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The International Monetary Fund (IMF), on Tuesday warned on rising bad assets in the Nigeria’s financial system, saying that it needed to be addressed to check any further spill-over effects in the economy.
In its World Economic Outlook report released in Washington, the IMF noted that some low-income countries, including Mozambique and Nigeria have experienced financial stress or deteriorating loan quality in recent years as growth moderates and corporate balance sheet weaken.
“Further deterioration in loan quality would impair credit intermediation and the ability of the banking sector to support growth in these countries and would raise the risk of costly recapitalization, which would severely burden already-strained public finances,” the IMF warned in the report.
According to the IMF, proactive supervision, ensuring adequate provisioning for losses by banks, reducing forbearance, and improving resolution frameworks to minimize expensive public bailouts are essential for strengthening financial resilience.
It noted that fiscal adjustments that place public finances on a sustainable path would additionally help curb budgetary arrears, allowing debt service to proceed on schedule and curtailing the build-up of nonperforming loans.
The fund further noted that for economies that are not part of a currency union, allowing exchange rate flexibility while using reserves to smooth excess volatility could help buffer external shocks and, over time, prevent sustained departures from fundamental valuation, which lowers the overall efficiency of economic activity.
Responding to the concerns raised by the IMF, Jones Onyereri, Chairman, House of Representatives Committee on Banking and Currency, who is also attending the spring meeting of the Fund and World Bank said the Nigerian authorities are equally worried about the development.
He said, “I think that we are in a worse grave situation, that’s the honest truth because the non-performing loan is far beyond the usual industry threshold and for me it is embarrassing.
“That’s why the government introduced Asset Management Corporation of Nigeria (AMCON) and we have touted the idea that we won’t allow AMCON two. They need to solve that problem and if you look at what we are doing especially in the House of Representatives, we are amending the Banks and Other Financial Institutions Act (BOFIA) act and what we are trying to achieve is to curb as much is within reasonable limits the whole idea of non-performing loans.
He said that the non-performing loans issue was basically being caused by insider abuse.
“You know as you have in the BOFIA at present, no bank should give facilities in excess of N50,000 to even the directors of the bank and the directors are meant to disclose whatever investment they have in the bank or outside even before they become directors of the bank but none of this is being followed.
But they give themselves loans far in excess of the accepted value and whet we have tried to do is to increase the punitive measure. What we have at present in the BOFIA is a situation where if there is any infraction, they pay as little as N100,000 or N1000 and any bank can afford that, so, it means nothing to them.
“But now we have increased it to the extent that thinking about committing such infractions will be scary to anybody that intends to do so. If you know that you need to pay as much as N20 million a day for everyday that you continue to have that infraction, you won’t dare do any of those things. So we are trying to deter them not that we are so much interested in punitive measure and we are doing that.”
He said the good news is that the amendment has gone through public hearing and that in a few weeks, the report will be out.
“Once the Act is signed into law, it will reduce this idea of non-performing loans,” he stressed.
Godwin Emefiele, governor, Central Bank of Nigeria, reassured recently that the balance sheets of the deposit money banks were relatively despite the concentration of non-performing loans in a few sectors.
He also reassured that the situation was satisfactorily being addressed by adequate mechanisms established by the Bank.
The governor also assured that the CBN would continue to strengthen its supervisory oversight and early warning systems to promptly identify, monitor compliance with extant prudential regulations, sustain macro-prudential policy and manage emerging vulnerabilities in the banking system.
The CBN, however, has urged the Government to pay off its huge contractor debts, inorder to address a sizeable portion of these non-performing loans.
Onyinye Nwachukwu, Washignton DC
