Barbara Bako, Abuja
The House of Representatives is planning a N20 million daily penalty on banks to curb the increasing insider abuses and Non-Performing loans that are currently threatening the stability of the Nigeria’s financial system.
The Nigeria Deposit Insurance Corporation (NDIC) revealed a disturbing picture with its 2017 report which put the total Non-Performing Loans (NPLs) in the banking sector at N2.42 trillion or 15.18 per cent as at September 30, 2017, the highest in over 10 month.
The sector had reported N1.6 trillion or 10.13 percent in 2016 and there is the possibility that the figure could go up by the time all the banks release their 2017 results.
Mr Jones Onyereri, Chairman, House Committee on Banking and Currency said the federal lawmkers were in the process of reviewing the Banks and Other Financial Institutions Act (BOFIA) to include the penalty.
“In the reviewed Act, we propose that penalty be increased to the extent that thinking about committing such infractions will be scary to anybody that intends to do so.
“If you know that you need to pay as much as N20 million every day that you continue to have that infraction, you won’t dare do any of those things.
“So, we are trying to deter them. Increasing the fee will serve as a deterrent,” he said.
Onyereri said that the first public hearing on the proposed review of the BOFIA Act had already been concluded and that in a few weeks, the bill would be ready.
He said that when ready and signed into law, the BOFIA Act would reduce non-performing loans in the country.
‘The issue of non-performing loans is the core reason behind the banking crisis in 2009 and 2010 and that is why the Federal Government introduced the idea of AMCON.
“If the truth be told, I think we are in another worse and grave situation because the current non-performing loans is far beyond the usual threshold and it’s embarrassing, and that is why we have touted the idea of another AMCON II.
InsideBusiness’ computations show that as at third quarter of 2017, five commercial banks, according to their Nine months Unaudited results and accounts, had infringed the Central Bank of Nigeria (CBN) five per cent Non-Performing Loan (NPL) ratio threshold. The five commercial banks had an average 10.4 percent NPLs ratio.
“We need to solve that problem, and if you look at what we are doing especially in the House of Representatives, we are amending the Banks and Other Financial Institutions Act to curb as much as is within reasonable limits, the whole idea of non-performing loans,” he said.
Onyereri alleged that the core non-performing loans was largely an act of insider abuse.
“Under the current BOFIA, no bank should give facility in excess of N50, 000 to the directors of a bank and the directors are meant to disclose whichever investment they have in the bank or outside even before becoming directors in the banks.
“But none of this is being followed. They give themselves loans far in excess of the accepted value. So what we have tried to do now is to increase the punitive measure,” he said.
Onyereri added that the House was also working to strengthen the Nigeria Deposit Insurance Corporation to ensure joint supervision by both NDIC and Central Bank to reduce cases of non-performing loans in the banking system.
Finance analysts had attributed the rise in Non-Performing Loans to the fall in global oil prices and declining production levels.
NDIC stated that banking sector Non-Performing Loan crossed the N2 trillion threshold in April 2017 to N2.09 trillion and moved to N2.1 trillion in May same year. The Corporation’s report noted NPL dropped to N1.88 trillion in June and increased significantly to N2.3 trillion and N2.4trillion in July and August respectively.
It was in view of this that the CBN advised banks to retain more earnings to mitigate the risk of NPLs which the apex bank observed is on the rise in the banking system.
FBN Holdings has one of the highest NPL in the banking sector with 20.1 per cent from 24.4 per cent in 2016, followed by Union Bank of Nigeria with 9.14 per cent NPL ratio from 6.91 per cent reported in 2016.
A foreign subsidiaries bank, Stanbic IBTC Holdings has 7.2 per cent NPL in nine months of 2017 from five per cent reported in 2016 while Diamond Bank’s NPL remained flat at 9.5 per cent.
In addition, leading commercial bank in the Small and Medium Enterprises (SMEs) segment, Fidelity Bank NPL’s hits 5.6 per cent in nine months ended September 30, 2017 from 6.6 per cent in full year ended December 31, 2016.
The CBN’s governor, Mr. Godwin Emefiele, said the banks NPLs deteriorated in line with the difficulties of the macro economy.
According to him, “Weakening resilience of the Nigerian banking sector (though the industry remained largely robust) as: NPLs deteriorated in line with the difficulties of the macro economy; and Banking system exposure to foreign loans threatened to undermine their health.”
The Director, Bank Examination Department at the NDIC, Mr. Adedapo Adeleke, explained that while the banking sector NPL ratios and the volume of non-performing loans continued to grow up till September 2017, the total loans advanced by the sector however, was on the decline.
The report of the Risk Assets Examination of 20 Deposit Money Banks (DMBs) as at December 31, 2016, revealed that of the total sector loans portfolio of N15.6 trillion, the sum of N3.1 trillion(or 19.91 per cent) was non performing.
The 19.91per cent NPL ratio was a 79.04per cent increase over the average sector ratio of 11.12per cent recorded as at December 31, 2015.
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