Collapse of Nigeria’s illiquid banks

Whether we like it or not, we must agree to disagree that monitoring and supervision of banking business is not done in the same way and manner civil service bureaucratic administration is run. This is an industry requiring the professional mind accustomed to complete practical concepts adopted in the industry. To carry out reform exercise […]

Whether we like it or not, we must agree to disagree that monitoring and supervision of banking business is not done in the same way and manner civil service bureaucratic administration is run.

This is an industry requiring the professional mind accustomed to complete practical concepts adopted in the industry. To carry out reform exercise of this nature, fear and favouritism have no role to play in this regard.

The two major players are the borrowers (debtors) and the depositors (savers or creditors). Though, a player can take either position or both, provided the rules of the game could be observed to form bona fide transaction.

If the worst is envisaged, the financial policy indicators would reveal the negative factors in the macro-economic development of the country.

However, since banks operate under the mercy of borrowers and savers, it would amount to senseless argument and it would be illogical for banks to survive without one another.

These players determine the strength and weakness of banks. They provide a yardstick for measuring profitability or loss leading to failure of a bank. The failure of either party to respond to the terms and conditions designed to it would ultimately affect the strength of the bank.

Borrowers (debtors) used savers (creditors) deposits to obtain bank facility at the discretion of the bank as intermediary. Savers placed their funds as deposits with banks as trustees who advance loan facility to beneficiaries as borrowers. Banks assess borrowers need and requirements, thus proving his ability to repay the loan as and when due.

The banks rely on character, capacity and collateral to determine its decision in giving credit facilities to their borrowers.  But Collateral or security on loans is always secondary requirement to consider when assessing application for credit facility. However, credit worthiness, customer’s integrity coupled with good reputation is the primary requirements needed to qualify him/her for credit facility.

 Banks must lend money in order to survive and make profit. Since it is compulsory and mandatory for banks to lend money, it is therefore necessary for banks to introduce and maintain their own rules, procedures and guidelines governing credit proposals upon which loans receive approvals.

The risk involved when giving out loans cannot easily be ascertained or quantified. However, with proper planning and risk management in place a lot of banks could survive the hard core borrowers who moved from one bank to another looking for loans at even higher rate of interest.

Today, in Nigeria, there are some who would borrow billions of Naira and repay same into the bank unfailingly. Equally, some would borrow with the intent of not paying back in areas where the loan is used in importing contraband goods into the country. Once seized by customs officials, the loan is classified as a bad loan before recovery process is pursued aggressively.

The very important aspect some Nigerian banks failed to observe is to seek redness from the courts of law in order to enforce their rights of loan recovery. In fact, Banks are not willing to go to the courts because of fear of the following important factors:-

•        A lot of Banks’ credit facilities do not comply with the banks laid down rules, procedures and guidelines.

•        Loans and advances granted to family and friends proved, always, difficult to recover.

•        Frauds, kick-backs, bribery and corruption play a significant role.

•        Unexecuted bank guarantees, mortgages etc, do not go through the court’s registrar for stamping and registration.

•        Over inflated and over priced landed property, stock and shares of major stock security companies’.

•        Clash of personal interest among the members of banks’ board of directors.

•        Flagrant breach and abuse of Board of Directors authorized limit by the Bank’s MD/CEOs.

•        Undocumented loans and advances granted to customers, i.e. unauthorized credit facility.

 As the insolvent banks trooped into the offices of the CBN, desperately looking for a bailout, the CBN as banker of the last resort would respond to their needs after it conducted its own assessment, investigation and audit exercise to determine the persistent insolvency/illiquidity rate.

The CBN will exercise its power of lender of last resort in giving succour to the distressed bank as contain in section 42(2) of the CBN Act.

This is necessary in order not for the general public as well as the foreign subsidiaries to panic. Having restored full banking confidence, it is left for the distressed banks, EFCC and the security agents to employ strategic avenues that would quicken recovery before courts litigations commence.

 Gumel wrote from C/O Darmanawa Quarters, Tarauni Local Government,

Kano State. E-mail:[email protected]