The CBN ban on bank debtors

The recent order by the Central Bank of Nigeria (CBN) barring commercial banks in the country from further lending to 113 companies and 419 directors and shareholders is a welcome development.

The CBN reportedly wielded the big stick against sundry bank debtors following their reluctance to pay back their loans despite their purchase at an agreed price by the Asset Management Corporation of Nigeria (AMCON). No doubt, the apex bank took the drastic measure in order to strengthen financial stability and ensure discipline in the nation’s banking sector. In a September 17 circular, the CBN’s Director, Banking Supervision, Mrs. A.O. Martins, stated that “it has become necessary to stop debtors, who failed to repay their loans to banks and had these loans subsequently transferred to AMCON, from further enjoying credit facilities from Deposit Money Banks (DMBs) until they fully repay agreed outstanding loans to AMCON.”

According to CBN, the restriction order applies to individuals, organisations, companies as well as principal shareholders and directors of companies where the outstanding value of loans purchased by AMCON amounted to N5 billion or above as at the day of purchase regardless of actual amount paid by AMCON. The CBN also directed banks to stop granting further credit to Cross River and Zamfara States because of the failure of the Tinapa Business Resort. The Accountant General, Ministry of Finance, Zamfara State, was directed to pay back loans collected.

The restriction order, the CBN says, is with effect from the date of the circular and shall remain so until full liquidation of agreed indebtedness to AMCON. It warned that any bank that flouts the guidelines would make an immediate provision of 100 per cent of total principal and interest outstanding in the account of the customer and related parties, in addition to regulatory penalties the CBN imposes.

We commend the apex bank for coming up with these far-reaching measures aimed at saving the nation’s banking sector from imminent collapse. In taking the regulatory decision, the CBN is just insisting that companies and individuals should honour their obligations to banks. By making the names of the bank debtors public, the Central Bank has made it possible for all banks and the general public to know them. Ignorance will no longer be an excuse for exposure of persons and banking institutions to the high-risk debtors. To achieve the desired objective, however, the CBN should ensure that its directive on the matter is not flouted by those concerned, no matter how highly placed they may be.

Under no circumstance should such financial indiscipline be condoned in the nation’s banking sector. Let all those concerned realise that this issue has to do with shareholders’ funds and monies lodged in banks by ordinary members of the public. That AMCON has bought these debts should not be construed to mean that the loans should not be repaid. These debts should be paid so that the banks can remain in business. Leaving such huge debts unpaid will definitely cripple the nation’s banking sector and harm the economy generally.

The CBN is right on this ban. It should not relent in its efforts to ensure probity in the financial sector. It is interesting, however, that some of the debtors have started paying up; some have pledged to pay while others have gone to court to contest their level of indebtedness. The onus, therefore, is on the courts to speed up adjudication of this matter. Speeding up the cases will enhance sanity in the financial sector. This matter should be treated with the seriousness it deserves to send the strong message that bank debtors are expected to, and will, indeed, be made to pay up monies they owe the banks.