Mr. Babatunde Omotoba
By Obinna Chima
Former minister of aviation, Mr. Babatunde Omotoba, has described the decision of the Central Bank of Nigeria (CBN) to bar banks in the country from extending further credit to 113 companies and 419 directors and shareholders as “ill advised”.
According to him, the decision would make the companies go down rather than revive them. “The CBN governor, Mallam Sanusi Lamido, is a brilliant man and I respect him for that; but he got it wrong on this one. I don’t think he was well advised.”
Omotoba explained that when a company is weighed down by huge indebtedness, the rational reaction is not to starve it of funds because that would mean killing it off completely and taking away several jobs in the process. “That decision is an indication that the Asset Management Corporation of Nigeria (AMCON) has failed.
“The business philosophy of AMCON is to acquire eligible bank assets from eligible financial institutions at a fair value and put them to economic use in a profitable manner. What AMCON should have done if it feels the companies are not doing well – having bought over their debts –is to take them over and put professional managers who will restructure them, as well as their debts. The aim is to recover the debts, not to kill the companies.”
There have been some divergent views from some capital market operators on the CBN decision. While some argued that the stock market which has enjoyed relative appreciation since last month may suffer a setback because of the directive, others maintained that the action will not in any way halt the stock market rally.
Some of the operators who spoke with THISDAY also expressed concern that the guideline may frustrate the operation of the market makers that were introduced to the market last week.
CBN said it arrived at the decision as a result of the reluctance by the debtors to pay back their loans despite the purchase of the debts at an agreed price by the Asset Management Corporation of Nigeria (AMCON).
The list showed that companies with the highest indebtedness are Zenon Petroleum, owned by Mr Femi Otedola, which was indebted to the tune of N192.4 billion; MRS Holdings Limited, owned by Alhaji Sayyu Dantata – N119.98 billion; Seawolf Limited – N98.32 billion.
The Managing Director/Chief Executive Officer, Maxifund Securities Limited, Mr. Okechukwu Unegbu, faulted the directive by the banking sector watchdog, saying that it portends bad omen for the Nigerian stock market.
Unegbu who was a former managing director of the defunct Citizen International Bank insisted that the action was in bad faith.
“For this to be coming out at a time when we are talking about the market can recover is too bad. Some of those affected are capital market operators. We also have a firm that was appointed as a market maker on that list, which does not augur well for the stock market because it is going to affect the companies which they are expected to market.
However, Managing Director/Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu insisted that the concept of blacklisting debtors who have defaulted in the payment of their obligations is a standard practice in the banking industry.
He noted that the challenge with the AMCON debtors list published by THISDAY was that the comments on some of those affected indicate that the loans had been restructured and are now performing.
“So I think that they should exclude from the list of blacklisted debtors those that have been adjudged as now performing while those that are still in default should be retained in the list,” he added.
Chukwu further argued that the “publication of list of companies and individuals who banks are barred from extending credit will affect the rally in the Nigerian equity market. This is principally due to the fact that the bull run we are witnessing is not fueled by credits as banks have long ceased from lending for capital market activities.
“Virtually all the funds going into the market today are from investors' funds and funds under management by local and foreign Fund managers.”
On his part, the Chief Executive Officer, Institute of Credit Administration, Dr. Chris Onalo also said that “if the regulators decide to shut down the flow of credit to a set of people, it will affect critical sectors of the economy. I think the credible thing to do is to continue negotiating with them.”
In order to ensure compliance, the CBN also warned that any bank that flouts the guidelines would be made to make an immediate provision of 100 per cent of total principal and interest outstanding in the account of the customer and related parties, in addition to whatever regulatory penalties the CBN may decide to impose.