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Published On: Wed, Apr 18th, 2018

Insider abuse cause of high non-performing loans—Chairman House Committee on Banking & Currency



Chairman House Committee on Banking & Currency, Hon. Jones Onyereri has said the mounting non-performing loans in banks emerged as a result of rampant abuse by insiders in the various financial institutions.

Hon. Jones Onyereri ,Chairman House Committee on Banking & Currency.

Onyereri who is the representative of Isu/Njaba/Nkwerre/Nwangele, Constituency in Imo State disclosed this on the sidelines at the ongoing Spring Meetings of the International Monetary fund/ World Bank Group in Washington D.C, USA.

‘’The core of non-performing loans is because of insider abuse. You know as you have in the BOFIA at present, no bank should give facilities in excess of N50,000 to even the directors of banks. The directors are meant to disclose whatever investment they have in the bank or outside even before they become directors of any bank but none of this is being followed,” said Onyereri.

He further alleged that directors  give themselves loans far in excess of the accepted value and what we have tried to do is to increase the punitive measure.

‘’What we have at present in the BOFIA is a situation where if there is any infraction, they pay as little as N100,000 or N1000 and any bank can afford that if they have to pay N1000; it means nothing to them,” he said.

‘’ If you know that you need to pay as much as N20 million a day for everyday that you continue to have that infraction, you won’t dare do any of those things. So we are trying to deter them not that we are so much interested in punitive measures. The good news is that we have done the public hearing and in a few weeks we will come out with the report. Once the act is signed into law, it will reduce this idea of non-performing loans,” he stated.

Oyereri argued that the purpose for which Asset Management Corporation (AMCON) was set up had been defeated as non-performing loans keeps rising steadily.

According to him, the banks are in a worse situation because non-performing loan has increased far beyond the usual industry threshold.

The non-performing loans (NPLs) of commercial lenders in the country soared in 2017, despite Nigeria’s exit from recession at the end of the first half of the year.

A review of the 2017 full year financial statements of Stanbic IBTC, Ecobank Transnational, Access Bank, Zenith Bank and GT Bank, who have so far released their financial results for last year, showed that their average NPL ratio jumped to 7.91 per cent as against 4.58 per cent in 2016, although all of them posted improved profit, except Access Bank, whose post-tax profit dipped for the first time in six years.

Worried by the high level of toxic loans in the banking industry, the Central Bank had recently stopped banks with high NPL ratio and low Capital Adequacy Ratio (CaR) from paying dividends to their shareholders. The International Monetary Fund (IMF) had also earlier urged the apex bank to carry out asset quality review in order to identify any potential capital need and forestall rising banking sector risks in the country. The Fund stressed the need for the CBN to ensure strict enforcement of prudential requirements, and a revamped resolution framework would help contain risks.

The rising loan losses in the banking industry is a pointer to the weakness of the sector, which has relied majorly on government and activities related to it, like  oil and gas and construction for their lending, says Professor Leo Ukpong, a financial economist and Dean, School of Business, University of Uyo. He reckons that the dip in global oil price was responsible for these bad loans as this impacted the ability many borrowers to pay back their loans.

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