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N43bn Bank of Agriculture’s Bad Loans: The way forward, By Emmanuel Ado

By News Express on 22/08/2017

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•Emmanuel Ado
•Emmanuel Ado

Some privileged Nigerians are determined to cripple the Bank of Agriculture (BOA). And they are almost achieving the objective, because the BOA, is technically in the intensive care unit (ICU), with all sorts of complications: lack of loanable funds, delayed salary, and very difficult operational environment. And, unless the Federal Government of Nigeria does something drastic and urgent, BOA will die and, with it, the lofty dreams that led to its establishment.

The only crime of the BOA, is lending to these Nigerians in line with its key mandate: Provision of credit to support all activities in the agricultural value chain; provision of non-agricultural micro-credit to the poor segment of the society, comprising rural artisans, petty traders, etc; capacity development for the promotion of co-operatives and agricultural information systems; provision of technical support and extension services; boosting of opportunities for self-employment in the rural areas to stem rural-urban migration, and inculcation of banking habits at the grass-roots of Nigerian society.

According to the International Monetary Fund, (IMF) “A loan is non-performing when payments of interest and principal are past due by 90 days or more, or at least 90 days of interest payments have been capitalised, refinanced or delayed by agreement, or payments are less than 90 days overdue, but there are other good reasons to doubt that payments will be made in full.” Going by the IMF definition, what we have on our hands is a bad loan situation, pure and simple.

The hardened debtors who owe the BOA to date about N43 billion is very and truly representative of every tribe, religion and class: from politicians and the common man to emirs, obas, and chiefs. If the BOA summons the animal courage, yes animal courage, because we are in an animal kingdom, to publish the list, as it is threatening to, it will definitely cause consternation. The list includes some advocates of restructuring who have refused to ‘restructure’ their loans; some anti- corruption crusaders who do not see their refusal to liquidate their facility as corruption, and the emirs and chiefs whose security for their facility are their palaces. You can't beat Nigerians!

The previous management had vowed to act in line with the directive of the CBN to “publish details of customers whose accounts are not performing, the publication will include the names of persons, entities, directors, subsidiaries, and key sponsors of various categories of accounts, and will be forwarded to all banking regulators, including the CBN, professional bodies, embassies in Nigeria, security and other agencies as would be required.”

But, they did absolutely nothing. Can this new management get the political cover they need for this shame them policy? 

Were the Bank of Agriculture a commercial bank, the Nigerian Deposit Insurance Corporation (NDIC), would long have taken it over, to protect the general public from bank failure. Some established truths: most of the debtors had no intention of ever repaying the facility. They took it in the first place because, for them, it is their share of the national cake. Another established truth is that the bank is in need of funds to carry out its functions, and it is being owed N43 billion by its customers. It is also a statement of fact that the Central Bank of Nigeria (CBN), and the Federal Ministry of Finance are not interested in injecting further funds into the bank, because the Federal Ministry of Agriculture and Rural Development that is supervising the bank, is not a shareholder. The CBN and Federal Ministry of Finance argues that it can't “continue to pump in fresh funds, without calling the shot.” The argument makes sense. How can the Federal Ministry of Agriculture and Rural Development that has no dime in equity contribution, makes critical decisions on policy. The last indisputable fact is that now more than ever, Nigeria needs the bank as it mouths diversification of the economy.

Having established these facts, what is the way forward? The Muhammadu Buhari administration says it is desirous of diversifying the Nigerian economy through the Economy Recovery and Growth Plan (EGP), the truth is that it really has no choice, as it must feed the teeming population and conserve scare foreign exchange, as a result of the fall in oil prices. But the big problem is that the vehicle (BOA), is not in a state of embarking on any trip, not even from Kaduna to Abuja:  it just cannot lend. It is in the enlightened self interest of the government, to help the BOA succeed, by giving it the blood and the much needed oxygen required, that is, funding. And, if the Buhari administration will not re-capitalise the bank, then it must help the bank recover the N43 billion loan, which the BOA doesn't have the muscle to recover, considering the calibre of Nigerians owing the banks.

Former military head of state, Genl Sani Abacha, enacted the Failed Banks (Recovery of Debts) and Financial Malpractices in Banks Act,  1994, to check the alarming high rate of bank failure, in a bid to aid the speedy recovery of debts owed banks. 

Largely, the twin objectives of the decree - assist in resolving distress of failing banks through speedy recovery of non-performing loans and sanitisation of the sick banking sector, through criminal prosecution - was successful. This was the major plank, which the CBN and the NDIC, built its loan recovery efforts on and indeed the general soundness of the banking system. Between 1994 and 1999, they decided 45 criminal cases and 672 civil/debt recovery cases. 

By 1999, the tribunals were abolished by the Tribunal, (Consequential Repeal, etc) Act No.62 of 1999, because Nigeria was going to practice constitutional democracy. The Act transferred jurisdiction to try civil and criminal cases, pursuant to the Failed Banks Decree, to the Federal High Court. The amended decree, is now referred to as the Failed Bank (Recovery of Debts) and Financial Malpractices in Bank Act, Cap F2, Laws of the Federation of Nigeria, 2004. But democracy is always at a cost.

To date, only Mrs. Cecilia Ibru, the former managing director of Oceanic Bank Plc, has been convicted for just six months, a punishment that doesn't match her alleged crime. By the way, she spent the time in a five star hospital. But the good thing is that she forfeited over N150 billion in assets and cash.

The Promulgation and Implementation of the Failed Banks Act, which was to ensure the quick dispensation of justice, has been “watered down” by democracy. Meanwhile, BOA and other banks are suffering from debts, owed them by chronic debtors. Yet, conviction is near zero, even as justice for the banks is grinding at snail speed. If BOA takes its case to the courts, it may take the next 20 years to recover the loans. And the loan defaulters know this fact, hence they are relaxed. So, this option for the bank, will just be a sheer waste of time and resources. The final demand notice by the bank to its debtors to pay on or before the 20th August, 2017, is a joke, not because it doesn't want it's money, but because of the reasons already stated above. 

Faced with a similar situation, India amended its Banking Regulation Act. The Act gave wide- ranging legislative powers to the Reserve Bank of India, to issue directions to lenders to initiate insolvency proceedings for the recovery of bad loans, especially non-performing assets (NPAs) or bad loans of public sector banks (PSBs) that had reached “unacceptably high levels” and needed urgent measures for quick resolution. The key objective is to cut down NPAs.  Aditya Puri, a top Indian banker acknowledged the progress of the new initiatives in dealing with bad loans, that was weighing down the banks.

India has also set up National Company Law Tribunal to deal with its huge bad loans crisis of about 180 billion dollars. The Reserve Bank recently referred over 12 well-known chronic debtors to the tribunal. India, like Nigeria, is a democracy. In addition, it has set up Insolvency/ Bankruptcy Board, to regulate bad loans. In February, the Supreme Court asked the Reserve Bank of India to provide a list of defaulting companies owing more than N500 million. And, in an unprecedented move, the court is asking how such loans were advanced in the first place without security. 

Nigeria and Nigerians need to ask those questions too: What were the securities for these loans and what due diligence was carried out to avoid diversion of the facility? It is not enough for the bank to go after the debtors, what the disciplinary measures has it taken against its staff that misled the bank? But more fundamental, what are the concrete steps the new management team has put in place to guide against future reoccurrence, especially in credit appraisal and monitoring of loans? Good to know that the new management has set machinery in motion to review the loan processes, so as to plug gaps or at least stem the growth of bad loans. The Standing Products Committee, that will review all the products and their performance and, if need be, redesigning them in line with the present reality is also a smart move.

As head of the government efforts in Ease of Doing Business, the Acting President Yemi Osinbanjo, must address the crisis facing not just the BOA, but the banking sector. What is the strategy to cut down the unacceptable high rate of NPAs in the industry? The current policy of the CBN - threat to publish names - is a huge joke and it is not working.

The central bank must be empowered to tackle this monster, beyond name and shame. The debtors know the government is toothless, so they are not in any way scared. The high rate of loan default is an impediment to business - like the case of the BOA that has no credit to lend to farmers. 

The situation of the BOA has been worsened by a very incompetent Nigerian Agricultural Insurance Corporation (NAIC). In agricultural sector, non-performing loans are common due to losses caused by floods, poor seedlings, drought, etc. So, the government must take a good look at NAIC.

If the BOA gets out of the ICU, and I pray it does and fast too, it must improve on corporate governance, prudential supervision and better credit information, so as to avoid the pitfall of NPLs. A new team that seems competent and efficient is already in place.

•Emmanuel Ado is a Kaduna-based journalist. He can be reached via mayad497@yahoo.com

Source News Express

Posted 22/08/2017 2:49:46 PM

 

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