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Non-Performing Loans: Fraudulent Facilities Threaten Banks’ Recovery Pursuit

The August 1 deadline given by the Central Bank of Nigeria (CBN) to banks to publish list of their debtors has triggered reaction from a stakeholder who revealed that bank officials are involved in questionable facilities

Sam Diala

Despite various policy strategies aimed at recovering bad and doubtful debts owed money deposit banks (MDBs) by their serial bad debtors, indications have emerged that a huge sum of the debts are not likely to be recovered, even as the August 1 deadline to the lenders to publish the list of their debtors draw closer.

The CBN last week ordered banks to publish the names of their serial debtors as from August 1, as a way of forestalling what stakeholders fear might lead to the banks walking the valley of shadow death that characterized their distressed experience before the 2009 bank reforms. According to CBN, the total credit currently running in the system is up to N14 trillion and that about 3 per cent of the amount fall into the category of non-performing loans (NPL). Although banks have an upper limit target of five per cent, the character of the transactions and the disposition of the debtor customers do not justify any attempt to adopt an optimistic stance on the matter.

A Lagos-based Legal Practitioner, Mr Victor Ukutt, principal partner at Victor Ukutt & Co, has disclosed that a huge chunk of the non-performing loans being paraded by banks are most likely never to be recovered. According to him, many of the facilities the banks have in their loan books are fraudulent and fictitious and never existed in the real sense of true fiduciary relationship and obligation. He warned that shareholders’ funds risk being threatened as a result of the negative impact it would make on the stakeholders’ investment.

“Most of those debts are fictitious and can never be recovered. Most of them were avenue for bank officials to take money out of the system. There were no proper documentation relating to those debts,” Ukutt told The UNION by telephone yesterday. The Legal Practitioner who has handled Asset Management Corporation of Nigeria (AMCON) and bank related cases since 2011, said he had found out in the course of the banks’ and debtors’ briefs that the bank officials packaged those facilities for themselves and used fictitious addresses that never existed.

“I have opportunity of representing a bank on debt recovery, over N200 million debt had no proper documentation. Most of the loans had no collaterals. How do you recover such loans? “It is basically money that many of the bank officials had the opportunity of taking out of the system, so they arrange those fictitious facilities. Some of the documents the bank gave to me to embark on debt recovery had no address of the borrower.

How do you recover such a debt?” Ukutt asked. Giving further detail, Ukutt said insider arrangement facilitates the process of fictitious bank loan, irrespective of who is in charge of the operations. “Once you have an insider arrangement that has to steal money, they will package the credit facility to take out money from the system. Most of those debts are debts that the banks themselves deliberately incurred to enable them to take money out and share.

Ukutt maintains that by the Bank and Other Financial Institutions Act (BOFIA), it is a criminal offence to grant loans that have no backing collaterals. He blames the regulatory authorities for not living up to their responsibilities in sanctioning those involved.

The UNION had reported that a huge part of the banks’ NPL relate to facilities granted to the power sector. In a media chat recently, Group Managing Director/CEO, Skye Bank, Timothy Oguntayo, noted that the banks are making adequate provision for the NPL that relate to power sector credits. However, a bank official who expressed concern over the mater said, “We are entering another tunnel of management of NPLs which created serious operational challenge for banks during the CBN 2009 bank reforms.

What worsened the already badsituation is that the Asset Management Company of Nigeria (AMCON), the bad debt buyer, has said it would not get involved in buying bad debts of any bank any more.” Boniface Okezie, President, Progressive Shareholders Association of Nigeria(PSAN) said such irregularities, if they really happened, would erode the value of shareholders’ investment in the banks and that the regulatory authorities are in a position to go after the culprits.

Sir Sunny Nwosu, National Co-ordinator, Independent Shareholders Association of Nigeria (ISAN) agrees that such illegal transactions would take a tool on shareholders’ fund and should be investigated and those involved made to face the due process of the law. “It will take a toll on shareholders’ fund.

If detected, it should treated as fraudulent practice and such persons should be arrested and charged to court,” Nwosu said yesterday on telephone. While Ukutt maintains that a huge sum of shareholders’ fund would be eroded through such fictitious facilities, Oguntayo said, “There is deadline for banks to publish the non-performing loans, according to the CBN directive. Of course, you would like that all debtors pay; but you know that cannot happen. We have to be realistic. If by end of July the debtors do not pay or make reasonable repayment programme with the bank, we will publish their names and go after them, with available legal means.”

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