The plan to blacklist chronic banks’ debtors by chief executive officers of financial institutions is apparently a move to ensure that they do not have further access to bank loans. Under the new plan, the banks’ chiefs agreed to compile details of the chronic debtors and shared them among the financial institutions. The debtors should also be barred from obtaining any loan from any financial organisation until they settle their indebtedness. The bank chiefs made this known through a communiqué entitled: “Review of Harassment and Criminalisation of Banks’ CEOs by Law Enforcement Agencies Based on Allegations by Bank Debtors”.
Considering the high risks that Non-Performing Loans (NPLs) pose to the banks, it is good that the banks are taking appropriate measures to ensure that loans’ defaulters are made to repay them. However, we urge for caution in carrying out the plan. We can recall the ordeal many banks’ chiefs passed through in the hands of law enforcement agencies on allegations by banks’ debtors. Some have been accused of authorising huge loans to high-profile customers without reasonable collateral. Some banks have collapsed due to non-repayment of loans. The problem of bad loans can occur because of inadequate internal loan review systems.
To achieve their objective, the banks’ chiefs have reportedly engaged the Central Bank of Nigeria (CBN) to adopt a “Reverse Reference System” against chronic loan defaulters which will involve not only blacklisting them, but also denying the directors of such debtors’ firms further access to financial privileges through any financial services platform.
But, it is not yet clear if the apex bank will give its nod to the proposal. With the new plan, all cases of defaults will go through the Bankers’ Committee Ethics Committee. There is also a plan to set up an advocacy group that will interface with other stakeholders in the industry, especially on the issue of harassment of some of its members. However, any measure to check the chronic debtors should not be allowed to damage the debtor/creditor relationship in the sector. It should also not be allowed to impact negatively on the health of the financial institutions. Undoubtedly, the banking industry is critical to the growth of the economy.
Nigeria is currently in a difficult financial environment and many banks have posted lean profits growth largely because of their non-performing loans put at over N1trillion. The banks’ debtors should not be allowed to cause further distress in the sector. It is laudable that the presidency is planning to set up an inter-agency collaboration framework comprising key government Ministries, Departments and Agencies (MDAs) to ensure that chronic banks’ debtors are not allowed to do business with government henceforth.
The problem of chronic debtors in the banking sector has been a perennial concern for some years now. It will be recalled that in 2015, names of high-profile banks’ debtors were published in some national dailies in the “naming and shaming” campaign. But it generated intense controversy. Some banks’ customers went to court to clear their names.
The publication of the debtors’ list then was in compliance with a CBN directive that covered individual and corporate customers as well as directors of organisations that defaulted in their loans repayment for a period ranging from one year and above. In all, we urge the banks to follow due process in the bid to recover the debts. This will also save them from avoidable litigations. But the recovery of the debts is critical to the health of the banks. We recognise the fact that banks bear risks when they lend to customers, but that is not an excuse for debtors to fail to service their loans.
Therefore, we urge the banks’ debtors to see the new plan as a good measure to ensure stability in the banking industry and the economy. To curb the rate of loan defaults, banks should strengthen their internal control measures. All loans must be given in compliance with banking laws and regulations.