Yemisi Izuora
The Lagos Chamber of Commerce and Industry, (LCCI) has called on the Central Bank of Nigeria (CBN) to investigate the level of Deposit Money Banks (DMB’s) compromise in the process of giving loans.
The Chamber noted that “In some of these instances it may be difficult to exonerate the banks as the credit appraisal processes may have been compromised.
The degree of banks’ culpability should be ascertained and this should attract appropriate sanctions.
There are bad borrowers and there are bad lenders! The CBN should deal with both sides of this equation and be seen to have truly done justice”.
It will be recalled that Deposit Money Banks have in the last couple of weeks, served notices of their intention to publish the names of ‘Delinquent Debtors’ in at least three national newspapers in compliance with the directive of the Central Bank of Nigeria [CBN].
The publications will include the names of the directors, subsidiary companies and related parties, and would be quarterly and in addition such companies and their subsidiaries will be barred from the foreign exchange market.
But reacting to the threat, the LCCI
Warned of some legal implications of such action adding that there are global best practice principles in debt recovery.
President of the Chamber Remi Bello in a statement yesterday pointed out that publishing names of debtor companies and their directors in national newspapers is unorthodox and unprofessional, and warned that “Due consideration should also be given to the legal implications”.
Bello said that Entrepreneurship is about risk taking and that 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,” he cautioned.
According to him, Given the adverse consequences of non-performing loans for the stability of the financial system, the risk to depositors’ funds and the sustainability of the banks, there is perhaps a compelling reason to take some drastic actions to avoid the grave consequences of mounting bad loans.
Non-performing loans in the banking system is currently estimated at over N400 billion.
He however noted that it is important to avoid sweeping generalizations and examine the context of default on a case by case basis, stressing that there are varying causal factors for loan default which has to be taken into account in matters of this nature.
Bello listed some of the possible factors in business failure in recent years to include, 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.
He also mentioned the sudden drop in crude oil prices which had a significant impact on petroleum product importers and that investors in the upstream oil and gas sector are also victims of the collapse of oil prices and many are yet to recover till date. Some banks have huge exposure to this sector.
The president also noted that the power sector investors are equally grappling with whole lot of issues ranging from gas availability, energy theft, billing issues quality of assets, legacy debts etc and that Banks’ exposure to them is also high.
Others include defaults caused by import duty waivers granted by government, which put many businesses at very serious competitive disadvantage, rampant smuggling and counterfeiting of products as well as importation of fake and substandard products which created severe competition issues for manufacturers.
There is also sudden changes in fiscal policy especially import tariffs, import prohibitions, import duty waivers, policy reversals on incentives etc and huge indebtedness to contractors by governments at all levels which had impeded the ability of contractors to repay the loans from the bank.