By Peter Egwuatu
Capital market operators have commended some banks operating in the country forÂ the bold step to write off their margin loans and re-start on a clean slate in line with the Central Bank of Nigeria (CBN) policy of total disclosure.
They call on shareholders who criticize companies that do not declare dividends to have understanding and support for them provided there is total disclosure .
According to them â€œ It is better for a company not to declare dividend than to borrow money to pay dividend to shareholders. Borrowing money to pay dividend is not good for a company. It is against the principle of good corporate governance.â€
Reacting to the recent development which seems to be cutting across the major banks in the country, Former Minister of National Planning, Ambassador Isaac Aluko-Olokun described the decision of some of the banks to deal with their toxic waste as â€œa mark of courageâ€.
His words, â€œIt is a mark of courage that the banks have decided to bite the bullet and deal with the toxic assets and bad loans in their books once and for all. It also calls for understanding on the part of shareholders who will be disappointed because they have all being expecting dividend paymentâ€.
Agreeing that such provisions will mean that the banks involved will not be able to pay dividends, the ex-minister added that it was however the right way to go. â€œThe situation is a very healthy development; if we can do it once and for all, and cleanse the books, we can move on from next year and hopefully learn from past mistakesâ€, he added.
Supporting the ex-ministerâ€™s position, the Managing Director/Chief Executive Officer, Financial Derivatives, Mr. Bismarck Rewane also noted that the decision was a welcome developmentâ€.
â€œThe move would be putting the bad news on the table and therefore, all that will follow will be good newsâ€. Bad news he stated, is better is better than no news at all, â€œthe move is actually courageous and worth emulating and I expect other institutions to followâ€.
â€œInherent in the risk of lending was the risk of losses and to have a situation where no bank was losing money was an unnatural situation. All global institutions that have made provisions for bad debts had declared losses and the current trend in Nigeria is a testimony of the good work of the new CBN governorâ€, he stated.
Ecobank for instance it will be recalled had in May 2009 at the Ecobank Transnational Incorporated (ETI) 21st Annual General Meeting (AGM) held in Ouagadougou, Burkinafaso, stated that it made a loss provision of $113m in 2008 up by 495 per cent above $19m recorded in 2008.
Included in the loan loss provision was the sum of $54m (N8.06bn) for margin loans for Ecobank Nigeria which accounted for 92 per cent of the total loanÂ Â Â provision in 2008.
The bankâ€™s Chief Executive Officer, Mr. Arnold Ekpe had at the occasion stated that, â€œWe have not lost any money in Nigeria. The exposure is covered 100 per cent because that was the way it was structured. The problem we have in Nigeria is that of liquidity, which will improve with timeâ€.