Central Bank of Nigeria (CBN) recently gave a directive to all banks to publish in newspapers names of bank debtors by July 31, 2015, and periodically thereafter. Having given this issue some thought, my take on the matter is captured below and I believe this is a more result oriented and pragmatic approach. Permit me from time to time to drift into the use of examples as I believe those examples will help present a better picture at the end of the day.

There is no gainsaying that banks are currently bugged down with debts that threaten their ability to meet obligations to customers who have deposited money with them - unpaid loans indeed need to be recovered but what is a realistic way of achieving this task? Will the publication of a so-called list of defaulters bring about the recovery of these funds? Alternatively, should CBN or banks criminalize hitherto commercial transactions gone bad? Is there another way different from these first two options that can produce results? Determining the way forward and preventing the vicious circle of loan advancement and subsequent default requires answering the following questions:

1. How does a bank determine which company qualifies for a loan?
2. Do the banks carry out the necessary due diligence before loans are advanced?
3. What do bank do to monitor these loans while they are active?
4. What are the CBN mandated steps for banks in the immediate aftermath of a loan going bad regarding principal and interest?
5. What are the actions bank takes in the immediate aftermath of a loan going bad and do they match the CBN requirements?
6. What are the actual causes of bad loans from the customer’s stand point?
7. Is demonizing the engine room of the economy, i.e., the business community the solution to the current problem?
I will not pretend to be an expert capable of providing answers to questions 1 - 5 above but as an entrepreneur I believe I can address the other two questions from the business perspective.
If CBN will solve this problem, publishing a list of defaulters is neither the professional nor the first step to take; rather they must do a thorough appraisal of what has brought about the default, the actual amount borrowed and practical steps taken by the bank to alleviate the situation in the immediate period following the first signs of likely default. Also, there is need to determine if there is a realistic chance of recovering money while working in partnership with the defaulting customers.

The CBN is meant to be powered by research – findings by the CBN should direct the economic affairs of the nation and decision makers should turn to this institution when crucial decisions need to be made. Has the CBN carried out a survey of businesses in recent times or any time past? Have they engaged professionals (not bankers) to carry out a fact finding mission and submit a report on the economic climate and how businesses are affected; fall in value of the Naira and the impact on companies conducting transactions in foreign currencies, true state of affairs of the various ‘defaulters’ the banks are ‘pursuing’, and how these situation arose or can be prevented in future? If not, then the CBN is solely relying on whatever information banks have provided and what good judge has ever given a balanced, just and fair ruling based on the testimony of one party? Furthermore, the problem will continue to recur as there will remain the dearth of information on the causes of bad loans, hence how has CBN added value and how can they guide banks to avoid similar problems in the future?
Banks have also been known to collect post-dated cheques from their customers as part of conditions precedent to granting a loan and the moment they realize the customer does not have the means to pay, present the post-dated cheque as if they have only just received it from a customer acting in bad faith – in actual fact, the bank is the one that has acted in bad faith in such a situation; and the CBN must ask itself if this is a proper and professional method for resolving such matters – this method was introduced into the banking sector during the days of ‘cowboys’ in the banking sector and is a reflection of the fact that the cowboy legacy has transcended their departure from office (though some of them still remain in the background pulling the strings in the banking sector).
Many of the so-called loan defaulters run genuine businesses with the intention of making a profit and naturally meeting all of their obligations,

Hmmm

including repayment of bank loans but the following are some of the challenges faced in the course of doing business in Nigeria:
1. Foreign Exchange risk, with Naira crashing from time to time due to CBN’s policies which appear not to be adequately thought through;
2. Delay in payment by clients to the business particularly the big companies who have a penchant for owing smaller businesses for weeks and months beyond agreed dates.
3. Default by customers in spite of the businesses’ best effort at avoiding same.
4. Breach of agreement by other parties that has a material effect on the profitability of the business.
5. Prolonged court cases which leave commercial or criminal matters unresolved for too long.
6. Theft by staff which remain unresolved by the police for years.
While it is possible to expand each and every point listed above, I will limit myself to just one example. Let us say that a company called Brisk Technologies is a supplier to another company called MXN Nigeria and the latter breaches an agreement between parties that causes the former to suffer severe business loss and become unable to repay its loan to the bank, and subsequently Brisk Technologies goes to court to enforce its rights against MXN, how will publishing Brisk Technologies’ name in the papers make the company pay any faster and how do they get compensated for the reputational damage when issues are finally resolved in court, with MXN Nigeria found liable?
Nigerian companies are notorious for not settling common sense cases before they go to court, rather, trusting that the court system will take a very long time and may get the victim frustrated, they choose the option of being sued over that of resolving matters – even the pre-trial conference arranged in court hardly sees any attendance. Given this example, should CBN not provide a column in any advert being taken out to reveal material facts such as these types of court cases beside the name of the defaulting company – the way I see it, MXN Nigeria would end up ruining Brisk Technologies financially and reputationally and walk away from it all, untainted and without the public being the wiser as to who really created Brisk’s problems.
Also, perhaps Brisk Technologies borrowed N1billion Naira from Grant Trust Bank Plc to execute the job for which MXN Nigeria breached an agreement. After 6 years, the court case is finally resolved in Brisk’s favour and the company is awarded N1.2billion by the court as well as N2mllion for legal cost. In that space of time, the lawyer’s bill will probably stand at say N75million, while Brisk’s account with Grant Trust Bank will be in debit of N5billion. Will Brisk be able to pay his lawyers as well as the bank the full amount of N5.075billion from the award by the court? Is the outstanding loan a reflection of how ‘bad’ Brisk Technologies is as a company? Should a bank be able to accrue N4 billion interest on a N1billion Naira loan months after the loan has gone bad? These are the same figures bankers declare as profit and for which they receive bonuses and other perks, e.g., houses in highbrow areas, luxury cars, free family trips abroad, etc.
It seems to me that in Nigeria, we usually attempt to use bandage to cover the head of a patient with malignant carcinoma of the lungs as if that will cure him, or why else will the publication of names of so called defaulters be the solution to an example such as the one given above?
If CBN will then go ahead with such a publication with or without a proper review of the borrowing business in Nigeria, they must consider providing a full picture so as not to misinform the public to which they are releasing such information and to which they claim they owe a duty of ‘transparency’. Any publication should include the following, clearly separated by columns:
1. Principal Amount borrowed by client
2. Tenor
3. Expiry date
4. Interest Accrued till expiry of the loan
5. Interest accrued beyond expiry date
6. Purpose of the Loan
7. Material Cases related to the loan as provided by client and verified from available documents, e.g., court cases with the full names of the parties to the suit and the value of the potential damages; in the example above this column will probably read Brisk Technologies v MXN Nigeria (Suit No. LD/01/2015 in Lagos High Court) for the sum of N1Billion plus damages.
One thing the above will do is to get companies (who pretend to be very civil in public but constantly act indecently in the background) to promptly go and settle their various suits as they know that they too will be brought out into the public eye for their atrocities. Facts about these court cases are available

in the public domain and no company can claim that their private matters were wrongly exposed. The interesting thing about this point is that many banks have suits instituted against them which have a material impact on businesses’ ability to meet obligations to other banks.
My summation is that until CBN begins to take some of the steps mentioned above and others that space constraint will not allow me to mention at this time, we will remain in this vicious circle and CBN will need to set aside money every year for newspaper publications which the public will eventually get tired of reading. The public needs to have faith in the banking system and such lists will not strengthen people’s faith; such a list could however be used in the holistic manner proposed above if it is to be of any effect (i.e., bringing those companies who have caused the borrower to default into the fray). CBN needs to work towards reducing systemic risks faced by the bank and a multi-pronged approach is what is required at this time as this is the only way to prevent future financial crises, reduce their severity and likelihood of occurrence.

No longer should appeal court close down for months for renovation while court files are gathering dust and so called ‘loan defaulters’ are waiting for justice; rather temporary sitting arrangements should be made to ensure that justice is not delayed. Also, companies should face stiffer penalties for testing court system. When you choose to go to court rather than settle amicably, the ruling on damages should be stiffer, hence a company that could have paid damages of 50million at Pre-trial Conference should be hit with punitive damages in the hundreds of millions if they choose to drag the case in court. No longer should big companies get service and small companies wait months to be paid, creating a scenario where the small companies are the ones funding the big ones, legislators should make laws compelling prompt payment and stiff penalties for default.
The unspoken part of this problem is that the companies owing the banks have probably also had to retrench workers. Each time a company repatriates money to its parent company outside our shores rather than meets its obligations to local companies, the domino effect is loss of profitability, loss of business, retrenchment, unemployment, high crime rate and so on. Each time a bank doles out cash to its senior management rather than fulfil their obligation under various contracts or honour the decision of a court, the effect is retrenchment of workers by the ‘victim companies’ also known to CBN as ‘bank loan defaulters’.
It is time for real solutions and not mediocre thought processes and actions.

A public commentary written By Mr Oluwasola a businessman based in Lagos.

Too long

Unsad:
Too long

That's the problem with Nigerian's we don't like reading

Annunaki:


That's the problem with Nigerian's we don't like reading

I don't know who are the "we" but one thing is sure, I'll never waste my time reading irrelevant bullshit