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Banks, Debtors and AMCON

21 Feb 2011

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There is a disturbing development emanating from the banking sector. Debtors of most of the 24 banks are said to be resorting to new tactics to evade their obligations. Acting under the impression that with the take-off of the Asset Management Company of Nigeria (AMCON) and the setting up of the sinking funds by the banks under the supervision of the Central Bank of Nigeria (CBN), customers, particularly those with non-performing loans, believe there is no justification for the banks to be unduly tough on them in the course of loan recovery.

The notion that banks can easily pass over the non-performing loans to AMCON has made the debtors antagonistic towards the financial institutions instead of engaging in the usual negotiations between creditors and debtors.

It is however clear that those bank customers who believe AMCON is now a bulwark that will prevent banks from aggressively pursuing loan recovery misunderstand the role of the company and create a difficult atmosphere for banks to perform their primary roles as lending institutions.

AMCON, according to its chief executive, Mr. Mustapha Chike Obi, was set up to acquire all non-performing loans from the banks, recapitalise affected banks to the point where new investors can come in, and then manage the loans in the process of acquisition. Obi said the company had bought loans worth N770 billion in the first phase of the exercise.

He however clarified the position of the company in relation to bank debtors when he said in a recent interview: “We don’t want to give the impression that people can default on their loans and get better terms under AMCON. What we have done is taken non-performing loans from the books of the banks and we will pursue all means of recovery including restructuring...They (the loans) will be repaid under terms already agreed with the banks. So, the debtors will simply keep repaying their debts to the banks which are collecting the payments on behalf of AMCON.”

From the position of the AMCON chief, bank debtors who believe that the company and the one trillion sinking fund, provide the perfect shield to protect them as they evade their obligations to the creditors, will be making a big mistake. First, such attitude by the debtors will send a negative signal to the international community, which successive administrations have continuously wooed to participate in the economy.

What is the motivation for investing in an economy where agreements between lenders and debtors are not enforced? Second, a situation where bank debtors feel they do not need to repay or renegotiate the terms for repaying their loans can discourage banks from lending and therefore shut the door against genuine businesses which approach banks for loans.

This attitude further places at risk the deposits kept in banks by customers, a significant number of whom are poor Nigerians.

Four, what debtors must realise is that by acquiring the loans they owe the banks, they are effectively owned by AMCON, a federal government institution that it would not be in their interest to take on. Should they continue to default, it will only be a matter of time before they literarily lose the shirts on their backs.

We therefore condemn the activities of bank debtors who thought they could frustrate the banks from recovering the money owed them and therefore force AMCON to take over such debts as non-performing loans.  We believe their present disposition is capable of eroding confidence in our financial sector and further sabotaging the efforts of regulatory bodies struggling to make the sector the driving force of the economy.

While we call on CBN and other regulators as well as AMCON not to relent on debtors who deliberately want to avoid their obligations to their creditor-banks, we also believe that the banks and their managements should not be insulated from the blames arising from the bad loans.

The magnitude of non-performing loans in the banking sector can be blamed on failure by bankers to strictly comply with lending guideline set out by the CBN. We therefore call on the CBN to enforce banking rules and compel the banks to comply with the rules as provided under the Bank and Other Financial Institutions Act as well as the periodic directives of the banking regulator.

We equally call on the courts to support efforts of the CBN in restoring confidence and credibility in the banking sector by holding speedy trials on cases between banks and their debtors.

The courts should not encourage the delay tactics often been resorted to by some of the debtors. It is for this reason that the idea for the establishment of commercial courts being mooted in the National Assembly is a welcome development. The commercial courts, when established, will deal strictly with disputes arising from financial transactions and related matters.

In all, we call on AMCON to use its mandate in the course of recovering non-performing loans it has purchased from banks to send strong signals to all concerned that it will not tolerate bank debtors who elect to shirk their responsibilities to meet their obligations.

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