Bank debtors: An unnecessary naming and shaming:
Managing a commercial bank successfully especially in these times of economic uncertainties, is by all standards, a challenging task. If in doubt, take a trip to Greece where that country’s debt crisis has bankrupted the banks and left the entire country and its citizens at the mercy of bailout hand-outs.
But make no mistake about it: The defining business of banking is lending. That, in itself is one of the diverse desires of both the ultimate borrowers and lenders in any economy. Be that as it may, every bank bears a degree of risk when it lends to individual and corporate customers that fail to repay their loans as agreed. That is the mess and dilemma that management of Nigerian banks have found themselves right now.
As you may have noticed, since yesterday, some banks have begun the publication of serial debtors. This is in compliance with the Central Bank of Nigeria’s(CBN) recent directive instructing all financial institutions to publish the details of individual and corporate customers who have defaulted for a period of at least one year on the servicing of their loan facilities.
Indeed, the CBN directive to the deposit money banks was dated April 22,2015. The deadline expired last friday, July 31. In furtherance of that, the publication of chronic debtors will henceforth be done every three months. By yesterday, Zenith Bank PLC and Stanbic IBTC Bank, have come out with some of their delinquent debtors. Zenith Bank’s first installment of debtors contain 37 names, almost all of them corporate customers. Customers listed in Stanbic Bank’s publication are 32, with much more in the bank’s website. Many other banks are following suit.
This has been a very sensitive matter that will for a long time attract thoughtful debate. Meanwhile, CBN has indicated, in fact,threatened that unless and until the debtors meet their obligations in relation to their outstanding loans, they will be barred from participating in the foreign exchange transactions and Government Securities markets.
That is how serious the matter is.From the list so far published, the planned naming and shaming haven’t been, as expected, quite earth-shaking. This is in view of the fact that Non-Performing Loans (NPLs) of the banks are estimated at close to N3trn or more. Perhaps, the big names that will rivet public attention will soon come out. Maybe, we might not get to see those names. Reason: already, many of the banks have reportedly offered some of the chronic debtors options of rescheduling their debts or have accepted part-payment of the loans. As a result, some of the banks are said to have withdrawn the list they had earlier sent to some media houses for publication. This could be a well-thought out strategy by the high-profile debtor customers to avoid public embarrassment that such publication could their integrity or that of their companies.
But, I have this hunch that this entire exercise will not achieve the intended objective. It will be an uphill task to get the true delinquent debtors’ list published. Even if the list of debtors is published, I can bet, it will not be the authentic one. You know why? I don’t know anywhere in the world where this has been successfully done.
The reason is straight forward: it is the customer-banker relationship which is anchored on confidentiality.
No bank, no financial institution, that wants to compete with other banks, and with any other financial intermediaries, and will want to perform its economic role or better than its competitor, will do exactly what CBN has directed the banks to do, regardless that the apex bank’s order was meant, on the surface, to serve the best interest of the banks.
The truth of the matter, which is not lost on the management of the banks is, there are loads of reasons why loans go bad. That is not to say that there are no serial debtors that need to be exposed. But in doing this, the banks (I think), are smart enough to forget that some of their customers in marginal businesses have for some years now been hit by unanticipated shocks and therefore will be thoroughly embarrassed to see their names published as “delinquent debtors”. As far as I know, publishing the names of debtors will make some of them sit up, especially when the serial ones realise that henceforth, they will be unable to participate in forex and government securities markets. Besides, borrowers operate defensively and often attempt to reduce their indebtedness by paying back their loans and avoiding new borrowing.
In all of this, this is perhaps the best way forward to avoid where the banks have found themselves, in the present thick of “toxic assets” that may lead to bank failures. The banks must develop a credit culture supported by well-conceived management strategies for controlling credit risk. The way to go is to emphasize long-term, consistent performance of the loan portfolio. That’s a sure bet for lower risks rather than naming and shaming of debtor customers.
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