By Babajide Komolafe
The primary duty of banks is to lend and a critical factor to this is willingness to repay on the part of the borrower. So even when all the documentation is right, a bank might refuse a loan application if it believes that the borrower will not pay even when he/she has the capacity to pay.

But in turning down such request, the banks lose opportunities to make money and also the economy is denied of funds needed for investment to generate employment and income and boost the gross domestic product.  Thus borrowers’ willingness to repay is critical to the smooth functioning of banks and the economy.

But in Nigeria, banks believe that the willingness to repay loan is very low even when there is obvious capacity to repay.  This they averred is responsible for the incidence of serial debtors in the industry and also why it is difficult for the average bank customer to enjoy loan facilities from the banks.

Confirming this belief, the Head of Credit in one of the Mortgage banks, who pleaded for anonymity, debtors in the industry and also why it is difficult for the average bank customer to enjoy loan facilities from the banks.

Confirming this belief, the Head of Credit in one of the Mortgage banks, who pleaded for anonymity, while  explaining the benefits of credit bureaus, said the through the services of a credit bureau, the bank discovered that a customer that recently applied to it for  loan was heavily indebted to  two other banks. He said when the customer was confronted by the discovery, he couldn’t make any cogent explanation, and hence his loan application was rejected.

It is an old problem, as old as the practice of lending with each country deploying various measures to tackle it. In the developed countries, there are credit bureaus, which serve as data banks on banks’ debtors and enables banks to check on the borrowing habit of a customer before granting loan.  IN 1991 the Central Bank of Nigeria, in attempt to check the malaise, established the Credit Risk

Management System, which functions like a credit bureau. Each bank is required to send to the CRMS information of debtors that borrow n1 million and above.

To consolidate this effort, the CBN allowed the establishment of privately owned credit bureaus and in 2008 it issued the guidelines the licensing, operations and regulation of credit bureaus in Nigeria. So far it has  licensed three credit bureaus.

The need for such initiatives to ensure that only borrowers willing to repay access loans is reflected in the on-going N170 billion debt recovery saga involving five banks and a customer.

The banks namely, Zenith Bank, GTbank, UBA, First City Monument Bank and Access Bank alleged that the customer Zenon Oil owed by Mr. Femi Otedola owes N170 billion. However the customer, who has dragged the banks to court,   insisted that indebtedness was overstated through spurious charges and interest rates.  Meanwhile, one the banks, Access Bank, had obtained a mareva court order on all the assets of the customer in an attempt to ensure it recovers its money.

But how were the  five banks  exposed to one customer? Simple, the loans were granted to finance importation of petroleum products, arguably the most lucrative business in the country.

So it is perhaps the most lucrative business for the banks to finance and more so when juxtaposed against the fact that Zenon was one of the biggest players in this regard. Under the arrangement the banks extend credit facility to the importer who sells the imported product, petroleum products in this case, and then repay from the proceeds of the sales. Usually there is little or no collateral.

But in this case, at one point in time, particularly in the wake of the global financial crisis,  the banks, and to order to safeguard their money, collected collateral from Zenon in the form of shares and real estate properties.  But somewhere along the line there was a breakdown in the banker-customer relationship such that the customer stopped honouring its loan obligation.

Interestingly, Zenon did not deny owing the banks, it  is only disputing the value of the loan. However, another salient point is the fact that it did not state its own estimation of the loan and how it wants to repay. At least that would reflect good faith on the path of the company and its owner and further reinforced their case of spurious charges and interest rates.

While the final outcome of this saga rest with the courts, it is pertinent to say that the outcome whichever way it plays out will further reinforce the belief that Nigerian borrowers are unwilling to repay loans. And as reflected in the saying that, ‘ when two elephants fight, the grass suffers’, it is the innocent and honest individuals and businesses that needs credit facilities to generate income and jobs that would bear the brunt of this belief, and by extension the economy.