Only about 10 to 15 of the 113 bad debtors (companies) that the Central Bank of Nigeria (CBN) barred from further borrowings from banks two years ago have been able to repay their loans taken over by the Asset Management Corporation of Nigeria (AMCON).
The low recovery rate by AMCON translates to 87 per cent of loan defaulters, two years on, who have not been able to meet their loan obligations.
Their inability to pay their loans, stemmed from the CBN directive, which has hampered their capacity to refinance and restructure loans, thus worsening their situation.
Sources close to the central bank told newsmen that though the concept of blacklisting debtors, who have defaulted on their loans is standard practice in the banking industry, the strategy on implementation has failed to yield the desired result of making the debtors pay.
Instead, the directive has forced most of the companies to exist on a hand-to-mouth basis and totter along, but have been unable to pay back the debts to AMCON.
“One would have thought that what a debtor who is indebted to a bank for a period of between three and five years would need is for his loan to be restructured and refinanced through fresh capital injection,” a CBN source said.
“So if the CBN bars such a debtor from further borrowing how will he survive?” he asked.
The outcome of the directive has put AMCON in a quandary, as it has not been able work with or been able to compel the debtors to pay off their loans.
The CBN official said AMCON, upon realising the challenges, has repeatedly written to the CBN asking it to review the directive to enable the companies restructure their loans and be advanced fresh capital that could turn the companies around, following which they could clear their obligations.
However, CBN has failed to respond to AMCON’s pleas. Rather it may be contemplating publishing yet another list of debtors. This was gleaned from the CBN Governor, Godwin Emfiele’s stance at the June 17, 2014 Bankers’ Committee meeting where he expressed his determination to go hard on habitual bank debtors and make it difficult for them to access credit anywhere in the system.
The CBN in September 2012, had blacklisted a raft of companies, their directors and shareholders whose debts exceeded N5 billion and barred them from borrowing from Nigerian banks until they had repaid the loans on the books of AMCON.
In order to ensure compliance, the CBN then warned that any bank that flouted the directive would be compelled to make an immediate provision of 100 per cent of the total principal and interest outstanding in the account of the customer and related parties, in addition to whatever regulatory penalties the CBN might decide to impose.
Though the move by the CBN was hailed by many, others at the time cautioned against the directive, saying it would be counterproductive.
Former Minister of Aviation, Mr. Babatunde Omotoba, described the decision to bar banks in the country from extending further credit to 113 companies and 419 directors and shareholders as “ill advised”.
According to him, the decision would precipitate the demise of the companies rather than revive them.
Omotoba explained that when a company is weighed down by huge debt, the rational reaction is not to starve it of funds, but that would mean killing it off completely and taking away several jobs in the process.