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In this book we shall be discussing the various types of Risk Asset (loans and advances), Secured and Unsecured loans, Causes of deterioration in the asset quality of banks, Effects of non-performing loans (NPLs); its resolution, supervisory and government interventions, required reforms and the debt recovery activity of the Nigeria Deposit Insurance Corporation (NDIC).
Financial Institutions and the Regulators, Central Bank of Nigeria (CBN) and Nigeria Deposit Insurance Corporation (NDIC) had over the years, because of the bad experience of the past, adopted international best practices in ensuring that credit risk is minimised in the banking industry. It has been established that poor asset quality could erode the capital base of financial institutions. In fact many financial institutions were liquidated because of the huge non-performing loans they were unable to recover and the failure of the shareholders to recapitalise the completely eroded net-worth.
One of the areas that the regulatory authorities and other stakeholders should investigate is the area of financial institutions allowing self-liquidating loans to turn bad due to either, the lack of proper handling of such transactions or outright compromises by bank officials. It will shock any well meaning Nigerians to see that many of the non-performing loans portfolios of our financial institutions contain billions of naira loans that were supposed to be self-liquidating.
It is high time the regulatory authorities began to apply appropriate sanctions to whoever was responsible for debts that are non-performing, one cannot deny the fact that some loans may be bad due to some circumstances beyond the control of both the financial institutions and the borrower, such as economic recession and naira devaluation that has affected the repayment of Dollar denominated loans, occasioned by the fall of crude oil prices in the international market. Even at that, banks are expected to mitigate all risks. In glaring cases of compromise by bank officials, the culprits should be brought to book.
