The Central Bank of Nigeria (CBN) yesterday gave bad debtors a grace of three months to turn their accounts from non-performing to performing status or have their names published in national dailies.
In a letter to all banks and discount houses, CBN Director, Banking Supervision, Mrs. Tokunbo Martins, said the delinquent debtors will be blacklisted by the CBN and banned from participating in the Nigerian foreign exchange market and the Nigeria Government securities market. The list, she added, must be sent to the CBN as soon as the publication is made.
The CBN director said the apex bank has observed the rising trend of non-performing loans (NPL) in the industry and does not want the trend to get out of hand.
She said that to ensure the industry NPL ratio does not exceed the prudential limit of five per cent, and to improve the credit culture in the banking industry, banks and discount houses are to observe prudent credit underwriting and monitoring standards.
Furthermore, she advised banks and discount houses to with effect from May 1, 2015 give the delinquent debtors three months to regularise their accounts or face the consequences, which include the publication of the list of delinquent debtors when the deadline expires.
Mrs. Martins classified the delinquent debtors as those whose accounts have been classified lost and include the persons, entities, directors, subsidiaries and other related parties.
She had at the last Bankers’ Committee meeting held in Lagos said the lenders have to act fast to save the industry from rising cases of NPLs.
She said that although the banking sector is safe and sound, a 3.5 per cent average NPLs for the sector means that drastic measures needed to be taken to ensure that the bad loans do not exceed five per cent industry minimum standard.
The CBN director said that although it will be difficult to totally stop the bad debtors from accessing forex from other alternative sources and black market, the punishment for their default is that they pay more for forex which is cheaper at the interbank market.
“We do not want to go back to the old bad days. The last time we published the names of debtors, they paid up. It is important that early warning signals are detected and dealt with immediately. You recall how much was spent after Asset Management Corporation of Nigeria was set up to clear toxic loans and all that. We just want to ensure that we are proactive and do not go back to a situation like that.
“There was a time we had NPLs at two per cent; 2.5 per cent; three per cent and now 3.5 per cent. It is important that we take action now and not wait until it is too late. That’s why we are doing what we are doing right now,” she explained.
Martins said the committee has also noted with concern, the impunity with which some borrowers default on their loans in some institutions and yet are availed further credit facilities by other institutions under the same, or sometimes different identity.
She said such practice could have the effect of triggering serial defaults and a buildup of non-performing loans which could negatively impact liquidity in the financial sector and ultimately hamper its stability.