By Omodele Adigun
Two legal luminaries, Justice Ibrahim Auta (Retd), the former Chief Judge of the Federal High Court, and Justice Zainab Adamu Bulkachuwa, the President of Court of Appeal, have joined forces with the Asset Management Corporation of Nigeria (AMCON) in condemning the reluctance of bank debtors to honour their obligations , while calling for a paradigm shift in debt recovery processes in the country.
According to Justice Auta, the approach to debt recovery and resolution in the country should change now, particularly as regards AMCON because the Corporation came as a child of necessity at the time it was created with all the good intentions to rejuvenate the economy at the time.
His words, “Nigeria witnessed the 2007 global financial crisis, which was caused by insolvency, illiquidity, poor corporate governance and financial crimes. However, with the creation of AMCON, no bank has been liquidated, depositors’ funds are safe and no bank has been subject to collection queues. The financial crisis led to the depression in value of the securities created against these defaulting loans thereby leaving the banks with an unfortunate inability to recover their losses. The effect of such monumental exposure was that banks were unable to sustain the equilibrium of lending required to maintain a vibrant economy. This in turn led to higher interest rates and an inability to perform the bank’s primary functions of financial intermediation like the pooling of savings and lending.”
Explaining the effects of non-performing loans in the economy, the judge said: “In addition to significant reduction in lending to customers, financial crisis created by non-performing loans can result in breakdown of interbank lending, which, in turn, leads to drastic drop in liquidity of banks and a consequent reticence or direct inability to advance loans to the broader public. Collectively, these factors create a vicious cycle resulting in a hike in interest rates; concomitant default and insolvency; volatility of currency values; a drop in investments and general stagnation of the economy among other crisis.”