Banks and Their Siege On Delinquent Creditors

Nestled around the serene atmosphere of the waterfront on Awolowo road, Ikoyi, Lagos, is Protea Hotel, Westwood, where an array of credit administrators were huddled together discussing the imminent publication of the names of those that banks have classified as chronic creditors in the mass media.

If the new threat by the banks is carried out, it will be the second time this year that banks are purportedly getting the mandate of the Central Bank of Nigeria, CBN to publish the names of recalcitrant debtors, which the apex bank is believed to have approved for publication every quarter with a view to embarrassing the debtors and consequently compelling them to settle their debts.

 I have no idea if the first publication in March this year, yielded bountifully through recovery of the debts, but I’m aware that the action triggered a litany of court litigations against the banks by most of the alleged debtors who headed to the courts to tie the hands of the banks so that they or their agents can’t lift a finger against them.

As a fall out, some banks have also taken pages of newspapers to apologize to the clients that they falsely accused of being financially indebted, for fear of court actions against them for defamation of character and loss of business.

If the first action of publishing debtors names in the mass media did not yield desirable results of significant debts recovery , as some skeptics have argued, how come the banks are about to repeat the same measure?

 t may well be that it is because the contrarians were wrong and banks actually recovered a considerable chunk of the debt that has motivated them to want to name and shame those that are yet to pay via media publication of their names again.

Whatever the case may be, neither the CBN nor the bankers have availed the public of the result of the last action, so a fair assessment of the efficacy or other wise of the unorthodox debt recovery strategy by banks can’t be made by creditors or ordinary members of the public.

Bankers are understandably anxious to shore up their positions which have become precarious as the report of the first nine (9) months results of top five(5) banks in Nigeria revealed that they have combined impairment in excess of N80 billion naira.

That figure is alarmingly hovering around 140% over and above last year’s third (3rd) quarter report and worse of all; the credit stock has entered the neighborhood of the 5% bad debt limit stipulated by the CBN.

The CEO/Registrar of Institute of Credit Administration, ICA, Chris Onalo has been, sort of, holding brief for the practitioners and beneficiaries of bank credits and by extension entrepreneurs. In the view of the ICA scribe, the publication of the creditors list is an over reaction and expression of sympathy by the CBN to the bankers (against credit takers) which is capable of doing great damage to the economy.

Another stake holder in credit administration, Edwin Udegwu who is opposed to the apparent over reaching of banks and breach of bank-customer confidentiality, is of the opinion that credit institutions must find ways to resolve credit issues amicably and legally without sending wrong signals to international investors through publication of delinquent debtors list in the mass media.

From my investigations, there are five groups who are largely responsible for the current bank/creditor imbroglio.

These are: (1) the banks/bankers, (2) the civil/public servants,(3)the mass media, (4)the judiciary/police and (5)the creditors.

The solution to the challenge could also be provided by the prompt action of (1) the executive and (2) legislative arms of govt.

Permit me to quickly justify the assertions above and please note that due to lack of space would like to be fleeting rather than detailed in my analysis of each of the contending factors.

Let’s start with the banks/bankers that are so desperate to rake in humongous profits that they compromise the fundamental rules of credit administration which is known as the five Cs by credit practitioners: Capital, Collateral, Character, Circumstance or Condition, and Capacity.

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When all these factors are not strictly adhered to and vigorously implemented and monitored to ensure compliance with the agreed terms and conditions, credits are bound to go bad resulting in default in payment.

Lack of proper training of bankers which is prevalent these days is largely responsible for the breaching of the aforementioned credit principles as some bankers these days rise to the position of granting credits to customers without understanding the rudiments because they rose to prime positions probably due to their prowess in mobilizing cheap public sector funds for their banks in their billions and are thereafter rewarded with double promotions.

The unrealistic interest charges that could go as high as 25-30% is also a veritable reason why credits fail, as most entrepreneurs are unable to meet their debt obligations under such debilitating interest charges. As one businessman recently moaned, except one is into illicit business like drug or human trafficking, repaying loans at 30% after paying tax to government and taking care of other over head bills is unrealistic. Also questionable is how banks are utilizing the services of credit bureaus to mitigate the activities of serial creditors. Although relatively new, how come most of the banks have common creditors who should have been red flagged as having bad credit ratings by the credit bureaus?

Furthermore, even as creditors bear the pains of prohibitive interest payments to financial institutions, banks still make huge profits of hundreds of billions of naira annually prompting government and entrepreneurs to harbor the impression that they are basically working for the banks.

In this regard, bank owners have a critical role to play in reducing their profit expectations as that would help bring down the pressure on bankers to book credits without subjecting them to proper credit analysis.

The recent government TSA policy of channeling government funds to government bank-CBN is expected to awaken banks to their responsibility of the good old practice of banking whereby their top echelon would earn their pips by rising through the ranks and garnering the critical experience required for real banking as opposed to harvesting a deposit of N100 billion from government parastatals and automatically earning double promotion to the top.

As for the civil servants, it is the cloak of secrecy, as opposed to transparency that enables them hide vital facts from the public that has been hindering transparency in policy administration and by extension hampered best practice in credit administration and corporate governance in Nigeria.

For instance, as at the last time l checked, banks are believed to have returned about N1.4 trillion to CBN vaults via enforcement of the Treasury Same Account, TSA policy and l gleaned that information from the public domain. Similarly, an average Nigerian has a fairly good knowledge of those who have registered and the ramifications for not registering for the Bank Verification Number, BVN, a policy being driven by Nigerian Interbank Settlement System, NIBSS,which is also aimed at curtailing booking of multiple credits by serial debtors. So why is the sum of money recovered from so called chronic debtors after publishing their names in the mass media not made public by the CBN or Nigeria Deposit Insurance Corporation, NDIC ?

On the part of the mass media ,despite the passage of Freedom Of Information, FOI, bill that is supposed to bring out the skeletons from the cupboards of civil and public servants, a lot of policies, programs and nefarious activities of public officials are still shrouded.

As the saying goes “if the mountain can not come to Mohamed, Mohamed will go to the mountain”

So apart from ministries and other agencies of govt that have been canceling Information,the media is equally culpable for not leveraging on the bill to ferret out such hidden facts through investigative journalism to the delight of Nigerians.

Only last week , while l was traveling through the UK on my way to canada, l read in the Daily Mail, the salacious details of how, National Health Service,NHS executives were living large on public funds while denying the average Britons of medical care.

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You can imagine what the ramifications would be for the individuals mentioned in the report. Similarly,leveraging on their version of FOI law,British Members of Parliament,MPs were also recently ‘bursted’ by journalists on housing allowances and sundry other unsavory misdeeds to their constituents, resulting in dire consequences.

The role of the media in policy formulation and administration in Nigeria can not be over emphasized because of the feed back mechanism embedded in the media and which is why it is critically important to focus the minds of readers on the fundamental facts that lack of Information with respect to how policies are formulated in the banking industry is also one of the factors militating against effective and efficient credit administration.

For instance,in this digital age of online mobilization of support for or against policy measures by govt or organizations,how come not much is being discussed about banks and their unorthodox war against creditors in the social media?

The reason is simple: paucity of Information about the positive or negative effect of the action.Had the CBN or the Bankers Committee availed the public of the outcome of the last exercise of publishing creditors names ,bloggers would have been compelled to mobilize the public in their support and this would have promoted positive legislation towards institutionalization of the apparently unorthodox method of debt recovery that has been adopted by banks in Nigeria .

Next is the judiciary which has become a recurring decimal responsible for Nigeria’s socioeconomic and political malady. Like the tortoise which features in every dark and sinister African folklore,there are situations whereby cases between bankers and creditors,remain in court up to seven(7) years.

Courts are also known to have granted injunctions shielding bad debtors from being arrested or detained.Most banks also resort to using the police through the courts or via self help to seize homes, factories and other assets, as the case may be.

In the instances listed above, malleable judges and police chieftains are alleged to be active collaborators with the creditors or the banks perpetuating judicial perfidy.

Regarding the creditors, some of them borrow without the intention of paying back the loans owing to the loopholes existent in the credit administration policies or lack of any articulated policy in Nigeria.

Some of them borrow with the intention of not paying back but banking on plans to resort to the jungle Justice of survival of the fittest by using pliable policemen or court judges to fend off the creditor banks.

Why can’t Nigeria opt for the Dubai experience?

l cite the Dubai example because, most of the mum and dad investors (pension funds which are stable portfolio investments as opposed to hedge funds ) of the Western world of Europe and North America are domiciled in the UAE because the judicial and credit systems over there, work.

In Dubai,UAE,if anybody issues a dud cheque, the person is arrested, detained and made to settle the debt before he or she can be released from detention.

I’m aware of a Briton who was in detention over ‘bounced’ cheque for over one year without being released until the debt was recouped. Similarly, bank credit in Dubai is obtained under stringent conditions which is why bad debts are minimized and therefore seldom an issue in that economy.

In other words, fundamental human rights of the culprit in dud cheque scan or delinquent creditors are suspended until the debt obligation for which a cheque is issued, or a credit is obtained, is redeemed.

To elevate Nigeria’s credit administration to the level of Dubai, the establishment of commercial courts which would be solely dedicated to issues relating to banks and creditors, and as such offer speedy dispensation of Justice could be viable and therefore recommended.

This is the point at which the executive and legislative arms of government come into the equation with a view to resolving the conflicts in credit administration in Nigeria, once and for all.

Several attempts by past military administrations through the setting up of failed bank tribunals yielded little or temporary reprieve because soon after the exercise are concluded ,debts piled up again and banks failed again to the detriment of teeming Nigerian populace who are bank customers and more often than not suffer loss of their savings domiciled in banks.

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A more innovative approach was adopted at the dawn of return of democracy in Nigeria when Assets Management Corporation of Nigeria,(AMCON) was introduced to buy bad debts, off Nigerian banks. Through that measure, bank customers were effectively shielded as AMCON facilitated government’s prevention of banks from failing. It’s pertinent to point out at this juncture that banks fail essentially due to inability to remedy credit gone bad.

So credit guaranty funds that would be applied as hedge against bad credit, appears to me, to be the next policy that government should contemplate introducing to stop credit from going awry.

If credit guarantee scheme is good for export business and it was therefore established to sustain the flow of export business, l see no reason, local credit should not be similarly guaranteed to forestall future banks failure.

As the saying goes, ‘prevention is better than cure’.

Since AMCON was brought into the financial system to cure the disease of bank failure, a specific credit guarantee mechanism should be instituted to prevent the disease of credit crystallization that lead to bank failure.

In the new dispensation, President Muhamadu Buhari has recently, graciously approved the sack of Justice Lambo Akanbi, indicted by the National Judicial Council, NJC for reportedly frustrating Shell Oil Company on a business transaction that went awry between the International Oil Company, IOC and a contractor of which justice Akanbi was the adjudicator.

The fact that NJC has resumed sanctioning judges and president Buhari, in line with his anti corruption posture, endorsed the sack without reservations is a welcome development that could usher in some sanity into the Judiciary whose reputation has descended into the abyss given the narrative of their alleged ignoble roles in recent governorship election tribunals in some states.

To introduce sanity into credit management in Nigeria, the federal government should through the ministry of justice, ramp up efforts at proposing a bill to the National Assembly, NASS that would facilitate the passage of Dubai type of credit administration.

Since time is of essence, there is no need trying to reinvent the wheel so knowledgeable people on the issue of banking and finance from the executive, legislative and judiciary arms of govt coupled with experts from the CBN, NDIC, Bankers Committee, Nigerian Institute of Bankers, NIB, as well as members of the organized private sector like Nigerian Chambers of Commerce and Industry , NCCI, should be empanelled to embark on a field visit to Dubai with a view to coming up with a credit regime based on the Dubai experience.

Extraordinary circumstances require extraordinarily innovative solutions and no approach would be more dynamic as the action of thinking out of the box which the proposed action entails.

As l pointed out to Chris Onalo, the administrator of ICA which recently conferred on me the privilege of a fellow of the Institute of Credit Administration,FICA, a collaborative effort between the ICA, CBN and Bankers Committee can make the proposal contained in this article become a reality very fast.

So instead of further equivocation or quibbling by or between the ICA , CBN and Bankers Committee-that is threatening to publish creditors lists again, the trio should join forces to lobby the presidency to prepare the bill and the NASS to pass it, pronto into law, when the bill is presented.

It would not be difficult convincing legislators and top government officials in the presidency to embrace the initiative because some of them have also been victims of bankers’ publication of debtors list which some of them view as malicious.

That in my view is the quickest and safest way to avert a return to the dreaded distress bank syndrome in Nigeria.

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