Excess loan portfolio: Taming the monster




Banks by the nature of their business are meant to give out loans. And loans, themselves, are meant to be repaid.When loans are not repaid and they keep growing, they become excess loans.  And that in itself spells doom for any business, be it bank or any other firm, most especially if these facilities turn out to be non-performing.


To this effect, in order to avoid the prying eye of the regulatory authorities, especially the excess loan figures, banks are now holding their staff responsible for some loans.Investigation by The Guardian shows that most of the banks instead of classifying the figures as bad loans in the books of the banks now pass the bucks to the staff.Mostly affected are those loans classified as personal loans, which cover items such as car, housing, household items, among others. Similarly, those loans, which a company guarantees on behalf of its staff and payment taken from sources and paid back to the banks, are included.


The game plan of the banks, The Guardian investigation revealed, is that any staff that is responsible for attracting such business will automatically have his personal account charged with such unpaid loans.The practice is currently causing problems for a bank with strong presence in the ECOWAS sub-region.The bank had earlier introduced into the market a credit card, which allows Nigerians to have access to credit and is redeemable from such client’s salaries. To this effect, the bank in alliance with the companies where the clients work will ensure prompt pay. And even in case of sack, before paying the severance package of such staff, the company is expected to alert the bank that such payment is to be made.


However, in some cases where the clients are running a private business, getting them to honour the loan agreement has always been a problem, thereby forcing the bank to charge such loans to the individual accounts of the bank’s staff responsible for sourcing the business.According to an insider in one of the banks, “that is one way the banks can evade having a high non-performing loan profile and also make the bank’s staff to be wary of the type of business they bring in.”


Another aspect of the new development, the source revealed, is that most bankers these days hardly go home with their complete pay packages at the end of each month, owing to these debits.The Central Bank of Nigeria (CBN’s) latest directive for both auditing firms and the banks show serious apprehension and round-the-clock efforts to scale through the twin-hurdle of attractive fourth-quarter results and early repayment of the CBN bailout fund, it would be noted.


Central Bank of Nigeria Governor, Sanusi Lamido Sanusi, had in his August 14, 2010 speech said: “The total loan portfolio of these five banks was N2,801.92 billion. Margin loans amounted to N456.28 billion and exposure to oil and gas was N487.02 billion. Aggregate non-performing loans stood at N1,143 billion representing 40.81 per cent of total loans.However, others believe that government must improve the business environment if the banks are to achieve the target.


The non-performing loans in the industry is estimated at N2.2 trillion, with the rescued banks that failed the last audit exercise accounting for N1.5 trillion.Sanusi had said by the end of the recapitalisation exercise that it is hoped that the banks will return to positive capital position.The CBN boss at the end of the Monetary Policy Committee (MPC) meeting last month in Abuja disclosed that although the banks had started declaring profit, they were yet to come back to a positive territory.He further explained that the profits declared in small millions of naira were insignificant, compared to the loss of capital of over N200 billion in some of the banks.


Just as banks are battling to reduce their high loan portfolios, the apex bank is worried about the lack of lending activities in the Nigerian economy. According to Sanusi, weak bank lending to the Nigerian economy is a “major worry” and although the apex bank wants single-digit inflation by the end of the year, it would do nothing to jeopardise growth.Bank credit growth to the private sector was virtually stagnant at 0.3 per cent in the first half of the year. The apex bank has however provided financial stimulus to the manufacturing sector as part of efforts at remedying the situation.


Nonetheless, Sanusi declared at a media chat during a conference in London: “Bank lending is a major worry because we would like to get more money into the real economy. Bank lending has not been growing as fast as we would like it to grow. So, as far as upside risk to inflation, it is not very high,” he said ahead of a Monetary Policy Committee meeting next Tuesday.He noted however that higher government spending, with elections due next January, and the establishment of an Asset Management Company (AMCON) to soak up bad bank loans, should help put more money into the system, meaning the inflation risk was not zero.


“The risk is there with an election year and with money likely to come in with the asset management corporation. The discussions at MPC next week will be on the relative balance of inflation and expenditure.“We are hopeful of achieving single digit inflation by the end of 2010 but it depends on the indicators in the economy. Let me assure you that whatever we do should not disrupt growth. Growth is a priority,” he said.


Consumer inflation was 13.0 per cent year-on-year in July, down from a revised 14.1 per cent in June. The CBN last year injected $4 billion into nine banks adjudged to be so weakly capitalised that they posed a risk to the entire banking system.Earlier on, in a memo to all banks titled, “Report on classified facilities” and signed by Samuel Oni, CBN’s Director of Banking Supervision, the apex bank stated that, “In continuation of efforts to strengthen the banking system, the Central Bank of Nigeria has resolved to address, on a holistic basis, the issue of delinquent facilities in the banking system, especially the exposure of banks to the capital market. In this regard, preparatory to the establishment of the Asset Management Company of Nigeria, it has become expedient to obtain information from all deposit money banks on their classified facilities.


According to the CBN, “Specifically, the information required will cover details of collateral obtained for classified loans, securities owned by subsidiaries in respect of proprietary positions, investments and crystallised underwriting investments and bank’s securities held in respect of proprietary positions.”Instructively, Sanusi spoke about the establishment of the AMC in June this year while speaking on possible measures to adopt in handling banks’ toxic asset.


To this effect, the management of Wema Bank Plc has said it will approach the Asset Management Company of Nigeria with a view to discounting substantial part of its delinquent loans when the corporation becomes operational.


Highlighting some of its efforts at repositioning the bank following the joint audit exercise by the Central Bank of Nigeria and the Nigerian Deposit Insurance Corporation (NDIC) last year, the bank said in a statement recently that its effort at recovering its bad loans has led to the recovery of over N21 billion, which has impacted on the bank’s capital positively given the accompanying reversal of the sums recovered from loan loss provisions.


Part of the statement endorsed by Mr. Tunde Olofintila, Head, Corporate Communications read, “Upon the directive of the CBN to shore up our capital to the statutory minimum by June 30, 2010, we immediately commenced our recapitalisation programme, which has been extensively discussed and agreed with the CBN, and is anchored on the following pillars: Recovery of delinquent loans through internal efforts and resolution of some of our delinquent risk assets using AMCON window; raising additional equity through special placing; application for a regional banking license.


He said Wema Bank will be approaching AMCON with a substantial portion of its delinquent loans to discount when the Corporation becomes operational, adding that given the quality of the securities in place, it expects to recover a good portion of the loans through this window.


Just as banks are battling to reduce their high loan portfolios, the apex bank is worried about the lack of lending activities in the Nigerian economy. According to Sanusi, weak bank lending to the Nigerian economy is a “major worry” and although the apex bank wants single-digit inflation by the end of the year, it would do nothing to jeopardise growth.




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