Femi Abimbola writes that regulators are yet to
stamp out several malpractices in the banking industry
A London-based economic and political risk analyst that I have
known for more than 10 years reached out to me a couple of weeks
ago to ask this poignant question: “What’s going on in your country
banking industry?” I wasn’t sure what he was after this time as he
often calls me up to catch up on political and economic
developments in Nigeria, whenever he was researching to do a report
for clients.
“What are you on about this time around?” I asked him. “I’m
doing a risk assessment for clients who are looking at making some
money available to the banking industry and I have come across a
lot of reports where the police are being used by debtors to
prevent legitimate debt obligations being carried out by the banks.
This is odd and is not good for your country.” He explained his
observation.
In the last few months, there appears to have emerged, a new
trend where the relationship between some banks and their
debtor-customers goes awry over the latter’s failure to keep up
with debt obligations. What is even stranger, and this was what the
London economic and political risk analyst was alluding to, is that
it would appear that the debtors, many of whom have been
established to be chronic defaulters, take refuge in some law
enforcement agencies, such as the police, the Economic and
Financial Crimes Commission (EFCC), the courts, among others. I
have seen and followed cases of these agencies appearing to
completely ignore the issue of indebtedness of the chronic debtors
and then go after banks, particularly their chief executives; in a
manner often bothering on harassment and criminalization.
It was only 10 years ago that the world was hit by a global
financial crisis, which reverberated in Nigeria and led to some
drastic measures being taken, including the setting up of the Asset
Management Corporation of Nigeria (AMCON) to take over delinquent
debt-assets from the books of banks to keep some of them afloat.
Some banks did not survive the crisis, and even now, the financial
system and some parts of the economy are still reeling from its
aftermath. The peculiarity of the Nigerian financial crisis, which
hit the banking industry hard, was largely due to huge loans gone
bad that were given to customers, many of whom simply refused to
pay because they considered themselves the untouchable in society,
who should get away with not observing the obligations that come
with borrowing money from the banks.
Law enforcement agencies cannot, 10 years later, after all the
noise that went down with the development, claim to have just
forgotten or do not now understand that there are obligations tied
to loans or bank advancements that are given to individuals and
organisations. They cannot have forgotten the thousands of jobs
that were lost in the banking industry because of the crisis that
resulted from the many debt defaults on account of this behaviour.
It would seem that the new tactics being applied is to create as
much embarrassment as possible for banking executives, especially
their chief executives, with a view to forcing the hands of these
banks. The goal, it is now clear, is to force the banks to stand
down from pushing forward with collecting what a chronic debtor
owes. This cannot be what the various law enforcement agencies
involved in this act want to see themselves being used for at this
time of Nigeria’s development. It leads to asking the question, how
much of the matter do these enforcement agencies really know in the
cases between banks and debtor-customers before they step in to
invite bank executives for the purpose of this orchestrated
harassment?
It is obvious that there is a less than adequate understanding
on the part of different law enforcement agencies about the issues
involved in the matter between the two parties, especially the
simple matter of customer obligation over loans taken from banks.
Or they are deliberately choosing not to understand them with that
strangeness of the Nigerian kind. Here is a simple scenario. A
customer walks into a bank for a facility, which is availed to him
with certain obligations to perform. A loan agreement is signed
with all parties, including lawyers present and counter-signing,
and clearly stated actions the lender can take to recover its money
when the debtor fails to meet the obligation. What is now playing
out is that at the point where the bank is exercising these
actions, some law enforcement agencies are showing up with a
chronic debtor to accuse, not just the bank, but its executives
(obviously aimed at maximum embarrassment), of some indiscretion.
In logic this would fall under some fallacies.
There is something particularly unwholesome that this
development brings for the Nigerian economy, the banking industry
and the executives who run banks. It is unhealthy for the economy
because we are having law enforcement agencies appearing to provide
a cushion and take sides with recalcitrant and chronic bank
debtors, providing them a platform to avoid fulfilling their
obligations on loans they obtained with their eyes wide open. For
the economy, it is important that this situation should immediately
attract the attention of its managers and the relevant authorities
as it could easily lead to a gradual build up to the crisis of 10
years ago.
The international financial community feeds on information and
information shapes perception. This new method of handling chronic
debt matters, where the debtors appear to enlist the police, courts
and others, sometimes including the EFCC, on their side so as not
to meet their obligations is veritable ground for negative scores
on the reputation table for Nigeria, its economy, its banking
industry and its bank executives who are supposed to relate with
their counterparts across the world on deal negotiation tables.
While we are here hyping some banks, their CEOs and other
executives as some of the best in the world for their performances,
the stories the world is reading and seeing especially on social
media are that they are routinely invited based on some rather
strange charges raised by debtor-customers before law enforcement
agencies.
In many cases they are accused of such a serious reputation
damaging act as theft of their debtors’ goods. Some credit scores
are damaged by this kind of information and they come into play in
different global board rooms when determining whether an on-lending
facility should come to Nigeria or go elsewhere. If a CEO who has
been harassed in this manner, because he or she has been accused by
a chronic debtor, whose collateral has been exercised for falling
behind on his obligation, is sitting in a board room in London or
New York or Hong Kong trying to negotiate an on-lending facility
for his or her bank, how is he or she expected to look when asked
to explain a report of theft contained in a risk analyst’s report?
He will look small and embarrassed, of course! And that would rub
off on Nigeria.
It is, therefore, being advocated here that this is a matter the
relevant authorities must look at seriously. While the authorities
are yet to wake up to this developing danger to Nigeria’s economy
and its reputation, the group being directly targeted by this, the
banking industry, has an onerous responsibility to act. Chronic,
defaulting debtors who go from one bank to another throwing their
political, economic connections and supposed business weights
around to secure loans are well known.
But the lack of cooperation among banks, driven by the
cut-throat competition among them, is allowing this to carry on.
It, therefore, calls for cooperation and collaboration to identify
and blacklist such well known loan offenders, who think they can
use law enforcement agencies to avoid meeting their obligations.
Cooperation and collaboration will allow for a list to be
developed, a black book, more or less, with banks sharing
information, and refusing to lend to these types of borrowers who
are fund of hopping from one bank to another, once they are caught
out by one financial institution or the other.
One of the strategies that have become clear is that once these
agencies have been brought into the picture, the next thing is to
go legal by charging bank executives to court, for sometimes
frivolous reasons. Banks often appear to be caught unawares because
they seem unprepared that the agencies and the law courts would be
involved in the harassment and embarrassment of their executives,
when they try to enforce loan agreements. It therefore calls for a
deeper understanding of the legal framework that can be used to
tackle this matter. There must be robust legal strategy and
approach to tackling this matter. Banks in Nigeria, as a group,
cannot allow it to just lie low. They must seek wise legal counsel
of an industry-wide nature.
Aligned to the above will be engagement with the regulatory
authorities who seem to have been silent so far on this harassment.
It is highly important that regulators are brought into the picture
so that this can become an economy-wide matter given its potential
to injure the reputation of the country and thus damage the
economy, if it is not already doing so; especially going by the
question put to me by the London-based analyst. The involvement of
regulators is important also because it provides a strengthening of
position collectively on the matter. The regulators need to see
this as damaging to the credit agency concept, which is currently
in place in the country, because it would seem some chronic debtors
are still getting away with deliberate infraction of the banking
system borrowing rules with regard to their loan obligations.
This matter also throws up a lot of ethical issues which need
serious attention, especially as they relate to loan defaults in
the system. The action of the law enforcement agencies harassing
bank executive on behalf of bank debtors leads to international
observers raising corporate governance questions. In a world where
the demand on the banking industry for their corporate governance
credentials is high, the ethical issues that are emerging from all
this must be concerning to the Central Bank of Nigeria (CBN)
Bankers Committee. There are questions around the ethical behaviour
that are coming up because of this development; and it needs deeper
examination, exposition and understanding. The earlier this matter
is tackled and nipped in the bud, the earlier that we can save the
Nigerian economy, its banking industry and those who lead banking
institutions and manage the banking industry from international
embarrassment and damage to their reputations.