E O EkeFriday, July 4, 2014




he the news that The Central Bank of Nigeria (CBN) has banned banks and development banks from lending to loan defaulters of over N500 million, without its prior approval is bewildering to say the least. The paper reported that the ban was announced by the Director, Banking Supervision, CBN, Mrs Tokunbo Martins in a circular titled, “ Prohibition of Loan Defaulters from Further Access to Credit Facilities in the Nigerian Banking Industry.”

She stated that the decision was occasioned by, “the level of impunity with which some borrowers default on their loans in some institutions and yet are availed further credit facilities by other institutions under the same or sometimes different identity. No institution shall, without the prior written approval of the CBN, grant a facility to a potential borrower who is in default of any existing facility to the tune of N500 million and above in the case of a deposit money banks; and N250 million and above".

The questions are

  1. who are those who can default on a bank loan with impunity in Nigeria and then have the audacity to apply for more loans, and why had the central bank and the government allowed such criminals to get away with such serious crime?
  2. Is setting a limit to impunity the best and honest way of dealing with it?
  3. Why has the Central Bank brought out this policy now?
  4. What was the policy when The last Central Bank governor was in charge?
  5. Did Sanusi make it impossible for those who have defaulted on a bank loan to get loan from the bank?
  6. Whose interest will this policy serve and why does the central bank think that a policy that allows bank to make loans to people who have defaulted in the past is a brilliant, honest and good policy.
  7. Lastly, what is the reason and rational for setting the limit at 500 million Naira?

      Impunity is the disease of the political class, who pillage both the treasury and the banks and all the Central Bank and government can do, is set a limit on how much they can steal from the banks. What do Nigerian bankers think of this policy?

      What is the rational for setting a limit for those who are breaking the law. The woman had just said that some people who by the virtue of haven defaulted on a loan, commit identity fraud to get loan from other banks, and the best the central Bank can do is set a limit for them.

      Now, if I do not know Nigeria, I would think that this a stupid policy but it is not. It is a calculated attempt to ensure that the usual suspects, corrupt Nigerian elites and politicians who are robbing the country through loans, unexecuted contracts and political corruption continue to do do.

      Many Nigerians may not know it, Bad loan is another way corrupt Nigerian leaders loot the treasury. The last Central bank governor, now Emir of Kano, did a lot to address this crime and it would seem that the new governor wants to please his master so that it would be business as usual.

      This is the problem with Nigeria the lack of continuity and inability of leaders to build on what their predecessor had done. Why would any central bank think that a policy which can expose it to pressure by the politician to approve granting of loans to people who have defaulted in the past is a good policy?

      It was one of the ways Demij Bankole misappropriated National Assembly fund. In developed countries , people like him, would be reflecting in prison and never obtain bank credit. But in Nigeria, he is planning to run for governor and may need bank loan and he would welcome this new policy and if he default on a loan, the court would ruled that his crime was mistake.

      Every single person and institutions which wishes Nigeria well have said repeatedly that Nigeria needs to build strong institutions, which is able to hold powerful and rich people to account and not strong and powerful individuals who have the power to do as they wish, but the government continues to consolidate the rule of men, instead of the rule of law.

      It is therefore astonishing that in 4 years, president Jonathan has not taken any step in this direction, but rather continues to consolidate autocratic powers of the executive and it's influence in areas where politicians should not interfere.

      It is simply sad, that in spite of the fact that President Jonathan knows that one of the most important things Nigeria should do is reformation of her institutions to make them independent, strong and accountable, he has done nothing in that direction.

      Instead, he continues to weaken them and find ingenious was to maintain the control of politicians over them, which is why the country is what it is today. It would seem that Nigerian leaders want a country where they would control everything without accountability. This is not democracy, but autocracy or kleptocracy.

      This policy is a dishonest and fraudulent policy, it is nether in the best interest of the banks nor the country.

      It is simply a policy to make sure that those who have defaulted on bank loans, continue to do so and it makes me sick. This is abuse of power by Central bank and only an immoral government would think it is appropriate to continue to grant loans to people who have committed financial fraud.

      It is a ploy by the same politicians and the powerful, who default on loans to continue to determine who gets a loan through the central Bank, whose governor the president appoints and controls,

      Nigeria is both a mess and a sham. What the country should do, if it has honest and sincere leader, who have any regards for accountability and probity, is to make the central Bank independent and accountable and allow the Banks to determine who they lend money and bear the consequences of default, without interference of the central bank or government.

      Instead of setting very sever and deterrent penalty for defaulting on a loans and ensuring that anybody who defaults on a loan is punished appropriately and do not benefit from it, which is what all honest and serious countries do; the Nigerian government have simply come out with a policy that would allow this crime to continue.

      How can a country be run in the best interest of criminals and survive? No western country will even consider such a policy, yet we have a finance minister who claims to be honest and worked with world Bank. What is the rational for ensuring that those who default on bank loans continue to have access to bank loans?

      Banking is a business and the Nigeria central Bank has no business telling the Bank how much a borrower would fail to pay, before it black lists it.

      The practice in the west is That Banks do not grant loan to people who have ever defaulted on a loan, unless they have evidence that they have paid back and are credit worthy

      Even when they have paid back, their credit rating remains very bad as they are a risky people to grant a loan. This is common sense and one does not need a PhD in economics or have to worked in the World Bank to know this, if one 'a intentions are honest.

      Why is everything in Nigeria either corruptted or expressed in a way it would either make the problem worse or have no effect at all?

      This policy is wrong and dishonest and not in the best interest of the banks and the people who would be robbed by it. It is a criminal policy, which would reward crime and does nothing to make banking safe or increase confidence in banks.

      It is another step towards making Nigeria the criminal paradise, where criminals make financial policies and protects criminals.This is unfortunate and as they say, it can only happen in Nigeria.

      I plead with the Central a Bank to withdraw this policy and come out with a policy that would provide enough deterrent to those who may be minded to commit this serious crime. No people can build a nation on corruption and policies that serve the best interest of criminals.