Bank NPLs (22) - Benchmarking Best Practice and International Debtors List

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Saturday, June 06, 2020 / 06:20 AM / by Debtors Africa/ Header Image Credit:   EcoGraphics


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Best practices in credit management differ from country-to-country, what works in one country could be less effective in another, but a set of constant practices cut across successful debt management strategies globally include the following:


  • Improved signaling identification- The improvement in recognition of likely debt challenges has helped to reduce toxic debt assets. The improvement has come from a reduction in information asymmetry between borrowers and lenders
  • An effective debtor rating system- The riskiness of a loan reflects the nature and character of the borrower in addition to the underlying strength of the business's operating cash flows. Credit Bureaus help to provide clarity in the measurement of the riskiness of a borrower through their creditor scoring system.
  • The ability of lenders to enforce seizure rights on the assets of defaulting borrowers serves both as a deterrent and as a cushion for recovery of a delinquent loan. The reinforced AMCON Act of 2019 creates a favourable loan recovery law that in some regards matches best global practices. The new Nigerian Act has removed the convenience of the argument of confidentiality between a customer and his bank as it relates to AMCON gaining electronic access to the identifiable assets of a defaulting borrower.
  • Expeditious legal resolution of defaulting borrower matters has become an increasingly notable global standard-the speed with which cases of customer loan defaults are legally settled are just as important as the laws that enable agencies such as AMCON in Nigeria interrogate where borrowers have assets that could be forfeited to satisfy repayment of overdue debt obligations. The slow legal process in Nigeria is a major challenge in the debt recovery process. Observers have suggested that special courts be set up for debtor cases to free judges from alternating between commercial and non-commercial case files. With specialized courts it is argued that the resolution of debtor cases would be much faster.

 

One of the evolving opportunities to lay pressure on debtors across Africa is the novel but potentially powerful tool of a continental list of bank debtors stating names, amounts, aging and nature of facility. The list would involve analytics of debt characteristics within different countries on the continent and among different sectors. The list would enable creditors identify types of loan requests that could prove troublesome based on sector, industry, and personalities or companies making the request. A global debtors list would prove just as useful in dismantling the information asymmetry that makes lending such a risky enterprise.  


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Related Reports (PDF)

1.      Download the Full PDF Report - Debtors Africa, May 13, 2020

2.     Executive Summary PDF - Proshare, May 14, 2020

3.     AMCON and Financial Services Debt Burden in Nigeria - Aug 17, 2018



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