Three commercial banks have been identified to have in their balance sheets, 60 per cent of the N700 billion insider-related bad loans bedevilling the industry, according to the Nigeria Deposit Insurance Corporation (NDIC).
Speaking Thursday at the Financial Institutions Training Centre (FITC) Thought Leadership Discussion Series in Lagos, NDIC Managing Director, Umaru Ibrahim said the level of non-performing loans (NPLs) in the industry could be lower if the banks were to adhere more to sound corporate governance.
The identities of the banks were not disclosed, but the NDIC boss said that lenders without strong corporate governance culture were already being shunned by foreign investors because of the importance they attach to sound corporate governance practices.
The Central Bank of Nigeria (CBN) expects banks’ NPLs not to exceed five per cent, but many lenders have grown their NPLs to over 20 per cent in recent months.
The financial industry still harbours weaknesses in governance, as seen in insider non-performing loans, unreported losses, huge exit packages for directors, over-domineering executive management, contravention of regulatory/prudential guidelines and lending limits, poorly appraised credits and weakening of shareholders’ funds, among others.
Speaking on the theme: Strengthening the Banking System and Facilitating Sustained Economic Growth: Roles of the Regulators, Operators and the Banking Public Ibrahim, who was represented by NDIC Executive Director, Operations, Prince Aghatise Erediauwa, said a large part of the NPLs came from loans to oil and gas sector. He regretted that many of the banks’ lending to key sectors of the economy do not have the right industry knowledge needed to properly assess the loans.
“The bad loans we see today in banks are mainly due to large exposure to oil and gas sector. They expose themselves to the sector without the right industry knowledge. The banks go with the bandwagon effect, as once there is loan syndication, every lender will want to be part of it without understanding what is involved,” he said.
According to Ibrahim, many of the banks are also undercapitalised, borrowing from the Central Bank of Nigeria (CBN). Many banks still do not disclose the names of all their staff that are involved in fraud, he said.
He added that “A lot of oil and gas loans went bad and created huge NPLs. Banks were not knowledgeable of the oil and gas industry, telecom and power sectors. The banks are running helter-skelter instead of getting experts to handle the loans”.
The immediate past President, Chartered Institute of Bankers of Nigeria, Segun Ajibola, also called for quality regulation and examination of banks to dictate poor corporate governance issues on time. “It is lack of corporate governance that will allow credit to go out without due approval. We need to tackle this challenge at the regulatory and operators levels to achieve the desired result,” he said.
Also speaking, Managing Director/CEO, Sterling Bank Plc, Abubakar Suleiman, called for specialisation by the banks to enable them handle credits better. He also said that the high operational cost was affecting the rates at which banks give out loans.
On corporate governance, he said: “Governance level in banks is high. For foreign investors, the corporate governance of sovereigns is far more important. Governance should start from the sovereigns. There are states that are attracting World Bank grants. I have the largest bank in India as a shareholder and it is on our board.”
Suleiman said banks should get incentives for lending to the real sector. “There should be reward system that promotes lending to real sector,” he said.
CBN Deputy Governor, Financial System Stability, Mrs. Aishah Ahmad, said an efficient, well-functioning banking system is crucial for effective economic policy transmission. She said current estimates indicate that about 80 percent of activities in the financial system are driven by the banking sector, which underscores the need to strengthen it.
“Strengthening the banking system requires joint effort from all stakeholders in the industry. As regulators, we are obliged to develop and enforce sound regulatory and supervisory policies, alongside speedy resolution of disputes to foster a stable financial system. Operators within the sector must ensure full compliance with regulations, be transparent in customer dealings and operate within a sustainable framework while the banking public should strive to be financially literate and leverage on more convenient e-banking channels,” she said.
“Bank lending to the private sector is known to stimulate economic growth and development; however, private sector credit has remained low over the years in Nigeria. While we acknowledge the high risks in the economic environment, I would encourage our banks to partner with the CBN in financing the real sectors of the economy directly and through its various de-risking initiatives Lending (NIRSAL) and Development Finance Initiatives,” she said. such as the Nigeria Incentive-Based Risk Sharing System for Agriculture.