.

Regulators should pay attention to the prediction in February by Fitch, the global rating agency, that NPLs will rise above the 5 per cent threshold in Nigeria by the end of this year. The oil price shock, currency devaluation and lower growth indices on which that was predicated have worsened. GDP growth has slowed to 3.9 per cent, according to Standard Chartered Bank, Africa, while oil prices are still low and the naira was down to N197 to the US dollar on Tuesday and N230 at the parallel market.

With AMCON recovering only N3.2 trillion so far of the N5.6 trillion NPLs it acquired, the loss of N2.4 trillion that could have gone to small and medium scale enterprises is better imagined. Beyond naming and shaming therefore, we suggest very robust, aggressive measures to recover bad loans. Those who break the rules and violate laws should not be spared, but be made to face prosecution. The world’s successful economies do not tolerate financial sector malfeasance and we should toe that line. The collusion between corrupt bankers and big time chronic debtors deprives SMEs and the productive sectors of the economy much-needed credit that can alleviate poverty and create jobs while diversifying the economy and exports.

Emefiele should strictly enforce the regulations and punish errant bankers. The tight risk management and corporate governance rules put in place after the banking crisis should be fully implemented and where necessary, tightened even further. A country confronted by a fiscal squeeze, mass unemployment, unpaid wages by 24 of the 36 states and rising public debt cannot afford another crisis in the financial sector.