Bad Loans and Nigerian Banks ; What you should Know.

Discussion in 'General Forum' started by Izu, Aug 29, 2016.

  1. Izu

    Izu Admin Staff Member

    I write this with a deep sense of concern for my friends and relations who borrowed money from banks and are unable to meet repayment obligations due to the present economic conditions in the country.
    The banks have also noticed that majority of their borrowing customers have been unable to repay their loans and have reacted by mounting serious pressure on them to perform. Some banks have even engaged the services of mean recovering agents to help.
    The inability of borrowing customers to repay loans on time or not at all, reduces the capacity of banks to honour withdrawal demands from depositors including those of NNPC. Banks are required by CBN to deduct from their profit and/or capital any loan not repaid as at and when due. It's called "Provisioning" in banking parlance.

    If you are owing a bank and you can no longer meet the repayment obligations as at when due owing to the prevailing or harsh economic conditions, you have done no wrong.Your condition will be deemed an offense if you fail to engage your bank on time.
    If you find yourself in this situation, I advise that you demand to meet your branch manager if possible, in company of your lawyer. Narrate to him or her your difficulties in meeting your repayment obligations with evidence.
    Tell the manager that it is your desire to meet the obligations as at when due but are being hampered by ever amorphous economic changes.
    Demand for a restructure of the facility which gives you an extended time to repay.
    For Overdraft customers: Request for the removal of turnover covenant and clean-up cycle requirements that allow your bank to penalize you if you fail to meet a certain turnover level because you can no longer guarantee sales levels or be able to pay down for the facility to be rolled over.

    Gauge the countenance of the manager and demand to see his/her executive director if he/she says that your demands are not doable. Some relationship managers could be annoyingly impossible and straight-jacketed. Many of them have no business background.
    For Term Loan customers: Demand that the bank extends the tenor of the term loan which will automatically reduce the amount of money you need to pay to service the facility.
    The tenor shall be arrived at by ascertaining the minimum amount you can comfortably generate given the prevailing "bad market". This is doable too but expect some resistance from your relationship managers.
    Also, demand that the bank reduces the interest rate on your loans in consideration of the bad economic realities. This, you may not get if your rates are below 25% p.a. You may be lucky to get something better even though banks are expected to increase their rates by 2% or 200 basis points following the CBN's adjustment of rates by the same margin.

    Your bank may ask that you bring additional collateral as a comfort. Give them if you have and demand for interest rate reduction as you have reduced their risk by so doing. Yes, the lower the risk, the lower the returns. Collaterals improve the risk rating of loans.
    More importantly, ensure that you receive an offer letter conveying the agreed restructuring before you turn in the documents of the additional collateral in the spirit of mutual carefulness or caution.
    Also, don't ever think that your discussion with a bank or the oral assurance from a bank official is a deal. Only a letter from the bank conveying an approval of your demands is considered a commitment. Be warned! Bank's management can overrule (and they always do) any oral assurance by any bank official irrespective of the rank of the assuring official.
    If while feeling grieved about the bad turn of economic events and you react negatively by avoiding your banks in hope that things will change for good, you are digging a big grave for your business.

    Central Bank of Nigeria (CBN) has put in place systems that make it impossible for any bank borrower who allows his loan to go bad in one bank, to borrow from any other bank in Nigeria.
    Banks are required to report all bad loan owners stating the name of the business and their owners in an electronic register accessible to all the banks by a push of a button.

    But, if you engage your banks early enough and get your loan restructured, you will avert hurting your business and yourself. No bank will foreclose your collateral if you engage them on time. They all know that the economy is rough.
    You may need to have as friends, smart lawyers that will help you wade off any threat of economic strangulation from some bankers. Not all humans including bankers are patient and understanding.
    Your faith in God could be shaken your darling bank's disposition to your business misfortune.
    Some banks may attempt to quickly sell off your priced collateral at a give away price to nil off their small exposure. It happens often.
    They are protected by law.
    At this trying time, I repeat, you need a prayer warrior in your lawyers. I mean, smart lawyers!
    Also, you need to court the friendship of some grounded practicing or retired bankers to help you analyze some restructure proposals or offers from your lenders. Days are evil.

    By Anayo Nwosu.

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