Of the 104 licensed finance companies in Nigeria, only 22 are sound, the Central Bank of Nigeria has said.
The CBN, in its recent on-site examination of the finance houses sub-sector, revealed that only 21 per cent of the institutions were considered to be sound.
CBN’s Deputy Governor, Financial System Liability, Dr. Kingsley Moghalu, said, “A recent on-site examination of the finance houses sub-sector by the CBN revealed that only 22 finance companies or 21 per cent of the 104 licensed companies were considered to be sound.
“10 were marginal while two were unsound. However, 20 were technically insolvent. 33 others were either inactive or had ceased operations totally.”
“Rather than playing its expected role of financial intermediation for the middle tier of the economy, the sub-sector had shown an apparent lack of capacity to develop appropriate products that will be attractive to that segment of the market,” he added.
Finance houses serve as the middle-tier firms in the Nigerian financial system. The sub-sector addresses to a large extent, the financial services needs of the small and medium enterprises, leveraging on the resources from the banking system and other funding sources.
Moghalu, who spoke on Friday in Lagos, at the international workshop on the operations of finance companies in Nigeria, noted that the sub-sector had also failed to carve a niche for itself in the Nigerian financial system, but instead saw itself as being in competition with the Deposit Money Banks.
He stressed that the apparent lack of focus in the sub-sector’s areas of competitive advantage had put the finance houses in grave danger of possible extinction, adding that the void created by the sub-optimal performance of the companies was filled by the resurgence of activities of illegal fund managers.
The CBN deputy governor outlined factors that contributed to the weak financial performance in the sub-sector to include high level of non-performing loans, which had impaired the capital base; high level of non-performing inside related credits; gross undercapitalisation in relation to the level of operations; and poor corporate governance and weak board oversight.
Others, according to him, are interference by principal shareholders, particularly in finance companies owned by banks; persistent operating losses; and weak management evidenced by poor asset quality, poor credit administration and inadequate controls.
“This unwholesome situation is of serious concern to all stakeholders and therefore calls for prompt and appropriate action to reverse the trend and ensure that the sub-sector is focused to deliver on its mandate and complement other sub-sectors of the financial system,” he said.
Source: Punch/ Okechukwu Nnodim
