By Babajide Komolafe

The Asset Management Corporation was set up to take over the bad debts of banks but not to create new bad loans or encourage debtors with

Mustafa Chike-Obi

capacity to pay to default on their debt.

This however is the challenge the company, which was first mooted in 2006, is battling with, as some debtors now see it as an avenue to get a better deal for their debts.

In a meeting with banks December last year, the Chief Executive of AMCOM, Mr. Mustafa Chike-Obi Mustapha had said the company will discourage debtors from coming directly to it. “We would make them know that it is safer for them to deal with their banks than coming to us directly”

But some smart debtors have discovered that while it may be riskier to deal with AMCON, It is offers more relief. “The can have their loans restructure and repayment scheduled over a long period than if they deal with their banks’, a top industry source who pleaded anonymity told Vanguard.

Upon this discovery, debtors who have the capability to repay their debt or who had been cooperating with the banks in their debt recovery efforts have suddenly developed cold feet. And in response to this Chike-Obi, in media report last week said the company would severely penalise any bank debtor that is discovered to be working to subvert the good intensions of the Corporation. “Debtors won’t get better terms when AMCON restructures there loans”, adding that the Corporation would rather deal harshly with them.

But investigations reveal that mere words might not be enough to deter this moral hazard problem. First, the debtors have discovered loop holes in the enabling law of AMCON and have established that there action is not illegal. Second, some of these debtors, it was gathered, have strong political connections, and intends to use this to have their way.

The intention of these debtors, though might not be illegal, it however undermines the effort of the Central Bank of Nigeria (CBN) to sanitise the banking industry, and encourage banks to learn.

Banking is about lending to boost business activities and the economy. But when debtors don’t repay, banks are discouraged to lend, and this courses a lull in economic activities. When a bank debtor has capacity to repay, and at some time, following mutual agreement to repay and had indeed announce to the whole world that it has paid, but refuses to pay, and rather, exploits the system to escape repayment on time, surely, the bank would be very reluctant to lend again. This means that genuine businesses with genuine credit needs would be denied of credit and such businesses would suffer. In fact that is why it is always difficult for most Nigerians to get bank loan, particularly the Small and Media Enterprises (SMEs). Unfortunately, and as revealed by the over N700 billion debtors list published by the CBN in 2009, it is the big men and women, with political connections that causes this problem.

Secondly, should these debtors succeeded in their intention, the banks would get a very low value for the loan. For example, if the loans are not secured, AMCON will purchase the loan at five per cent of the original value. Thus the bank would lose while the debtor would have succeeded in converting a short term loan to a long term loan. This would definitely undermine the profitability and growth of the bank, and it ability to create jobs for the society.

As it is, the banks seem helpless against these powerful debtors. But the industry is not. That is why AMCON and the CBN need to beyond mere words to deter these debtors and come out with policy statement to ban debtors from going to AMCON.

Such policy should ban debtors from going to AMCOM and direct that only banks should have right to determine a loan is bad enough to be transferred to AMCOM.

Nigeria has experienced two severe episode of banking distress which had resulted into liquidation of over 60 banks. And the cause is most non-performing loans. These loans become bad most of the time not because the debtor cannot repay but does not want to pay. And this seems to be the case with these powerful debtors. If this behaviour, usually referred to has, moral hazard is not discouraged, the nation might not be far from another distress. That is why the regulatory authorities need to devise a way to ensure that borrowers, who have capacity to pay, should pay, at least in the spirit of fairness and the sake of the economy.

UBA, HSBC Sign $100m loan deal

Consistent with its drive to facilitate

trade and promote economic growth across the continent, United Bank for Africa (UBA) Plc has signed a Frame Agreement with HSBC London for a US$100 million multi-currency facility specifically for imports.

The multi-currency facility is dedicated to UBA clients in all African countries and can be drawn down in all major currencies including Euro, British Pounds, Japanese Yen or USD. Specifically customers of the bank can leverage on this facility to import durable goods and services such as manufacturing and processing equipment; Agric & Agro-business equipment; Construction equipment; Electro-Mechanical equipment; Machine tools & Spares; Telecom equipment; Petrochemical plant; Gas plant equipment; Power plant equipment; Ships; Aircrafts; fleet vehicles.

According to Emeka Echeazu, Divisional Head, International Financial Organizations, UBA, the facility will initially cover imports from the following countries: Australia, Austria, Belgium, Canada, China, Czech Republic, Denmark, Finland, France, Germany, Italy, Japan, Korea, Netherlands, Norway, Spain, Sweden, Switzerland, Great Britain and Ireland, but without excluding such other country as may from time to time be appropriate for support.

“The facility is backed by the export credit agencies of these countries which ensure that the costs of the transactions are kept to the barest minimum and indeed, cheaper than the traditional sources of funding such imports,” he further explained.

The tenor for transactions to be funded under this facility range from 2years to 7years and under special arrangements could be extended to 10years. Private Sector eligible transactions, all PPP projects; BOT type projects; governments supported & government parastatals in all UBA presence countries are eligible to benefit from this cost-efficient facility

UBA combines strong local knowledge of Africa and global expertise to connect people and businesses across Africa and the world, through retail and corporate banking, innovative cross-border payments, trade finance and investment banking, making it the bank of choice for Africans and African-related businesses globally.

United Bank for Africa Plc is one of Africa’s leading financial institutions offering universal banking to more than 7 million customer accounts across Africa and key financial centers. It currently operates in 18 African countries with presence in New York , London and Paris as well, thus arbitraging trade flows between Africa and Africa related businesses//end.

Disclaimer

Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.