Bank directors liable for 40% of N1.85 trn bad loans – NDIC boss

The Nigeria Deposit Insurance Corporation (NDIC) yesterday revealed that bank directors were responsible for 40 per cent of the N1.85 trillion non-performing loans or bad loans in banks. The Corporation also revealed that directors were responsible for about 40 percent of N139.45 billion bad loans in microfinance banks and mortgage banks.

Managing Director/Chief Executive, (NDIC), Alhaji Umaru Ibrahim disclosed this while defending the corporation’s 2017 budget before the House Committee on Insurance and Actuarial Matters as part of its oversight function.

During the budget defence, members of the House Committee had demanded for an update on the state of the Nigerian banking system, expressing concern over the increasing wave of non-performing loans (NPLs) particularly delinquent insider related facilities in various banks and its consequences on the stability of the nation’s banking system. Responding, Ibrahim stressed that while the banking industry indicated strong fundamentals in regulatory assessment and rating, regulators were concerned about the rising tide of NPLs in the banking system.

He said: “As at December 2016, the 25 Deposit Money Banks (DMBs) had total loans portfolio of N18.53 trillion out of which N1.85 trillion or 10 per cent were NPLs where N740 billion or 40 per cent constituted Insider/Directors related loans. This was far above regulatory threshold of 5 per cent for the DMBs.” Speaking about the state of other banking subsectors like the microfinance banks, (MFBs), he said: “That there were 978 MFBs in existence as at December, 2016 with total deposits liabilities of N158 billion and total loans and advances amounting to N195 billion out of which N87.75 billion or 45 per cent were NPLs where N68.25 billion or 35 per cent constituted Insider related/Directors loans. 

The NPLs indicated a classic case of over-lending, accumulated interests charges and poor corporate governance. “The existing 42 primary mortgage banks (PMBs) had total deposits liabilities of N69 billion but  with total loans portfolio of N94 billion, which indicated another case of over-lending, accumulated interests, poor corporate governance and high ratio of NPLs which stood at N51.7 billion or 55 per cent out of which N42.3 billion or 45 per cent were Insider related/Directors loans.

The resultant effects of these negative trends would be poor earnings and erosion of shareholders fund. Ibrahim  observed that this development had posed serious issues bordering on corporate governance which were capable of eroding public confidence in the banking system. He advocated for strict compliance with the existing code of ethics for bank directors and a review of the existing laws and regulations to proffer stiffer sanctions for Directors who exploit their positions and default in the payment of their credit facilities while still occupying Directorship positions in the banks.

In response to the disclosures, the Chairman of the House Committee went down memory lane to recall the 2008/2009 banking crisis. He requested the corporation and other regulatory authorities to come with ideas and advise the Honourable members on the ways of salvaging the financial situation. Towards this end, the Chairman called on the Corporation to bring forth credible proposals for the amendment of the NDIC Act, BOFIA as well as other banking related laws  that would enable the Corporation to achieve greater performance in order to engender public confidence in the banking sector and ultimately guaranty financial system stability. 

Vanguard