Banks lend directors, insiders N740bn —NDIC

THE Nigeria Deposit Insurance Corporation (NDIC), has expressed concern over the rising tide of Non-Performing Loans (NPLs) in the banking system, where N740 billion or 40 per cent constituted Insider/Directors related loans.

Managing Director/Chief Executive (MD/CE) of Nigeria Deposit Insurance Corporation, Alhaji Umaru Ibrahim raised the alarm while defending the Corporation’s proposed 2017 budget before the Members of the House Committee on Insurance and Actuarial Matters as part of its oversight function.

In the course of general discussion on the banking system, the members of the Committee equally expressed grave concern over the increasing wave of non-performing loans (NPLs) particularly delinquent insider related facilities in various banks and its consequences on the stability of the nation’s banking system. Hence, the members demanded for an update on the state of the Nigerian banking system.

He stressed that while the banking industry indicated strong fundamentals in regulatory assessment and rating, regulators were concerned about the rising tide of NPLs in the banking system, informing them that as at December 2016, the 25 Deposit Money Banks (DMBs) had total loans portfolio of N18.53 trillion out of which N1.85 trillion or 10 per cent were NPLs and N740 billion or 40 per cent constituted Insider/Directors related loans. This was far above regulatory threshold of five per cent for the DMBs.

In other banking subsectors like the microfinance banks, (MFBs), he noted that there were 978 MFBs in existence as at December, 2016 with total deposits liabilities of N158 billion and total loans and advances amounting to N195 billion. Out of this amount, N87.75 billion or 45 per cent were NPLs where N68.25 billion or 35 per cent constituted Insider related/Directors loans. The NPLs indicated a classic case of over-lending, accumulated interests’ charges and poor corporate governance.

Similarly, by extension, the existing 42 primary mortgage banks (PMBs) had total deposits liabilities of N69 billion but with total loans portfolio of N94 billion.  This he said, indicated another case of over-lending, accumulated interests, poor corporate governance and high ratio of NPLs which stood at N51.7 billion or 55 per cent. Out of this, N42.3 billion or 45 per cent were Insider related/Directors loans.

“The resultant effects of this negative trend would be poor earnings and erosion of shareholders fund,” stated.

The NDIC MD/CE observed that this development had posed serious issues bordering on corporate governance which were capable of eroding public confidence in the banking system. He advocated for strict compliance with the existing code of ethics for bank directors and a review of the existing laws and regulations to proffer stiffer sanctions for Directors who exploit their positions and default in the payment of their credit facilities while still occupying Directorship positions in the banks.

The MD/CE had started by calling the attention of the Honourable members to the delay in the approval of 2016 budget which contributed to the modest execution of the budget. He restated the Corporations commitment to performance based budgeting system (PBBS), the essence of which was to ensure efficient allocation of resources to enable the Corporation achieve its strategic mandate.

In his presentation, Alhaji Umaru Ibrahim stated that in 2016, the Corporations actual income (net of provisions) was N85.020 billion which was expendable to the limit of 75 per cent in line with the provisions of Fiscal Responsibility Act (FRA) 2007 while its total expenses was N31.551 billion. This gave a net operating surplus of N53.469 billion out of which the Corporation made provision to transfer the sum of N42.775 billion or 80 per cent into Consolidated Revenue Fund (CRF). As at date (Feb 2017), the Corporation had made a total transfer of N35.893 billion into CRF while awaiting the conclusion of its 2016 External Audit report before transferring the outstanding balance of N6.882 billion to the CRF in line with FRA 2007. With this the Corporation had surpassed its budgeted sum of N35.893 billion as against the actual sum of N42.775 billion transferred into CRF.

He urged the House Committee to approve the Corporation’s 2017 proposed budget of total income of N102.294 billion and expendable income of N76.720 billion. This comprised Operating expenses of N43.227 billion or 49.94 per cent of total expenditure and a total Capital expenditure of N43.323 billion or 50.06 per cent of the total budget. The Capital expenditure would be funded by the Corporation’s General Reserve Fund which stood at N45.670 billion as at December 31, 2016. He concluded that a total of N47.254 billion is proposed as 80per cent net Operating surplus to be transferred into CRF in 2017.