Ajibola: Bad Loans Are Cankerworm, Disincentive to Banks’ Performance

By Obinna Chima

The President of the Chartered Institute of Bankers of Nigeria (CIBN), Prof. ’Segun Ajibola has described non-performing loans (NPLs) in the books of banks as a cankerworm as well as disincentive to the financial institutions to perform their intermediation roles.
The CIBN boss also described bad loans as a direct loss to willing equity holders in the form of opportunity cost of investing in banks.
Therefore, as part of efforts to address the distortion being caused in the system by bad loans, the CIBN boss disclosed that the institute would soon approach the National Assembly for necessary amendments to the extant law, the CIBN Act No 5 of 2007.
Ajibola said this in an address he presented at the 16th National Seminar on Banking and Allied Matters for Judges held in Abuja recently, a copy of which was made available to THISDAY.
According to him, every single loan created by a bank is a product of financialisation made possible by mobilised funds in the bank’s kitty, either in equity or deposit form. Therefore, he pointed out that any portion of such loan lost to a recalcitrant borrower is therefore an impairment of the bank’s equity of deposit portfolio.
“Depositors of different categories may ultimately suffer loss of their hard earned sums invested in the bank. The ultimate victim is the Nigerian economy which is rendered prostrate by the attitude of the delinquent borrowers. This is why every stakeholder in the Nigeria’s project must be concerned about the rising cases of delinquent loans in the banking industry, ditto financial crimes and must join hands together to fight the rampaging monsters,” the CIBN president added.
Therefore, Ajibola noted that a well-functioning legal system was critical to resolving the lingering problems of non-performing loans and financial crimes. The menaces of delinquent debts and financial crimes are impinging on the abilities of the banking sector to discharge its critical role in the economy, he stated.
Furthermore, he said while there had been existing laws to deal with these issues, they have continued to rear their ugly heads, saying it was important for concerted efforts to be made to redress the situation.
“Therefore, the theme of this year’s edition – Emerging Challenges in Debt Recovery and Financial Crimes – could not have come at a better time. It is indeed germane considering the persistent increase in the number of loan defaults to the tune of N649.63 billion (NDIC, 2015) and the alarming dimension financial crimes have taken in the country with reports in particular of ever increasing number of ATM/Card-Related cases – 8,039 in 2015 (NDIC),” Ajibola said.