The Central Bank of Nigeria (CBN) has constituted a team to investigate the 21 commercial banks in the country to ascertain their level of solvency, Frontiers News has reported.
The move followed revelations that directors and chief executives of four banks in the country are using their positions to award loans running into billions of naira to themselves and their cronies, which eventually end up been classified as bad debts.
A reliable source in the banking sector told our correspondent, on the condition of anonymity that CBN is embarking on the investigation of the commercial banks to forestall the possibility of failure of any of the existing bank.
The source who is close to the CBN top management said “CBN is always investigating to see how directors are spending depositors funds and from investigation available, some of the bank directors may end up with severe sanctions like what happened in the past. Some maybe stripped of their positions and banned from holding any position in the financial sector while others maybe arrested and prosecuted.
However, the source disclosed that “no particular bank is being targeted. The CBN is looking at all the banks to see how financially stable they are. If you recalled what happened in the past where some bank directors where just stealing depositors money, you will understand why the CBN is increasing its policing roles in the banking sector. It was a sad and terrible experience that no country would like to pass through again. The CBN has said it would not allow any bank to fail again in Nigeria.”
Speaking on condition of anonymity, the insider explained that the CBN was beaming the search light on the commercial banks because of the present economic recession facing the country.
He disclosed that during economic recession the rate of non-performing loans increase stressing that “when their is economic crisis, the purchasing powers of household drop. The ability to to pay for goods and services drop and when this happens, even those who have borrowed money to pay for goods and services don’t make sales and as a result, sales drop and profit and cash flow decline, making it even more difficult to repay loans”.
The source stated further that “non performing loans are part and parcel of economic crisis,” adding however that “the fact that some banks have high non-performing loans doesn’t make them distress.”
Also, it was further revealed that at the moment, there is no distressed or distressing bank in the country as a result of the huge non-performing loans noting that “the ones that are critical, that is ones that have not sufficiently provisioned for such bad loans, which eats deep into their balance sheets, are advised to recapitalize to cushion the effect of the provisioning. No bank is in distress at the moment.”
–Frontiers News
