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Non-Performing Loans: Are Banks Innocent Victims?

So, by the 1st of August, any debtor that hasn’t done so (paid his debt), the name will be published by the bank. So, the banks are encouraged to speak to their customers that fall into that category that they should put in more effort to pay off.

The 322 Bankers’ Committee Meeting ended recently in Abuja with a resounding resolution to publish the names of bank debtors on August 1, 2015 under the so-called ‘Name & Shame’ initiative.

The objective of this measure we were told is to recover the estimated N400 billion listed as outstanding bad debt in the banking sector.Even before the resolution of the Bankers’ Committee, a number of angry banks had already published such list of debtors in selected national dailies. Unity Bank Plc is one of them.

Looking at the list and level of amount standing against the names of certain individuals and corporate entities, one could be tempted to sympathise with the banks as innocent victims of unscrupulous borrowers, who were bailed out by banks in their moments of dire need and now refuse to pay back the facilities.

Indeed, a layman would curse them as ingrates!But on second thought, one would ask: are these banks innocent victims of a diseased borrowing public or active contributors to the fate that has befallen them?The reality is that the affected banks gave out the bad loans without the knowledge of the general public-why then should the public be bothered whether the loans are repaid or not? That is the business of the banks or rather, their internal issues to be sorted out between them and their customers in the inner sanctuary of their glowing banking halls.

Leave the public out of the matter!Indeed, looking at the figures being published, one would ask or worry why one bank should handout  such huge sums of depositors’ funds to just one or very few entities in the name of credit facility. Some of the figures are so mind-boggling that you wonder the sort of collateral the individuals or corporate organisations presented to the bank to be handed such billions of Naira as loan.

It has been established long before now that banks, in a greedy bid to reap bountifully from high interest rates, hand out hundreds of millions and billions to the so-called high-net-worth persons and firms without strict adherence to due process or laid down procedures of the bank.

Such persons could be directors of the bank or friends and relations of the chief executive of the bank. The same method applies to the beneficiary companies that walk away with billions within a twinkle of an eye, without sweat.It is instructive that while the lucky and anointed high-networth persons and firms are smilling home with billions, millions of small businesses nare deliberately frustrated by the same banks from accessing as little as N500, 000 or N1 million to run their small businesses.

When they approach the banks for credit, they are presented with a mountain of complex and complicated forms to fill out and long list of fees on the facility-from the unusually high interest rate to management fee, to processing fee and counter-part funding.

By the time the small business owner does the total calculation, he realises it would serve him better to respect himself and bother the bank no more. The reason is for this act is simple: the small businesses cannot generate the high returns sought by the banks.

Accordingly, no loan for them.In essence, majority of the banks crying wolf over bad debtors are victims of their own corporate greed  or Long Throat.Another angle to this story is the issue of writing off bad debts.

An investigative perusal of bank annual reports will reveal certain amounts written off every year by banks as bad debt.Going forward, it is important for the Central Bank of Nigeria (CBN) to generate four fundamental queries on every bad debt written off by a bank:

• Who is the debtor?
• What is his relationship with the bank?
• Why is the facility being written off as bad debt?
• Can the bank MD swear by Sango or Okija Shrine that the debtor lacks the capacity to pay?

Indeed, publishing the names of bank debtors is comparable to the Police parading suspected armed robbers on TV screens or the NDLEA showcasing arrested drug dealers.History in Nigeria has shown that a good number of those paraded were the unfortunate ones that could not purchase their freedom from their captors at the point of arrest or ‘settle’ and go home. Those that had the capacity to ‘settle’ did so and went home as Mr. Innocent.

That partly explains why our prisons are bursting with awaiting trial inmates-the unfortunate ones that could not ‘Buy’ their way out or nobody of substance came for them.Banks are eager to publish names of debtors in the ‘Name & Shame’ game to shame their debtors to pay up. That is commendable.

But we are also waiting for the day when banks will also publish names of perpetrators of insider fraud in their system. The concept of Name & Shame should not end with debtors. It should be extended to bank staff that commit fraud-to balance the equation.

The verdict:
Majority of banks are not innocent victims of bad debt. They created the bad debts haunting them.

Business Journal
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