States’ Non-payment of Salaries Worsens Banks’ NPLs – NDIC

By Nse Anthony-Uko
(Sundiata Post) — The Nigerian Deposit Insurance Corporation (NDIC) has blasted state governments over non-payment of salaries to employees, saying it is contributing to the unhealthy level of non-performing loans in the banking sector.

The Director, Banking Supervision, NDIC, Mr. Adedapo Adeleke, over weekend, said that the banking sector will fare better in reducing non-performing loans if states governments can pay up the salary arrears owed to their employees.

“Customers, some of whom are state employees have taken consumer loans from banks and because they have not being paid for nine to 10 months, or even 18 months as we hear, this has contributed in driving up the level of non-performing loans in the banking system.”
Adeleke also lamented that “banks cannot go foreclosing and seizing people’s property and this can be frustrating because the petitions that will follow such actions.”
According to him, “If the economy is improving and government can discharge its own responsibilities to its employees, those who are owing banks will pay and the banks’ condition will improve.”
Speaking at the workshop organised by the NDIC for financial correspondents and business editors, in Kano, Adeleke also said the Central Bank of Nigeria and the NDIC have in their books records of bank directors who lost their seats on the Boards of some Deposit Money Banks after being linked to the NPLs.

Adeleke cited this as one of the outcomes of measures that the regulators had been taking to reduce the growth of bad loans in the financial services industry.

“We have the Code of Corporate Governance and Code for Bank Directors. You sign these codes before you become a director. It is part of the employment terms. One of the things in these codes is that if you are having a non-performing loan, it is a ground to remove you from being a director.
“Some banks have also included this clearly in their Memorandum of Association. So, this is the stand of the regulator in terms of the NPL by a director and it is being enforced. Maybe the regulator has not been dramatic in publishing the names of those that have been removed.”
He said these were part of the measures regulators had taken to address the spate of the NPLs among banks.

According to him, banks’ huge exposure to the oil and gas sector has led to higher NPLs following the decline in oil price in 2014.
He said although the situation had improved, there was a need for the banks to work harder on their capital as higher NPLs had caused erosion of capital and deterioration in their asset quality.
Adeleke recalled that some foreign rating agencies had recently commenced the downgrade of some Nigerian banks over issues traceable partly to asset quality.
The NDIC director also stated that the implementation of the International Financial Reporting Standard 9 would commence on January 1, 2018, and banks would be required to make provisions for expected loan losses.
This is expected to put more pressure on banks’ capital as the lenders will need to use part of their profits to make provision for loans that are expected to become non-performing, after making provisions for those that are already non-performing.
Following the deterioration of the lenders’ capital in the past two years due to the recent recession, dollar shortage and exchange rate challenges, the banks’ capital has become eroded, causing the asset quality to decline.
Adeleke said, “In line with the CBN prudential guidelines, banks make provisions for non-performing loans after 90 days, 180 days and 360 days. But what the IFRS 9 is saying is that if you are expecting a loss, you need to be forward looking by making provision for that loss ahead.”

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