Causes Of Non-Performing Loans And Bad Debts

One could not talk about the effect of such that befall our banking sector without explaining the inherent causes of the problem. Nigeria has been known for corruption for quite number of years and this identity has not only disrobed us of our garment of integrity in the international country. This corruption of a thing still plays an all important role in the recent problem discovered about the Nigerian banks. Of course, all other causes stem from corruption itself. It is a two-way thing, i.e. the borrowers who felt not to return the loan amount with interest at due date and the corrupt banks (bank chiefs and directors) who will accept servicing of the loan in as much as their pockets are filled.

The point that must be clarified here, however, is that of perception on the part of the general public. While some are of the opinion that it is true that the bank chiefs and the celebrated icons collided to rob the banks of the money of the masses (savings), others opinion are that of secret Northern agenda. Whichever position we hold, the fact remains that there are elements of truth in the whole saga. Having identified corruption as the major cause of the backlog of non-performing loans in the identified or spotted banks in Nigeria, others are briefly enplaned below:

i). POOR CORPORATE GOVERNANCE

Most establishments in Nigeria whether ‘LTD’ or ‘PLC’ are poorly run by the chiefs and directors. Most of the banks are berg run as family institution, thus, decisions could be made at will without considering the aftermath. The question that keeps on bordering concerned Nigerians is how such huge amount could be withdrawn from the bank treasuring (without being returned at due date) and all of the directors could keep quite till this time. Such huge amount shouldn’t initially be given out without passing notice to the CBN and without proper documentation and collateral securities. It is very funny!

2). LAX ADMINISTRATION

The general administration and the structure of most banks are definitely poor. Reports are meticulously engineered to show enticing positions to poor general public. The question is ‘Had the previous reports being submitted to the government agencies not showing these loans?’ The administrative system is generally poor.

3. LACK OF TRANSPARENCY

Concealing facts and figures has been the order of the day in most of these banks. They only publish what the public need to know and not what they want to know or should be informed with. There has been incessant secrecy in the affairs of the banks even to the government agencies.

4. WEEK REGULATIONS

The banking regulations and laws are general weak and most of them are out-dated. In fact, they are generally insufficient. 21st century banks of the developed nations had gone far in banking and we could not just stay at a point or be moving at snail speed. Though, with the consolidation exercise of Soludo, lots of changes have been seen the banking sector but we have to strengthen the regulations and replace the out-dated ones.

5. SHADY BANK PRACTICES

The shady bank practices in which banks are lending money to investors to buy shares from the banks which result in the rise in their stock prices and also led to gross loan debts/defaulting, do not augur will with our democracy and our developing nation.

Source by Oluwanisola Seun