Chris Onalo, the Registrar/Chief Executive Officer, Institute of Credit Administration, in this interview with STANLEY OPARA, calls for better credit management and good corporate governance in the country’s financial system
How would you rate Nigerian financial institutions in terms of credit management?
Permit me to comment first on the financial services sector in Nigeria which, in my opinion, has done very well. Whereas the banks cannot be said to be perfect, they have discharged their financial intermediation role pretty well; being key to the economic growth the country has witnessed in recent years.
That said, like every other area of human endeavour, there is always a room for improvement and Nigerian banks are not different. The sector is still evolving and can get better.
What in my opinion, is required, is enhancement of the credit management framework and structures in some of the banks. They should also strive to raise their game by embracing best practices; and international credit management standards and conventions.
Banks generally need to deploy a robust credit management structure. What seems prevalent is apparent lack of credit management systems resulting in high non-performing loans at the end of the day.
Credit facility needs not be given based on any form of sentiment. Nigerian banks need to move away from sentimental credit. They should realise that without proper credit administration, even if we have sound industrial base in the economy, there is still the possibility of bad loans. Banks need to set the pace early enough before the arrival of industrialisation.
With the problem of non-performing loans currently aggravating the woes of most Nigerian banks, what do you think is the way out of the woods?
Non-performing loans are a clear evidence of poor credit management system in a bank. The end result of good or bad credit system is the quantum of non-performing loans that banks have in their books. So, it is indefensible to have a huge volume of non-performing loans in the banking industry, and this is closely linked to the status of their credit management systems. Another point is, and I have been emphasising this point over the years, that bank managers, directors and executives need to tread with caution, the path of profit propensity. When too much profit target is placed on management by the shareholders, the management’s response to bad assets may not be exactly innocent; that is to say, there will be arbitrary abuse of ethics inherent in approval or refusal of loan requests from customers.
Still on NPLs, the frequent slump which banks experience in the management of bank assets emphasises the omnipotent need for Nigeria to quickly acquiesce itself of the need for establishment of financial services authority; just as we have in the United Kingdom. Take it, or leave it; accept it, or reject it, the Nigerian central bank has got much to do and should not be further stressed. The financial services authority, if established, will be able to focus on sound banking practices, enforcement of ethical practices, and enthronement of excellent customer services, employees’ skills regulation and capacity building regime, among other functions.
It is better for everyone, including the banking sector and its stakeholders, to have such an institution that will carry out oversight functions on the financial services industry.
There is a need for externalities to restrain themselves from influencing the credit analysis process in banks. Very large proportion of present-day bankers are not given to the application of what they learnt in the art of appraising and managing credit customers; this is partly as a result of both internal and external influences on them.
Is capacity building in the industry adequate?
Another nugget point is the general poor attitude to learning and re-learning in the Nigerian system and this is virtually in all sectors of the economy. Perhaps, government needs to take a second look at the overall national policy on capacity building and human capital development.
The other factors to look at include: Adopting international credit management standards and practices in line with Basel II accord; training and retraining of credit professionals can never be overemphasised. Banks should align with credible professional institutions such as ICA to ensure standards and quality; strengthening of regulatory framework – the various agencies charged with regulation of the industry such as CBN and NDIC should be strengthened through training and reorientation. They should also be properly staffed and retooled with modern technology to aid monitoring and supervision efficiency; review and enhancement of the legal environment – laws bordering on breach of regulations, corporate governance, fraudulent and unethical practices in banks and the applicable sanctions should be urgently reviewed and strengthened to plug all loopholes. Moreover, anyone found culpable should face swift trial and severe punishment to deter others; the issue of corporate governance compliance should be a must for all banks. Anyone found to be in breach of the codes should be severely sanctioned, including removal of Board and Management of such banks; AMCON can, as usual, intervene to avoid systems collapse. It is a NPL management strategy that has worked in Nigeria.
Do you think the financial institutions have the wherewithal in terms of human resources to help the situation?
It will be difficult to generalise here. The strength of the respective banks, in terms of human capital and capacity building, varies. While some do have a rich pool of qualified manpower, the same cannot be said of others.
Credit policy formulation in a bank, being part of its corporate vision, is the responsibility of top management. Thus, to a large extent, the value which management of a particular institution places on credit management is critical. That will affect the human capital and other decisions around credit management.
In your view, is the Central Bank of Nigeria having the right framework to address the problem?
The current CBN framework for addressing the menace has worked successfully thus far. For instance, the role of AMCON has been commendable in warding off crisis.
However, as stated earlier, more will need to be done in terms of staffing and training, and application of technology in the institution.
The CBN has an effective set of rules and regulations for the banks. However, there is an obvious challenge in ensuring compliance through monitoring and supervision. It would seem that the CBN cannot match the banks they are supervising in terms of deployment of modern technology. This will obviously impede their capacity for effective supervision. The CBN needs to scale up its capacity in terms of training to enhance the knowledge and skill set of its staff; and technology acquisition.
Given the current economic challenges, do you see the possibility of one or two financial institutions going under owing to poor management of credits?
The possibility of any bank going under in Nigeria is very slim. Nigeria has the capacity to turn the economy around within the shortest possible time based on the rich pool of human and material resources that abound in the country, provided they are properly harnessed.
The monetary authorities also have learnt sufficiently from past experiences; this will enable them to take proactive actions to shore up liquidity and management quality of banks, where necessary.
They have also built very credible institutions and policies for managing financial systems challenges.
Do institutions such as ICA, ICAN, CIBN, among others, have roles to play to better the situation?
Yes, these are very relevant professional bodies; they have a great role to play in remedying the situation. Do not forget, these are highly credible professional institutions that have stood the test of time in producing top professionals at the highest level of management across institutions and sectors in the Nigerian economy.
The ICA particularly, stands out as the one that is specialised in credit and risk management. For you to appreciate the contributions of these institutions, the ICA, for instance, which was founded in 1992 is Nigeria’s main national structure to develop and deliver world-class professional curriculum in credit management learning with a view to delivering specialist qualifications in the highly demanding fields of credit management.
With the current foreign exchange regime, what is your advice to Nigerian firms with Diaspora loan obligations?
The situation is quite pathetic. The main issue here is inability to access the relevant foreign exchange to honour these obligations. This is not helped by the downgrading of Nigeria’s sovereign rating by international rating agencies such as Fitch, S&P, etc.
This portends serious problems for local financial institutions that guaranteed such loans and the local firms. Hopefully, the guarantees were adequately secured.
We had such experience in the past and there was what I call “divine intervention” as the oil price in the international market experienced a rebound. Nigeria was able to rebuild its foreign reserve rapidly enough to support import and foreign obligations.
Let us hope that there will be divine intervention again so that the situation can be quickly sorted out.
Otherwise, the banks and their affected customers should quickly sell off the pledged asset, talking about the collateral and source foreign exchange to offset the loan before the situation becomes unmanageable.
Do you share the view that the Nigerian financial system is currently troubled?
As a matter of fact, the CBN as the industry regulator has said it severally, that the nation’s financial system remains strong and that the ability of banks to honour their obligations is not threatened. I do not have any cause to doubt their position on the health of the Nigerian financial system. There might be some challenges with a few institutions but this does not lend credence to a generalisation that the financial system is troubled.