Insider related lending in the nation’s banking sector account for N740 billion or 40 percent of the total N1.85 trillion Non Performing Loans of deposit money banks (DMBs) as at December 2016, says Nigeria Deposit Insurance Corporation (NDIC).
Insider related credits are loans given to directors or their relatives and staff of banks and other financial institutions.
The 25 banks currently in operation, according to the Corporation, had a total loan portfolio of N18.53 trillion as at December 2016 with N1.85trillion of the loans or 10 percent classified as non-performing.
Umaru Ibrahim, managing director and CEO, NDIC who made the revelations when he appeared for the corporation’s 2017 budget defence before the House Committee on Insurance and Actuarial Matters, said the consequence of the high insider loans would be poor earnings and erosion of shareholders fund.
But analysts, while noting that the 10 percent NPL ratio, which is twice the regulatory threshold of five percent set by the Central Bank of Nigeria (CBN) is disturbing and frightening, called for more stringent rules, as well as closer supervision to ensure the rising bad loans do not become a problem for the financial sector.
“This is frightening. This is an indictment on the regulators as well as the state of corporate governance of Nigerian banks. This calls for urgent and close examination of the credit approval process of the banks” said Ayodeji Ebo, acting managing director, Afrinvest securities limited, in an email response to BusinessDay last night.
Ebo expressed concern that the disclosure of the available NPLs data from the NDIC may create further anxiety in the minds of investors and thus trigger additional sell down in banking shares.
Friday Ameh, a Lagos based energy analyst, called for
“closer monitoring and supervision of banks,” as the rising bad loan books portend danger for the Nigerian economy.”
However, the NDIC data also showed that the challenge of insider lending cuts across all sectors of the Nigerian financial system.
Insider loans in microfinance banks, (MFBs), stood at N68.25 billion or 78 percent of total loan book of MFBs. The 978 MFBs in existence as at December, 2016 had total deposits liabilities of N158 billion and total loans and advances amounting to N195 billion. The NDIC notes that “The NPLs of MFBs indicated a classic case of over-lending, accumulated interest’s charges and poor corporate governance.”
Similarly, the existing 42 primary mortgage banks (PMBs) had total deposits liabilities of N69 billion but with total loans portfolio of N94 billion, which indicated another case of over-lending, accumulated interests, poor corporate governance and high ratio of NPLs which stood at N51.7 billion or 55 percent, out of which N42.3 billion or 45 percent were insider related loans.
The NDIC Managing Director, Umaru Ibrahim warned that rising cases of insider related lending posed serious risk to the banking system, bordering on corporate governance, which was capable of eroding public confidence in the banking system. He advocated for strict compliance with the existing code of ethics for bank directors and a review of the existing laws and regulations to proffer stiffer sanctions for directors who exploit their positions and default in the payment of their credit facilities while still occupying directorship positions in the banks.
He also urged the House Committee to approve the Corporation’s 2017 proposed budget.
Femi Fakeye, Chairman of the Committee, commended the Corporation on its performance in the 2016 budget where the NDIC stood out amongst its peers especially its transfers into Consolidated Revenue Fund (CRF). He urged the Management not to rest on its oars and strive to achieve greater heights.
Fakeye went down memory lane to recall the 2008 to 2009 banking crisis. He requested the Corporation and other regulatory authorities to come with ideas and advise the members on ways of salvaging the financial situation.
