Business

Investors shun Banks over rising NPLs

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6 years ago

May 25, 2018

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Commercial banks in the country are facing herculean tasks attracting investors due to rising non-performing loans (NPLs) and the lack of sound corporate governance.

Managing Director of the Nigerian Deposit Insurance Corporation (NDIC), Umaru Ibrahim, stated this while speaking at the Financial Institutions Training Centre Thought Leadership Discussion Series in Lagos on Thursday.

The Central Bank of Nigeria (CBN) expects banks’ NPLs not to exceed five per cent, but many lenders have grown their NPLs to over 20 per cent in recent months.

He said banks without strong corporate governance were already being shunned by foreign investors because of the importance they attach to sound corporate governance practices.

Ibrahim who disclosed that just three banks hold 60 per cent of the N700 billion insider-related bad loans in the industry, said NPL in the industry could be lower if the banks adhere more to sound corporate governance.

Speaking on the theme: Strengthening the Banking System and Facilitating Sustained Economic Growth: Roles of the Regulators, Operators and the Banking Public Ibrahim, who was represented by NDIC Executive Director, Operations, Prince Aghatise Erediauwa, said a large part of the NPLs came from loans to oil and gas sector. He regretted that many of the banks’ lending to key sectors of the economy do not have the right industry knowledge needed to properly assess the loans.

According to Ibrahim, many of the banks are also undercapitalised, borrowing from the Central Bank of Nigeria (CBN). Many banks still do not disclose the names of all their staff that are involved in fraud, he said.

The immediate past President, Chartered Institute of Bankers of Nigeria, Segun Ajibola, also called for quality regulation and examination of banks to dictate poor corporate governance issues on time. “It is lack of corporate governance that will allow credit to go out without due approval. We need to tackle this challenge at the regulatory and operators levels to achieve the desired result,” he said.

Also speaking, Managing Director/CEO, Sterling Bank Plc, Abubakar Suleiman, called for specialisation by the banks to enable them handle credits better. He also said that the high operational cost was affecting the rates at which banks give out loans.

To CBN Deputy Governor, Financial System Stability, Mrs. Aishah Ahmad, an efficient, well-functioning banking system is crucial for effective economic policy transmission.

She said current estimates indicate that about 80 percent of activities in the financial system are driven by the banking sector, which underscores the need to strengthen it.