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Non Performing Banks, Non-performing Loans and a Non-performing Nigeria

By Emmanuel Onwubiko.

Mrs.  (Dr) Ngozi Okonjo-Iweala, the Nigerian immediate past coordinating minister of the Economy and the minister of Finance, is no doubt a vastly respected economist especially amongst Western audiences. But for a lot of Nigerians who feed from hands to mouths, she does not merit the title of a heroine because as far as the poverty index is concerned, this woman known in the World Bank’s corridors -of -power as an African woman of valour can not by any stretch of the imagination be regarded as a woman of distinguished courage or ability nor is she to be admired for her brave deeds and noble qualities. This cynicism amongst the over 90 million absolutely impoverished Nigerians got to its Zenith sometime last year when the political authorities were in celebratory mood over the rebasing of the Nigerian economy and the naming of Nigeria as having the largest economy in Africa.

 

 

Poverty stricken Nigerians in their millions were aghast at this seemingly unfounded rating of the local Nigerian economy because if micro and micro economic indices are to be computed in terms of the total balance sheets of Naira and kobo available to each household in Nigeria, then this so-called economic statistics brandished by the Abuja politicians can at best only exist in their warped and insensitive  imagination because there is really no correlationship between those claims and the economic hardships of millions of Nigerians. 

 

This is a country whereby the owners of small businesses have so much suffered neglect from all angles that they practically survive on life support.

 

Essentially, in most developed economy, the Banks exists to grant credit life lines sustainably to small businesses because it is a universal truth that small businesses hold the key to the economic turn around of most developed nations. Japan, China, USA and United Kingdom present good pictures of how small businesses play pivotal roles to local economic growth.

 

Writing under the topic: “economic situation small businesses”, Mathew Ward and Chris Rhodes in the commons briefing papers stated clearly that small businesses indeed are playing frontline roles in reshaping and rebuilding the British economy.

 

Published on December 9th 2014 this note presents a statistical analysis of small businesses in the UK, the role of small businesses in international trade, small businesses and GDP, small businesses and tax receipts and information on government policy towards small businesses.

 

The highlights are thus;

 

• In 2014, there were 5.2 million businesses in the UK, over 99% of which were small and medium enterprises; small and medium enterprises employed 15.2 million people in the UK in 2014 and the European Commission’s SME Performance Review estimates the Gross Value Added of SMEs as €473 billion or 49.8% of the UK economy".

 

The African Development Bank group had recently pointed out the challenging issue of poverty afflicting the majority of Nigerians even with the recent rebasing of Nigeria’s Gross Domestic Products (GDP) from 1990 to 2010 which  in theory resulted in an 89 percent increase in the estimated size of the economy.

 

The African Development Bank apparently realizing that the majority of Nigerians who engage in small businesses are not been carried along, had stated thus; “Nigeria faces an ongoing challenge of making its decade-long sustained growth more inclusive.

 

Poverty and unemployment remain prominent among the major challenges facing the economy. One reason for this is that the benefits of economic growth have not sufficiently tricked down to the poor”.

 

The above facts which constitute the existential reality on the ground demonstrate in black and white that we have a non performing nation with  non performing banking institutions.

 

Most banks only exists to collect deposits from the poor and struggling owners of small businesses and conspire with the political drivers of the Nigerian economy to arrange humongous credit facilities to few persons in the elitist club with access to the corridors-of- political power and these largely unproductive and fraudulent business executives simply refuses to service these huge debts and their co-conspirators in government have ways of coming up with some contraptions such as Assets management company of Nigeria ( AMCON) which was set up in 2009 to buy up bad debts accumulated by these dubious business executives whose activities have wrecked economic havoc and ruin so many banks. But in the case of small businesses, they have no Banks to look up to for credit life lines.

 

Few days back, the Central Bank of Nigeria blew the lid to show that we have over N400 Billion non performing loans.

 

A statement by Dr. Sarah Alade, Deputy Governor, Economic Policy at the CBN revealed that the bad debts were recorded between August 2013 and August this year. This figure indicates an increase of N56.31bn or 16.36 percent, up from N344.26bn recorded within the same period last year. The statistics also show that gross loans by the banks increased by 21.03 percent from N9.278trn in August last year, to N11.229trn in August this year.

 

An immediate consequence of the high non-performing loans is a suffocating  squeeze in the finances of the banks, as a larger percentage of the banks’ gross earnings have reportedly gone into investment and interest, loan loss, personnel and other operational expenses, so says expert who wrote recently in the Nigerian Daily Sun Newspaper. "It is bad that the banks have such high impaired loans, which is an unsavoury condition in which an asset’s market value falls below its ceiling amount. In that case, recovery is minimal".

 

"Consequently, liquidity risks set in. According to figures made available by the apex bank, by the end of August 2014, the banks had incurred a hefty N267.74bn in loans loss provision".

 

"Expectedly, the unaudited profit before tax of the banks in the last nine months ending September, 2014, shows a marginal decrease to N385.67bn against N385.68bn in 2013. But the liquidity ratio of the banks declined from 50.6 percent at the end of December 2013, to 42.6 percent. This is largely due to the increased Cash Reserve Requirement (CRR)", the expert affirmed.

 

Similarly the writer remanded us thus; "It needs recalling that heavy “toxic loans” of about N4.3 trillion led to the insolvency of some banks and the subsequent sack of their helmsmen, few years ago. The banks were eventually taken over by the CBN and handed to the Assets Management Corporation of Nigeria (AMCON).The economic meltdown which resulted from the bad debts of five years ago shook the banking industry".

 

Unfortunately, the Federal High Courts which enjoys sole jurisdictions on matters involving such dubiously accumulated debts profile of the so-called rich Nigerians have failed to use their constitutional might judiciously to retrieve these looted funds from these bad guys but the judges of these courts have lately unleashed series of judgments protecting these bad debtors from arrest and prosecution in what most people suspect to be a case of compromise of the justice sector.

 

Any nation whose majority of the judges will rather collect huge bribes from criminal syndicates and look the other way will never become economically strong even as foreign direct investors who genuinely wish to do business will stay away from our shores and then the poverty situation of most Nigerians coupled with unemployment of the youth will further expand thereby compounding the crime situation. The Muhammadu Buhari led government must use all the transparent mechanisms to lawfully retrieve these huge cash stolen indirectly from banks by these so called big boys who pester the Abuja corridors of power for favour and soft landing. Thieves must not be granted soft landing because they have wrecked our economy and left millions of Nigerians to face the stark reality of mass and absolute poverty. These bad business practitioners must face the wrath of the law if we must end the climate of impunity in our banking sector.

 

* Emmanuel Onwubiko is Head of Human rights Writers association of Nigeria and blogs @www.huriwa.blogspot.com;  www.rightsassociationngr.com andwww.huriwa.org.

 

 

 

 

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