Bad Loans: AMCON MD Seeks Reintroduction Of Failed Bank Act

Bad Loans: AMCON MD Seeks Reintroduction Of Failed Bank Act

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Post Views: 331 Miffed perhaps by the unwillingness of recalcitrant debtors to repay huge toxic loans purchased from banks about 10 years ago or more,...

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Miffed perhaps by the unwillingness of recalcitrant debtors to repay huge toxic loans purchased from banks about 10 years ago or more, chief executive of the Asset Management Corporation of Nigeria (AMCON), Ahmed Lawan Kuru, on Wednesday in Lagos, urged the Federal Government to consider reviving the Failed Bank Act 1994.
Kuru who hosted officials of Risk Management Association of Nigeria (RIMAN) at AMCON Lagos office, said reintroducing the Act into the country’s financial system will curtail the current trend of financial rascality on the part of some bankers, besides making operatives in the sector accountable for their actions.
The Failed Banks (Recovery of Debts) And Financial Malpractices in Banks 1994 No. 18 was promulgated by the regime of General Sanni Abacha, following the rising rate of bank failures in the country. Under the law, a person convicted or against whom a judgment is given could within 21 days of the conviction or judgment, appeal to a SpeciaL Appeal Tribunal established under the Recovery of Public Property (Special Military Tribunal) Decree 1984, as amended, in accordance with the provisions of that Decree. The decision of the Special Appeal Tribunal was final and, where there is no appeal, the decision of the tribunal shall be final.
Reintroducing the Act, Kuru continued, would also restore discipline to the industry in general, urging banks to immediately strengthen their risk management framework to stem the negative growth.
Having been privileged to have been on both sides of the divide – as a banker and now on the regulatory side, Kuru explained that given the huge resources available to financial institutions and the pivotal role they play to economic development makes it imperative for financial institutions to take issues of risk management seriously.
This, he continued, will prevent a recurrence of what happened during the global financial crisis, suggesting that in line with the fight against corruption, there is need to fight against impaired and arranged credits so that operators are held responsible for booking credits contrary to their credit policy, that go bad under their supervision.
One of the reasons for the failure of the banking system during the global financial crisis of 2008/2009, eventually leading to the creation of AMCON, he recalled, was the prevalence of weak risk management framework by financial institutions.
Kuru said that the trend became a baggage, which contained all sorts of bad omen for the economy including poor corporate governance structure, lack of robust risk management strategy and lack of adherence to laid down principles that govern credit approvals by financial institutions.
“I can authoritatively comment on issues relating to risk management. Immediately after the intervention of the Central Bank of Nigeria (CBN) in 2009, they insisted that risk management must be given prominence right from the Board level to the account officer.
“What we have noticed now is the lack of consequent framework to manage the risk structure. We have noticed prevalence of key men risk. Credits are booked with impunity without any intentions of being paid. The grievous impunity is taking place along the credit process.
“There is the urgent need to revisit the failed bank act so that operatives become responsible for their actions. We believe it will bring discipline to the banking industry,” he stressed.
Kuru said the damage financial institutions do to the economy when they book fictitious loans was worse than corruption adding that “AMCON is currently sitting on huge stock of non-performing loan, with banks looking for liquidity to book more loans.
“As practitioners, you need to join the campaign to bring sanity in own credit process. You can clearly see that the system is skewed towards accommodating large credits, which pose serious survival challenges to the financial institutions on failure, whilst the small credits/SME always require regulatory intervention to be accommodated.
“Given what I have seen in AMCON, we must bring both the obligors and the operators to account for the bad credits,” he added further.
RIMAN was led on the business visit by Magnus Nnoka, its President and Chief Risk Officer at Coronation Merchant Bank.

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