Nigerian banks are overwhelmed by non-performing loans. A huge chunk of facilities granted companies and guaranteed by high net worth individuals are going bad, and financial institutions are crying and whimpering. And those lucky to have handed over the bad loans to Asset Management Corporation of Nigeria are counting themselves lucky. But a large percentage of loans are still said to be in the non-performing category, years after being taken over by AMCON, in spite of all the concessions.
Why do loans go bad? Why are Nigerians in the habit of not repaying loans?
encomium.ng examines some of the reasons loans are hardly paid back here :
1. The terms are unreasonable
Many of the terms of the loans and tenor are not realistic and feasible. But because the lender is desperate and the bank eager, due diligence that will ensure almost fail-safeloan measures are circumvented. Loans that should be long term are given a short term tenor.
2. High and impracticable interest rate
The rates charged on the loans are so high that only drug dealers can make the huge returns the banks expect. On the face of it, how many sectors can generate income that adequately covers 25 percent interest rate after all the bills are settled? The rates are not only impracticable, but nonsensical.
3. Bribes to bankers jeopardize the business
Before loans are granted, many of the bankers have already negotiated their cut. And the sum eventually collected by the businessman is slashed. So, from the onset, the hard working businessman is fighting a lost battle. Those who are not directly involved in running the business have taken a higher cut than return on investment. And most times, there is collusion with the bankers that the loan should not be repaid. They encourage the customer to default.
4. Constantly changing variables, political and economic turbulence
Policies change without notice, and loans collected with particular expectations are compromised. The economic and political atmosphere are constantly changing, making nonsense of projections. The exchange rate changes, so do policies.
5. Living large
Instead of using the loan for the designated project, we go on a spending spree, living large and big as if payday will never come. Debtors acquire wasting assets, spend on frivolous items, and never attend to the business at hand. They buy houses abroad, bankroll parties and fund their philandering. Some even lavish the money on their political ambition.
6. Counting on political connections
Who has the audacity to ask the president’s friend and ally about unpaid loans? Big men and women are the ones always listed by banks as chronic debtors, and since they get away without redeeming their debts, others in their league are emboldened. Every quarter, we see long lists of debtors who are above the law. Who we never hear about paying off their debts.