The Nigerian Deposit Insurance Corporation (NDIC) on Thursday hinted that three commercial banks accounted for 60 percent of the N700 billion industry’s insider-related bad loans in their balance sheets.
The Corporation’s Managing Director, Umaru Ibrahim, who made the disclosure while speaking at the Financial Institutions Training Centre Thought Leadership Discussion Series in Lagos, said that the level of the industry’s NPLs could be lower if the banks adhered more to sound corporate governance.
Ibrahim, who did not mention the names of the lenders, pointed out that foreign investors were shunning banks with weak corporate governance culture because of the importance the investors placed on sound corporate governance practices.
The NDIC boss, who spoke on the theme ‘Strengthening the Banking System and Facilitating Sustained Economic Growth: Roles of the Regulators, Operators and the Banking Public’ Ibrahim, linked a large chunk of the NPLs to oil and gas sector credit..
Represented at the event by the corporation’s Executive Director, Operations, Prince Aghatise Erediauwa, the deposit insurer lamented that many of the banks lending to key sectors of the economy lacked the right industry knowledge needed to properly assess the loans and were under-capitalised.
He said: “The bad loans we see today in banks are mainly due to large exposure to oil and gas sector. They expose themselves to the sector without the right industry knowledge. The banks go with the bandwagon effect, as once there is loan syndication, every lender will want to be part of it without understanding what is involved.
“A lot of oil and gas loans went bad and created huge NPLs. Banks were not knowledgeable of the oil and gas industry, telecom and power sectors. The banks are running helter-skelter instead of getting experts to handle the loans”, Ibrahim added.
Speaking at the forum, the immediate past President of the Chartered Institute of Bankers of Nigeria (CIBN), Prof. Segun Ajibola, advocated the need for quality regulation and examination of banks to dictate poor corporate governance issues on time.
Ajibola linked lack of corporate governance that will allow credit to go out without due approval to the high incidence of NPLs in the industry, adding that “we need to tackle this challenge at the regulatory and operators levels to achieve the desired result.”
This is even as the Managing Director, Sterling Bank Plc, Abubakar Suleiman, also called for specialisation by the banks to enable them handle credits better since high operational cost is also directly affecting the rates at which banks grant credit to customers.
Suleiman said: “Governance level in banks is high. For foreign investors, the corporate governance of sovereigns is far more important. Governance should start from the sovereigns. There are states that are attracting World Bank grants. I have the largest bank in India as a shareholder and it is on our board.”
He also pointed out that there was the need for banks to be incentivized for lending to real sector.
In her remarks, the CBN Deputy Governor, Financial System Stability, Aisha Ahmad, noted that an efficient, well-functioning banking system was crucial to effective economic policy transmission in the industry.
According to her, current estimates indicate that about 80 per cent of activities in the financial system are driven by the banking sector, thereby underscoring the growing need to strengthen the sector.
She said: “Strengthening the banking system requires joint effort from all stakeholders in the industry. As regulators, we are obliged to develop and enforce sound regulatory and supervisory policies, alongside speedy resolution of disputes to foster a stable financial system.
“Operators within the sector must ensure full compliance with regulations, be transparent in customer dealings and operate within a sustainable framework while the banking public should strive to be financially literate and leverage on more convenient e-banking channels”, Ahmad added.
By regulatory requirements, banks’ NPLs should not exceed five per cent, but many banks have increased their NPLs to over 20 per cent in recent months and by so doing, posing serious risks to the nation’s financial system stability.
