Home BANKING & FINANCE CBN Sets To Wield Its Big Stick On Banks Involved In Bad...

CBN Sets To Wield Its Big Stick On Banks Involved In Bad Debt Scams


Chief Executives, Directors of 21 commercial banks in Nigeria have been thrown into panic as the nation’s apex bank, the Central Bank of Nigeria (CBN) constituted a team to investigate their level of solvency.
According to inside sources, the CBN decided to investigate the banks based on information that directors and chief executives of four banks in the country are using their positions to grant loans that run into billions of naira to themselves and their cronies. Such loans are believed to have been written off as bad debts.
The sources, made up of those in the banking sector, said that CBN’s intervention is aimed at preventing failure of any of the existing banks and ensure integrity in the financial sector of the economy.
It was gathered that the apex bank has always been on standby to monitor how directors are spending depositors’ funds.
It was gathered that even before the investigation gets underway, some of the bank directors are already jittery and may end up being made to face severe sanctions.
“Some of them may lose their positions not only in the banking sector but also the general financial sector even as others may face prosecuted.
“No particular bank is been targeted. The CBN is looking at all the banks to see how financially stable they are. If you recall what happened in the past where some bank directors where just stealing depositors’ money, you will understand why the CBN is increasing its policing roles in the banking sector. It was a sad and terrible experience that no country would like to pass through again. The CBN has said it would not allow any bank to fail again in Nigeria,” one of the top officials of the apex bank, who prefers to remain anonymous said.
The source said that CBN became suspicious when it discovered that during economic recession, the rate of non-performing loans had increased.
“when their is economic crisis, the purchasing powers of household drop. The ability to pay for goods and services drop and when this happens, even those who have borrowed money to pay for goods and services don’t make sales and as a result, sales drop and profit and cash flow decline, making it even more difficult to repay loans.”
“Non performing loans are part and parcel of economic crisis. The fact that some banks have high non-performing loans doesn’t make them distress.”
The source said that at the moment, there is no distressed or distressing bank in the country as a result of the huge non-performing loans but that the ones that are critical and which have not sufficiently provided for such bad loans that eat deep into the balance sheets, are advised to recapitalize to cushion the effect of the provisioning. [myad]