Bad loans: Banks begin sale of customers’ properties

A number of Deposit Money Banks are considering the sale of collateral assets especially properties debtor customers have pledged against loans advanced to them, top bank officials have disclosed.

The move came about a month after many commercial banks in the country posted dismal results for the 2015 financial year with many recording double-digit decline in their profits.

The slow growth in the economy, among other unstable macroeconomic conditions in the country occasioned by the falling oil price, was blamed for the banks’ poor performances.

Over the past one month, Zenith International Bank Plc, Guaranty Trust Bank Plc, Fidelity Bank Plc, First City Monument Bank Limited, Union Bank of Nigeria Plc, Sterling Bank Plc, and United Bank for Africa Plc, have released their 2015 financial results with many reporting huge provisions for bad loans.

In line with the Central Bank of Nigeria’s regulations, banks are under obligation to make provisions for bad loans from their profits at given intervals.

A top bank executive told our correspondent on Friday that “most banks will begin to sell the collateral assets especially properties of customers who have failed to deliver on their loans.”

According to another official of a first-generation bank, the move is coming on the heels of the high NPLs the banks have recorded in the 2015 financial year, adding that “a number of collateral that are in form of properties like business buildings, hotels and so on will be realised by banks very soon.”

However, they said the planned “collateral realisation” would affect mostly customers whose businesses have been adjudged to be incapable of settling their loans in a foreseeable future.

Analysts and Chief Executive Officer, Cowry Asset Management Limited, a financial advisory and research firm, Mr. Johnson Chukwu, said the planned move by the bank, if implemented, would worsen the economic situation in the country.

He said, “There will be a further decline in economic growth and jobs will be lost if the moves go through. This is because existing businesses whose properties or premises are sold will cease to operate and the workers will be laid off.

“Also, there will be oversupply of properties in the market and it will lead to further decline in property prices. However, for high-end properties, banks may not find it easy to dispose of them because of the liquidity situation in the country.”

Chukwu, however, expects that the plan by the banks may not affect many customers considering the fact that banks know that the economic situation in the country is widespread.

The amount of bad loans in the banking industry had risen sharply by 78.8 per cent to N649.63bn in 2015, indicating severe deterioration in the quality of the loan portfolio of the 22 banks, a CBN staff report presented to the Monetary Policy Committee about two weeks ago showed.

The report revealed the general increase in bad loans (non performing loans) among the 22 Deposit Money Banks in the country.

This was despite 30 per cent decline in new loans granted by banks in 2015 to N5.78tn.

According to the report, 18 out the 22 banks recorded increase in bad loans. Furthermore, the number of banks that exceeded the regulatory limit of five per cent for ratio of bad loans to total loans rose from three in 2014 to eight in 2015, with three banks exceeding 10 per cent.

The report reveal that the ratio of bad loans for the industry relative to total loans rose to 4.88 per cent, which is 1.2 per cent less than the regulatory limit of 5.0 per cent industry.

The sharp increase in bad loans, according to the report, was due to a host of external and internal factors. These include: Low and volatile oil prices; uncertainty about severe fiscal imbalance at the sub-national level of government; weak output growth; and eroding investor confidence.