By Dipo Olowookere
A new Code of Corporate Governance approved by the Central Bank of Nigeria (CBN) has put some directors of banks in the country on the edge.
This is because the new code says any bank directors with non-performing loans (NPLs) would be shown the way out.
Speaking over the weekend in Kano at an event organised for finance correspondents by the Nigeria Deposit Insurance Corporation (NDIC), the Director, Bank Examination Department at NDIC, Mr Adedapo Adeleke, explained that the new code was instituted to address the rising cases of insider bad loans, which not only represent a conflict of interest, but are against the prudential guidelines for the industry.
Mr Adeleke noted that the Corporate Governance Code for Bank Directors is signed by all bank directors at the point of their appointment, and has a section that empowers the banks’ boards to remove any director with insider non-performing loans.
“If you are having non-performing loans, you will be removed. It is already being enforced except that the regulators are not being dramatic in publishing the names of affected directors,” Mr Adeleke said.
It was observed that banks’ assets have depreciated in the last three years, with provisions for NPLs hitting N856.9 billion, due to the drop in crude oil prices. A large part of these bad loans is owed by bank directors and are in most cases unsecured.
Besides, the economic recession showed that the financial industry still harbours weaknesses in governance, as seen in insider non-performing loans, unreported losses, huge exit packages for directors, over-domineering executive management, contravention of regulatory/prudential guidelines and lending limits, poorly appraised credits and weakening of shareholders’ funds, among others.
The NDIC director said when salaries are delayed, workers who have borrowed from banks, especially through consumer loans, always find it difficult to pay back.
“If the economy is improving, and government can help to fulfil its responsibilities, including prompt payment of salaries, the level of non-performing loans in the industry will drop,” he said.
“If people working in companies that are troubled borrowed from banks, it is important that the loans be provided for when their employers can no longer pay salaries,” he added.
He however, expressed confidence that the current rise in crude oil prices will impact positively on the banking industry and businesses and help reduce the rising cases of bad loans in the industry.
Mr Adeleke said the establishment of the Asset Management Corporation of Nigeria II (AMCON II) to buy up non-performing loans as being suggested can only be private sector led. “If there is going to be AMCON II at all, it is going to be private sector-led,” he said.
He said the CBN Prudential Guidelines allows banks to review their credit portfolio continuously (at least once in a quarter) with a view to recognising any deterioration in credit quality. Such reviews, he added, should systematically and realistically classify banks’ credit exposures based on the perceived risks of default.
The Kano event was themed ‘Curtailing the Growth of Non-Performing Loans in Banks: The Role of Regulators and Supervisors.’
