Debtors As Threat To Financial System

Ahmed Lawan Kuru, Managing Director/CEO Asset Management Corporation of Nigeria (AMCON)

By Bayo Akinloye

One thing that is prevalent in the entire South-eastern Nigeria is entrepreneurial spirit. The region is majorly dominated by men and women who are self-driven in their determination to succeed, not minding the socio-economic challenges and lack of support from various levels of government as can be seen in other climes. Indeed, it is a common knowledge that south-eastern Nigeria has bred more naira billionaires than any other region in the country.

Clearly, it was this entrepreneurial spirit he saw flowing through the blood of his kinsmen as well as other factors that made the founder of the defunct Diamond Bank, Pascal Dozie, to strategically position the financial institution to support businesses in the region. Even though Diamond Bank had national spread, during its existence, the bank which has since been acquired by Access Bank Plc, had majority of its customers as south-east business owners, in its deliberate attempt to support his brothers.

From agriculture, construction, oil and gas, even operators of micro, small and medium-sized enterprises (MSMEs), Alaba traders, Nnewi, Idumota, ASPAMDA, Balogun, Onitsha, Owerri, Ariaria, Kano, and even non-igbo business, then saw the Diamond Bank as the go to financial institution for support and business expansion. That was why the bank then was a dominant player in the retail segment of the industry.

Unfortunately, lending is very risky because repayment of loans is not always guaranteed and most of the times depend on other factors not in the control of the borrower. And the inability to manage loans, which make up the largest share of banks’ assets, would likely lead to high levels of non -performing loans (NPLs). Indeed, NPLs erodes confidence and threatens the continuous existence of a financial institution.

Some recalcitrant debtors are in the habit of moving from one bank to another, with a deliberate plan not to repay. This, was the case of Diamond Bank as some of his kinsmen who collected loans from the bank deliberately refused to honour their obligations, thereby allowing the volume of NPLs to hurt its operations.

In fact, excessive NPLs was a major factor that weakened a lot of banks in the 90s as well as during the reign of Mallam Sanusi Lamido as Governor of the Central Bank of Nigeria (CBN), which even led to the creation of the Asset Management Corporation of Nigeria (AMCON) to clean up the system. Thereafter, the regulatory authority also restrained banks from granting further credit to potential borrowers with unserviced facility exceeding a certain amount or any amount of delinquent facility that was taken over by AMCON.

Precisely, to clean up the mess in the sector then and revive some of the banks, the Sanusi-led CBN had to inject about N700 billion in a bailout exercise as well as removed some bank chief executives who were deemed to be irresponsible. To further buttress the damage recalcitrant debtors have caused on the Nigerian economy, AMCON recently revealed that 350 of its debtors owe it N3.6 trillion.

The corporation’s Group Head of Enforcement, Joshua Ikioda, disclosed in Abuja, that if the amount is recovered, it would be enough to complete the revival of the moribund Ajaokuta Steel Company in Kogi State, and capitalise over two million micro-businesses with N2 million each or 200,000 Small and Medium Enterprises (SMEs) with N20 million per SME. The move will create jobs for Nigeria’s unemployed youth and help develop the economy.

He also revealed that the debtors represent 80 per cent of the N4.4 trillion of the total outstanding debt to the corporation, adding that all agencies of the government and other stakeholders must support AMCON’s debt recovery efforts. “This colossal outstanding debt of N4.4 trillion is bigger than the N3.85 trillion capital expenditure budget of the federal government of Nigeria in 2021.

“It is also bigger than the N3.12 trillion total foreign debt service and N3.7 trillion personnel cost for the year. It is also bigger than the N3.12 trillion for total foreign debt service for 2021,” the visibly angry AMCON official had said. Clearly, this scenario, which is capable of dampening confidence in the system is what Access Bank Plc is trying to avoid, which has seen the bank aggressive in its debt recovery, especially legacy debts from the defunct Diamond Bank, which it acquired in 2019.

The bank is now in a legal tussle with A.B.C Orjiako, the chairman of Seplat Petroleum Development Company; Seplat as a company; Cardinal Drilling Nigeria Limited, another company associated with the businessman, and Kalu Nwosu, Managing Director of Cardinal Drilling Nigeria Limited, over an indebtedness put at $85.8 million.

The unfolding scandal comes at a time when the prediction is that the outlook for Nigeria’s banking sector will remain negative this year amid difficult operating conditions and sovereign pressures due to the pandemic.

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