Introduction
“The Board and Management of the bank have not been able to improve the bank’s financial performance, a situation which constitutes a threat to financial stability…”.
Nigeria woke up to the above statement of the Apex Bank on 3rd June 2024 when the operating license of the defunct Heritage Bank Plc was revoked. Reports online indicate that, at least 90% of the bank’s active loan portfolio of around ₦700,000,000 (Seven Hundred Billion Naira) was considered lost or doubtful as of March 31, 2024 and less than 5% of outstanding loans were performing. This regrettably is not peculiar to the defunct bank. The Deputy Governor of the Central Bank of Nigeria (CBN) in charge of Financial System Stability has described the rise in non-performing loans in the Nigerian banking industry as alarming. Not only does this situation constitute a threat to financial stability in the country, the institutions granting the loans may be under existential threat.
How the financial institutions contend with this conundrum can only be left to one’s imagination. Given the pride of place it occupies in the intricate web of financial transactions and micro economic growth and development of the country, it is impossible to put a freeze on granting loan facilities. This is because loan facilitates economic activity, engenders financial stability, promotes investment and supports entrepreneurship & consumer spending. The difficulties associated with ensuring that borrowers keep their end of the bargain on repayment are however enormous. Many people access credit facilities and divert same to servicing their lavished lifestyle instead of utilizing them for the purpose agreed in the loan documentations. Difficulties in debt recovery may also be occasioned by debtors dealing adversely with collaterals or bottlenecks associated with the perfection of loans documentation, amongst others. In fact, from legal complexities and regulatory hurdles to the practical difficulties of tracking down delinquent borrowers, the landscape of enforcing loan contracts is fraught with intricacies.
