A new Code of Corporate Governance approved by the Central Bank of
Nigeria (CBN) has stipulated that bank directors with non-performing
loans (NPLs) are to either quit or be sacked.
This was made known during the weekend by the Director, Bank
Examination Department at the Nigeria Deposit Insurance Corporation
(NDIC), Adedapo Adeleke.
Speaking on the theme: Curtailing the Growth of Non-Performing Loans
in Banks: The Role of Regulators and Supervisors at a media workshop
organised by NDIC for finance reporters, Adeleke said the new code was
instituted to address the rising cases of insider bad loans, which not
only represent a conflict of interest, but are against the prudential
guidelines for the industry.
He described corporate governance as an essential pillar in financial system stability.
He said: “Banks’ assets have depreciated in the last three years,
with provisions for NPLs hitting N856.9 billion, due to the drop in
crude oil prices. A large part of these bad loans is owed by bank
directors and are in most cases unsecured.
“Besides, the economic recession showed that the financial industry
still harbours weaknesses in governance, as seen in insider
non-performing loans, unreported losses, huge exit packages for
directors, over-domineering executive management, contravention of
regulatory/prudential guidelines and lending limits, poorly appraised
credits and weakening of shareholders’ funds, among others.
“The Corporate Governance Code for Bank Directors is signed by all
bank directors at the point of their appointment, and has a section that
empowers the banks’ boards to remove any director with insider
non-performing loans.
“That section says: ‘If you are having non-performing loans, you will
be removed. It is already being enforced except that the regulators are
not being dramatic in publishing the names of affected directors,”
Adeleke said.
He added that delay or non-payment of workers’ salaries by government
and private companies is worsening the level of non-performing loans in
the industry.
Adeleke further lamented the rate of non-performing loans saying,
“NPLs are in excess of 20 per cent as against the five per cent
regulatory threshold.”
The NDIC director said when salaries are delayed, workers who have
borrowed from banks, especially through consumer loans, always find it
difficult to pay back. “If the economy is improving, and government can
help to fulfill its responsibilities, including prompt payment of
salaries, the level of non-performing loans in the industry will drop,”
he said.
“If people working in companies that are troubled borrowed from
banks, it is important that the loans be provided for when their
employers can no longer pay salaries,” he said.
He, however, expressed confidence that the current rise in crude oil
prices will impact positively on the banking industry and businesses and
help reduce the rising cases of bad loans in the industry.