Wednesday, June 03,
2020 / 06:15 AM / by Debtors Africa/ Header Image
Nigeria banks debtors have proved to be difficult to handle, especially if their debts cross the N1bn watermark. Debtors in the category of a N1bn and above tend to be more recalcitrant in repaying their loans. So why do banks give big ticket loans? Banks tend to favour big borrowers for a few reasons which include, but are not limited to, the following:
The list of hardcore debtors across banks in the country is a who's who list of some of Nigeria's most renowned politicians, public sector administrators and private sector business men and women. What is clear is that good character is not a function of the size of an individual's borrowing capacity.
The list of loan defaulters in the banking sector is chockful of oil and gas companies, real estate firms, telecoms organisations and power companies on the backfoot of operational efficiency or cost challenges. Indeed, the list of local bank debtors gives insight into sectors of the local economy that either have difficulties with cost recovery or secular declines in revenues.
Top 100 Delinquent Debtors - Beyond The Myth
Nigeria's top 100 debtors as represented in a list published by the AMCON in 2018 which includes names of prominent individuals and organisations is a telling commentary on the political influence and reach of the individuals and organisations that have contributed to the banking sector's hardcore unrecovered 9and unrecoverable) loans. The AMCON list, was 105 persons and companies long, the list showed that the worst of bank debtors in the country owed between N409.5m (Senator Usman Bayero Nafada) and N116.95bn (Ifeanyi Ubah, Chairman Capital Oil). The 2018 AMCON hardcore debtor list is as appears below:
Names on the list include Barrister Jimoh Ibrahim (N59.5bn), a venture capitalist and corporate asset-stripping mastermind and Barrister Wale Babalakin (N40.8bn), Chairman of construction company Bi-Courtney and a leading local corporate solicitor with deep political heels and extensive contacts. The AMCON list validated a subtle assumption that the more politically-connected an individual the easier his or her access to bank loans. Nigerian Banks appear to have developed a taste for lending against political contacts rather than physical capital and against social influence rather than operating cash flows. The nexus between bank loans and political influence is palpable and explains why loan defaults are high and predictable. Strong local political players believe that they can stave-off pressure from banks requesting for loan repayments since as politicians or close associates they can exert influence over the social agencies responsible for the enforcement of civil contracts. This unfortunate aspect of the lending reality needs to be addressed by bankers not giving loans on the fickle basis of name-recognition, political-pull and golf-course friendships. The lack of arms-length credit assessment and repayment capacity and character has been the bane of bad loans and high non-performing credits (NPLs). The credit process may involve social and political contacts but it should always be realized that the larger the extent of the political influence the harder the loan recovery capacity. Backs best approach to loan recovery is to grant facilities where they can punch below rather than above their political weight. The concept of a big borrower being beautiful is more myth than fact (most of the time).
After Publication, So What? - Exploring the Deterrence and Shame Import
One method by which banks have attempted to encourage recalcitrant debtors to pay is the "naming" and "shaming" of hardcore debtors, the Asset Management Company of Nigeria (AMCON) did this in 2015. The intention was to leverage traditional values of protecting family names and ensuring that family pedigree remains untainted. A widely known Nigerian homily is that a "good" name was better than silver and gold. The homily may have had good uses in the past but in the highly individualistic and anti-communal world of baby boomers and members of generation X the use of "naming" as a tool for social pressure has not proved successful. "Shame" as a deterrence to poor socio-economic conduct has proved weak in contemporary commercial interactions.
Part of the weakness of the "naming" and "shaming" strategy is that human psychology panders to the concepts of "recency" and "saliency". Recency refers to how long the event occurred, the further away the event the less important the issue it addresses. Saliency refers to priority. How important is the event? The less important an event is to society's scale of preference the weaker will society's response be to the outcome of such event. Publishing the names of debtors in national newspapers has a very short recency cycle such that within three weeks the importance of the event fades away. The issue of how recent an event occurs or is publicized give creditors a short window of pressure on recalcitrant debtors. The reason for a prospective digital solution to this problem is that a digital record of a debtor's indebtedness has a longer shelf-life and exposure. The "coercion impact" of a dynamic digital record of debtors would be much more successful than its static contemporary.
Many debtors have found that stories about their indebtedness or even any other misconduct has a longer shelf-life than a mere list of debtors promoted on the pages of physical newspapers. In several instances, companies have had to request business information platforms such as Proshare to "bring down" articles written as far back as ten years ago because of the subsisting influence such articles have had on their global corporate standing. The impact of a digital memory of corporate conduct is wide and deep. Equally instructive as a tool for debt recovery would be a digital list of profiles of bank delinquent debtors. The profiles would represent a digital memorandum brief (DMB) of the current status of bank's delinquent debtors across industries, sectors, gender, loan size, and collateral status. The report would not state anything that may be injurious or prejudicial to parties but would convey the facts of the indebtedness and profile of the company and its directors as is represented in publicly available information. The brief would also review the industry in which the debtor does business and analyze its recent state compared to industry matrices and outlooks. When a debtor pays off its debt, the DMB would reflect this new status and on request of the debtor with the approval of the lending bank or institution, store the details of the debt in a data storage location unavailable for public viewing.
Related Reports (PDF)
1. Download the Full PDF Report - Debtors Africa, May 13, 2020
2. Executive Summary PDF - Proshare, May 14, 2020
1. AMCON and Financial Services Debt Burden in Nigeria - Aug 17, 2018