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Review of Newspaper Reports

On Bank Debtors

Q1’ 2011
Tuesday, February 15, 2011
The Nation, Page 53

http://www.independentngonline.com/DailyIndependent/Article.aspx?id=28872

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Like a recurring decimal, senior operators in the nation’s banking industry, on Monday lamented the fast
returning trend of debtors who rather than negotiate their facilities with banks have started resorting to smear
campaigns to blackmail bank management.

This is coming less than two years after the Senate released a list of insider debtors of the 14 banks that failed
to find suitors during the industry consolidation exercise, and another containing billionaire debtors as compiled
by the Central Bank of Nigeria (CBN), a few months later.

According to one industry source, the trend has been noticed in at least four banks already, with the group of
big debtors “resorting to deploying the ‘mischievous tactic of using the media, both print and electronic, to
embarrass and impugn the reputation of banks, rather than responsibly engage their creditor banks and
negotiate their facilities.”

Our correspondent learnt that the debtors who go about as big men now cause the affected banks and their
principal officer’s public embarrassment when demands for fulfilment of the debt obligations are made.

This, the source said, is common among the soft sell and on-line media.

“We have observed an emerging trend whereby debtors go beyond the cases in dispute to impugn on the
integrity of banks and the officials to distract away from the demand being made on them. This is not helpful to
banks willing to expand their credit operations to more credible debtors,” a top official of one of the banks
stressed.

This negative development, another source lamented, has started and will continue to negatively affect
genuine and credible businessmen and women who approach banks for loans to undertake their genuine
activities.

Another source close to one of the banks expressed fears for the effect of the smear campaign on the industry,
warning that his bank is considering selling the affected non-performing loans to the Asset Management
Corporation of Nigeria (AMCON) in the next round of bad loans purchase.

This, he reasoned, would enable his bank’s personnel concentrate more on their jobs.

“The impact of the actions of debtors presents real challenges not only to the perception of the banking
industry but the economy at large. Under the new dispensation with AMCON, we may have to simply transfer
these debts to AMCON and have them handle the cases as intended by the CBN,” he told Daily Independent.

http://www.google.com/buzz/modernghanaweb/1iHLpq6knD3/Stakeholders-Decry-Smear-Campaign-Tactics-Of

The National Coordinator of the Progressive Shareholders Association of Nigeria PSAN, Mr. Boniface Okezie, has
said banks should not be bothered by whatever antics that are employed by the debtors and ensure that all
debts are recovered to reposition and strengthen the financial institutions.

TV Interview by Boason Omofaye

http://www.proshareng.com/video.php?vid=211

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Wednesday, February 16, 2011

http://www.proshareng.com/news/13072

http://thewillnigeria.com/general/7554-Stakeholders-Decry-Smear-Campaign-Tactics-Debtors.html

The National Coordinator of the Progressive Shareholders Association of Nigeria (PSAN), Mr. Boniface Okezie,
has said banks should not be bothered by whatever antics that are employed by the debtors and ensure that
all debts are recovered to reposition and strengthen the financial institutions.

According to him, the public should know who the enemies of the banking system are, whenever
they (the debtors) put up the deceptive advertisements in the newspaper.

Okezie spoke against the backdrop of what the banks call “new tactics” by debtors to evade their debt
repayment obligations.

The concern has led some of the banks to cut down their exposure to customers described as high profile
individual businessmen and women, investigations have revealed.

A top manager with one of the banks who would rather not be mentioned, said one of the major worries in the
industry now is “rather than debtors engage their creditor banks and negotiate their responsibilities, they have
resorted to deploying the mischievous tactic of using the media, both print and electronic, to embarrass and
impugn the reputation of banks.’

Investigations have revealed an emerging trend of bank debtors refusing to pay their debts and
instead engage the banks in campaign of calumny, using the instrumentality of the media organs.

The senior bank official pointed out that debtors are deploying the approach on the belief that ‘causing the
banks and their principal officers public embarrassment would keep the banks at bay’ and offer some succour
to them (debtors) when demands for fulfilment of the debts are made.

“It has been observed rather unfortunately, that there are willing collaborators in the media – mainstream, soft
and new media’ ready and eager to aid this ugly and unfortunate development at this time in our banking
reform programme,” he added.

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The smear tactics of the debtors have also evoked the concern of shareholders of the banks as well as legal
cum financial experts.

Mr Okezie maintained that “Besides using the media, the same individuals go to the court to get injunction to
avoid their arrest or to stop the bank from taking any further action. The public should know who the enemies
of the banking system are, whenever they (the debtors) put up the deceptive advertisements in the
newspaper. When the banks lend money to individuals and they pay back, the same money is given to other
people. That is how banks contribute to the growth of the economy and also make money for their owners,”

Taking the matter from the legal side and what justice demands from the banks and the debtors, the Lead
Director of Abuja based Centre for Social Justice, Eze Onyekpere, said it is true that banking is done in
confidence but the CBN employed the “shame element” last year when it publicized the transactions in the
papers, and that was to make the debtors pay.

He said: If someone is owing any bank, he has to pay. The media can’t be used to cover up the debt. What we
might want to follow up with the debtor in the media is if for instance the bank was mischievous in the
transaction, for instance, if the customer was given the money and a part of it was taken. You know some of
these debts can be given under incredible conditions.”

http://www.thenigerianvoice.com/nvnews/46370/1/stakeholders-decry-smear-campaign-tactics-of-debto.html

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http://www.pointblanknews.com/News/os4589.html

http://www.ukpakareports.com/news.php?type_id=2&news_id=1926

Thursday, February 17, 2011

http://www.ngrguardiannews.com/index.php?option=com_content&view=article&id=38870:govt-plans-courts-for-bank-
fraud-loan-default&catid=1:national&Itemid=559

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http://www.thisdaylive.com/articles/cbn-banks-bemoan-evasion-tactics-by-debtors/86390/

http://allafrica.com/stories/201102170217.html

http://www.allnewsnigeria.com/nigerianewsgeneral/5330-stakeholders-decry-smear-campaign-tactics-
of-debtors.html

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Friday, February 18, 2011
http://www.transparencyng.com/index.php?option=com_content&view=article&id=3549:banks-
decry-debtors-smear-campaign-tactics-&catid=179:press-release&Itemid=151

http://www.nigerianewsdaily.com/categoryblog/14874-banks-decry-smear-campaign-tactics-of-
debtors.html

Saturday, February 19, 2011

http://weekly.dailytrust.com/index.php?option=com_content&view=article&id=5390:banks-worried-
over-new-tactics-to-evade-payment&catid=28:business&Itemid=29

Sunday, February 20, 2011

http://proshareng.com/articles/2222

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Monday, February 21, 2011

http://www.thisdaylive.com/articles/banks-debtors-and-amcon/86600/

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http://thenationonlineng.net/web3/editorial/28604.html

http://www.businessdayonline.com/NG/index.php/analysis/commentary/18340-debtor-responsibility-
and-rising-trend-of-smear-campaigns

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http://www.punchng.com/Articl.aspx?theartic=Art201102211115148

http://businessdayonline.com/NG/index.php/banking-a-finance/18352-bad-debts-debtors-turn-to-
court-media-to-nudge-creditors

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http://www.independentngonline.com/DailyIndependent/Article.aspx?id=29203

www.proshareng.com 12
http://www.vanguardngr.com/2011/02/banks%E2%80%99-debtors-devise-tactics-to-avoid-
repayment/

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http://www.nigeriannews.net/story.php?rid=43131231&ht=Banks

http://proshareng.com/articles/2221

Tuesday, February 22, 2011

http://www.proshareng.com/video.php?vid=210

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Wednesday, February 23, 2011

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http://www.independentngonline.com/DailyIndependent/Article.aspx?id=29310

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CBN, bank chiefs lament recurrence of recalcitrant debtors
By Kingsley Ighomwenghian, Finance Editor

• Sanusi • Funke Osibodu, GMD, Union Bank

The Central Bank of Nigeria (CBN) last week expressed deep concern over the ongoing media war between
banks and their estranged customers as regards their meeting maturing obligations and other terms of
contract.

Fielding questions during the conference on risk governance for boards of directors and senior managers of
banks, organised by the global association of risk professionals and AME&T Group in Lagos, Kingsley Moghalu,
Deputy Governor, Financial System Stability at CBN, said the apex bank will take steps, working in concert with
the security agencies, to check the menace of borrowers who go about harassing creditor-banks.

He was reacting to media reports earlier in the week that bank chiefs are lamenting the fast returning trend of
debtors who, rather than negotiate their facilities, now resort to smear campaigns to blackmail bank
managements.

“The CBN is not folding its hands about these types of things. Going forward, we are going to be taking every
step together with the law enforcement authority, to help protect banks from the menace of harassing
borrowers. It is a very appalling situation, but we are doing something about it together with the law
enforcement agents,” Moghalu assured.

The incidence is coming less than two years after the Senate released a list of insider debtors of the 14 banks
that failed to find suitors during the industry consolidation exercise, and another containing billionaire debtors
of the rescued banks as compiled by the Central Bank of Nigeria (CBN) last year.

Publishing the list, Sanusi Lamido Sanusi, CBN Governor, explained at the time, “was not just for debt
recovery, (but) to expose all the politically connected people who would ordinarily undermine the process; so
they would basically focus on paying off their debts and getting off the list, and that basically undermined their
credibility.”

Basically, therefore, the debtors’ list was a double-edged sword which significantly contributed to the success
achieved by the CBN and the banks that went after their debtors.

The list showed that the first five rescued banks had total non-performing loans of about N746.991 billion, led
by Oceanic Bank’s N278.204 billion; Intercontinental Bank, N210.903 billion; Union Bank, N73.582 billion;
Afribank, N141.856 billion and Finbank, N42.445 billion. Bank PHB had N170 billion NPL booked against it;
Spring Bank, N95 billion; ETB, N46 billion; Unity Bank, N37 billion and Wema Bank, N101 billion.

The emerging trend of recalcitrant debtors has been noticed in at least four banks already, lamented a banking
industry source, where the group of big debtors have “resorted to deploying the ‘mischievous tactic of using
the media, both print and electronic, to embarrass and impugn the reputation of banks, rather than responsibly
engage their creditor banks and negotiate their facilities.”

Our correspondent learnt that the debtors who go about as big men now cause the affected banks and their
principal officers public embarrassment when demands for fulfillment of their debt obligations are made.

“We have observed an emerging trend whereby debtors go beyond the cases in dispute to impugn the integrity
of banks and the officials to distract away from the demand being made on them. This is not helpful to banks
willing to expand their credit operations to more credible debtors,” a top official of one of the banks stressed.

This negative development, another source lamented, has started and will continue to negatively affect
genuine and credible businessmen and women who approach banks for loans to undertake their genuine
business activities.

Another source close to one of the banks expressed fear for the effect of the smear campaign on the industry,
warning that his bank is considering selling the affected non-performing loans to the Asset Management
Corporation of Nigeria (AMCON) in the next round of bad loans purchase. This, he reasoned, would enable his
bank’s personnel to concentrate on their core jobs.

“The impact of the actions of debtors presents real challenges not only to the perception of the banking
industry, but the economy at large. Under the new dispensation with AMCON, we may have to simply transfer
these debts to AMCON and have them handle the cases as intended by the CBN. What the bad debtor then
achieves is that a bank loan which ordinarily should be a short-term facility, then becomes a medium to long-
term instrument when it is sold to AMCON. As you know, AMCON would be interested in ensuring that the bad
loan is restructured thereby elongating its lifespan and giving the debtor more time to pay up,” he told Daily
Independent in a chat.

Some examples

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According to media reports, the management of Union Bank of Nigeria Plc, recently dragged Jimoh Ibrahim and
his four firms - NICON Investment Ltd, Global Fleet Oil and Gas Ltd, Nigeria Reinsurance Corporation Plc,
NICON Insurance Ltd and Union Registrars Ltd, before a Federal High Court in Lagos, over an outstanding
N22.55 billion debt.

In an ex-parte application filed by its lawyer, Kemi Pinheiro (SAN), on November 9, 2010, before Mohammed
Idris, the bank claimed that it granted N41.27 billion credit facilities to NICON Investment, saying that the
tenor of the facility was for a period of 12 months which expired on January 30, 2010.

The plaintiff also claimed that NICON Investment drew down the loan account and fully utilised it for the
funding of the operations of the firms within its group including Nigeria Reinsurance and NICON Insurance.

The bank, however, claimed that the N22.55 billion debt was outstanding as at April 30, 2010, three months
after the credit facilities had expired, alleging that NICON Investment refused to liquidate the debt in spite of
repeated demands.

The plaintiff also alleged that prior to the granting of the said N41.27 billion credit facilities, it also in 2008 and
2009, advanced loan facilities to Global Fleet to finance its acquisition of 51 per cent shareholding in Nigeria
Reinsurance and NICON Insurance, which it claimed the Federal Government had offered for divestment in the
course of privatisation of Nigeria Reinsurance and NICON.

UBN further alleged that Global Fleet had pledged as security for the credit facilities, its right of lien over the
said 51 per cent shares.

According to the bank, by the agreement of the parties, the equitable ownership of the shares is to remain with
it until the liquidation of the facilities granted to NICON Investment vide the bank’s offer letter dated January
28, 2009.

But, rather than paying, the defendant claimed it was Union Bank that was indebted to Global Fleet and others
to the tune of N63 billion giving the entire drama a new twist.

Also, in July, 2009, Access Bank Plc had sought the leave of the Federal High Court in Lagos, to wind up African
Petroleum Plc of which Femi Otedola, who is also Chief Executive of Zenon Oil, is Chairman and core investor.

The bank went to court alleging default in the payment of $35,153,822.15 outstanding facility, over foreign
exchange rate dispute between both parties.

The management of AP (now Forte Oil Plc), however, restated its readiness to repay the loan after a meeting
between its lawyers and that of Access Bank “for a proper and amicable resolution of this.”

This resolve was effected the same day, as the news filtered in later in the evening that AP Plc actually paid the
net of the amount over its account balance with the bank through an Afribank Nigeria draft. The payment is
believed to be more out of the outcome of an amicable settlement of the issue brokered by some mutual
friends of both Otedola and Aigboje Aig-Imoukhuede, Chief Executive of the bank, at “a private residence in
Lagos, last week.”

The company’s chiefs had prevailed on Otedola to allow the court process to pull through first before any
payment could be made, so it does not seem a premature admission of wrong in the entire process, just as it is
for the overall good of the company, which would not want to be seen as a bad debtor.

There was actually a truce brokered by a mutual friend of both gladiators in 2009, after the CBN also got
involved in trying to resolve the issue. There was relative peace between both parties until it broke down
recently after it was noticed that the unresolved debt overhang continued to linger, after the debtor failed to
meet the terms of the initial agreement, a source close to both parties told our correspondent on Monday.

The debtor, the source added, however, is currently making efforts to reach out to the bank to resolve issues
relating to the debt obligation. It is not known how long it is yet to final settlement.

AMCON not aware


When contacted on the issue at the weekend, AMCON Chief Executive Mustafa Chike-Obi, told our
correspondent on telephone that his organisation is not aware of any such incidence. He wondered what would
make a bank customer deliberately cause his facility to become non-performing.

He explained that the corporation’s guideline specifies how to assume a debt or what AMCON can buy. It is not
everything, he said, that can be bought, adding that banks must first inform the corporation that a debt is bad
before such can be purchased.

“All this is news to me. Nobody close to the corridors of power has put pressure on AMCON on how it does its
job. Nobody should create sensations through the media,” Chike-Obi cautioned.

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AMCON, on December 31, 2010, issued consideration bonds with a 10.125 per cent yield valued at N1.036
trillion for the purchase of the debts of 21 banks, with Union Bank receiving N239 billion, Oceanic Bank got
about N200 billion and Intercontinental, N146 billion, among others.

The instrument was to have become tradable from January 31, 2011under AMCON’s issuance programme, but
for what Chike-Obi, chief executive of the corporation, termed “procedural issues.”

http://www.thisdaylive.com/articles/amcon-reads-riot-act-to-debtors/86700/

http://thenationonlineng.net/web3/business/money/28833.html

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Thursday, February 24, 2011

http://tribune.com.ng/index.php/editorial/18001-making-example-of-bank-debtors

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MAKING EXAMPLE OF BANK DEBTORS
Thursday, 24 February 2011

For sometime now many a Nigerian bank has been groaning under the deadly weight of toxic debts.
Unfortunately, this development has led to serious financial crises in some of these banks and have eroded
both the shareholders’ and the public confidence in the critical banking sector.

OWING to the failure of the immediate past governor of the Central Bank of Nigeria (CBN), Professor
Chukwuma Soludo, to assert a firm grip on the activities of the banks after the reform he initiated to put the
country’s financial institutions on a sound financial footing, some of the banks suffered a sharp reversal in
fortune. The managements of these banks had engaged in unethical practices of granting non-collaterised
loans to friends and cronies, indulged in margin trading in the stock exchange market and carried out other
insider abuses that eventually undermined the banks and sapped their financial strength. The result, of course,
is the ocean of un-serviced debts of about N3 trillion in which some of these banks have drowned and which
some others are trying hard to swim across to safety.

HOWEVER, the administration of Mallam Sanusi Lamido Sanusi since taking over from Professor Soludo as
governor of CBN has been battling to rescue the banks from death and nurse them to full financial health. In a
drastic move to undo the damage caused by the regulatory laxity and compromising attitude of the Soludo
administration, Sanusi introduced fresh reforms aimed at strengthening the banks’ fiduciary abilities and
solidifying their base. The reforms unearthed the unprofessional activities and underhand dealings of some of
the owners and managements of these banks just as they revealed the true state of all the banks operating in
the country. Some of the banks were discovered to be indeed very sick and the owners and managers who
forced them on the brink of death were called into account.

BUT while the efforts of the CBN to ensure the full health of banks in Nigeria and protect the money depositors
are commendable, it appears no conscious effort is being made to sanction the recalcitrant bank debtors.
These debtors, both individuals and organisations, are well known. Their names and the amounts they owed
the banks were published in the newspapers. It appears, however, that the name and shame tactics have
failed to hit the desired mark. Many of these debtors are simply too immoral to understand the full meaning of
shame. Therefore, not even the adverse publicity given to their persons as debtors could shame them into
repaying their huge debts to the banks.
Though some of them made conscious efforts to repay the loans, many others have blatantly refused to
cooperate. Some of these banks on their own even had to employ unorthodox methods — which only worked
for some time — to recover part of the money owed them.

IT is not enough, however, to punish the managements of the banks while these recalcitrant debtors still walk
about freely, free to approach other banks for loan facilities and cause them great distress again.
Unfortunately, the initial banks whose loan facilities they have refused to service are still suffering under the
heavy weight of these debts and struggling to remain in business. It is for the singular but crucial reason of
protecting the Nigerian banks from these individuals who think these banks are easy prey and whose loans
they can obtain at will without making repayment must be made to face the full wrath of the law.

WE believe the Bankers Committee, which is the club of the country’s bank big shots, the CBN and the National
Deposit Insurance Corporation (NDIC) as well as other financial regulatory agencies need to invent other
methods that will insulate the banks from the dubious actions of unscrupulous individuals like these bank
debtors. Conscious efforts must be made to recover these loans and /or sanction the defaulters heavily. Such
individuals must be shut out of the financial credit system totally to prevent a recurrence of the problem of
toxic debts the banks are battling with. It will also send a strong signal to others who desire loan facilities
from the banks that default will be visited with stiff penalty.

THE other option, which appears promising, is for the Federal Government to institute a functional credit
bureau, which will oversee activities concerning bank credits. It will be the duty of the bureau to dig up
information about the loan applicants, their credit histories, their financial standings and other such useful
details and offer these to the lending institutions. Though there is no guarantee that the bureau will efface the
incidence of toxic debts, by providing such crucial facts about loan applicants for the banks and offering them
the chance of making informed judgment about whom to give loan facilities, problem of loan default will be
minimized. To a large extent, the existence of such a bureau will guarantee the repayment of loan facilities, all
other things being equal.

BUT again the CBN will need to tighten the noose on the loan defaulters and make them to either pay up or
face stiff sanction. It is only by making an example of some of these recalcitrant loan defaulters that others will
be convinced about the seriousness of the CBN, the Bankers Committee and the government not to condone
the impunity of these criminal elements.

http://www.nigeria70.com/nigerian_news_paper/making_example_of_bank_debtors/316
639

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http://www.sunnewsonline.com/webpages/opinion/editorial/2011/feb/24/editorial-24-02-2011-001.htm

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Delinquent borrowers and the financial system
By Sun News Publishing, Thursday, February 24, 2011, Editorial

The setting up of the Asset Management Company of Nigeria (AMCON) may become a smokescreen, behind
which unscrupulous bank debtors can hide to evade fulfilling their financial obligations. AMCON's brief includes
acquisition of all non-performing loans from banks, recapitalisation of affected banks to the point where new
investors can come on board, and management of the acquired non-performing loans, among others.

However, there is nothing in the laws setting up AMCON that says a leeway has been provided for borrowers to
become delinquent, and renege on their debt obligations to banks, as the trend is showing. It is a complete
misunderstanding and misconception of the asset management company, which bankers and borrowers must
be made to understand immediately.

The current development is that debtors of the 24 banks are evading their obligations, with the erroneous
impression that the take-off of AMCON and the setting up of sinking funds by the banks under the supervision
of the Central Bank of Nigeria (CBN), gives them a window of opportunity to shirk their debt commitments.
This is quite fallacious.

True, banks can pass non-performing loans to AMCON, but this by no means exculpates the debtor. He must
still offset his liability or face the consequences. This much has been confirmed by AMCON chief executive, Mr
Mustapha Chike Obi, who stated: “What we have done is take non-performing loans from the books of the
banks, and we will pursue all loans … They (the loans) will be repaid under terms already agreed with the
banks. So, the debtors will simply keep repaying their debts to the banks which are collecting the payments on
behalf of AMCON.”

The onus now is on banks, and the regulatory Central Bank of Nigeria (CBN), to see to it that defaulting
debtors do not manipulate the system, as it will have grave implications for the financial sector. The country
may unwittingly bear the reputation of a clime where agreements mean nothing, with the potential of scaring
away international investors. Equally, banks will be wary of granting future loans, even to genuine borrowers
who are credit worthy. This will stultify growth, particularly in the real sector of the economy.

Again, allowing debtors to walk away free, or to pay the debts at their own terms, has the potential of
promoting collusion between unscrupulous bankers and borrowers. They simply collude, negotiate loans, share,
and walk away without repaying, while AMCON carries the can. And it is the deposits of bank customers that
will be used to feed the greed of these loan shirkers.

What to do, then? The CBN, AMCON, and the banks must tighten the noose round the necks of delinquent
borrowers. Every effort under the law must be made to recover loans, including prosecution and forfeiture of
assets and property. It is the path to checkmating impunity and laissez faire in the financial sector.
The failure of banks to scrupulously adhere to lending guidelines as stipulated by the CBN has led to the huge
non-performing loans out there in the system. Therefore, banks must lay greater emphasis on playing
according to the rules, and the CBN must also ensure stricter supervision, with immediate sanctions on those
who flout credit guidelines.

The judiciary should equally play its part in the bid to clean up the financial sector. Accelerating the trials of
debtors will send a signal to potential ones that the day of reckoning will always come, and sooner than
envisaged. There are some people particularly, who can be described as serial abusers of the credit system.
Such must be judicially tackled to serve as checks to people of same predilection.

Banks need to close ranks to effectively checkmate the serial abusers of the system. The Bankers Committee,
for instance, should put on its thinking cap, and share information on credit status of borrowers.

As we stated in our editorial on the setting up of AMCON, the development is a salutary one for our banking
sector. However, unscrupulous debtors are attempting to turn it to a camouflage to evade their responsibilities.
This must not be allowed. Debt remains debt, and the debtor must be told in clear terms that he remains
liable, irrespective of the acquisition of such debt by AMCON.

http://www.nigerianbestforum.com/blog/?p=78977

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http://www.huhuonline.com/index.php?option=com_content&view=article&id=2607:smear-campaign-tactics-
of-debtors-slows-down-banks&catid=56:you-your-family&Itemid=412

http://www.leadershipeditors.com/ns/index.php?option=com_content&view=article&id=25836:amcon-vs-
banks-debtors&catid=131:eye-on-the-bankers-bank&Itemid=269

AMCON Vs Banks Debtors


Wednesday, 23 February 2011 02:04 Jerry Uwah

Mustapha Chike-Obi, the managing director of the Asset Management Corporation of Nigeria (AMCON) and his
team have an unenviable task to execute. AMCON is the response of the Central Bank of Nigeria (CBN) to the
near-systemic distress that infected Nigeria’s banking system in 2008.

The corporation has been handed the unenviable task of not only recapitalizing the banks rescued by the apex
bank at the expense of the tax payer, but also recovering the loans that had eluded the creditor banks. In
Nigeria, debt collection is a deadly task, especially when the debtor is a high net worth client.

Before delving into the Herculean task ahead of the mathematician at the helm of affairs at AMCON, it is proper
to recap the root of the banking distress which is still dogging the nation’s entire financial system. Risk
managers of most of the banks during the oil boom years threw lending rules to the wind and doled out money
to some high net worth clients without due consideration of the single obligor factor that informs limits of
banks’ exposure to an industry or individual. The tragedy that followed was compounded by the fact that some
of the funds were doled out without collaterals.

There are fears that 10 individuals in the country account for N1 trillion of the estimated N2.5 trillion in non-
performing loans bedeviling the banking system. Out of the N2.5 trillion in outstanding non-performing loans,
about N1.5 trillion is trapped in the capital market in the infamous margin facilities which banks used to
manipulate their share prices during the consolidation exercise.

Calamity befell the financial system when two unexpected events were triggered almost simultaneously in
2008. America’s unwieldy mortgage system which had treated risk management rules the way their
counterparts in Nigeria did, sailed perilously close to collapsed and triggered a global financial asphyxiation.

The crisis crippled global industrial output, forcing a precipitous plunge in crude oil demand. Tumbling demand
forced down oil price from $147 per barrel in July 2008 to $40 in December 2008. Developed economies were
plunged into fierce credit crunch that forced foreign portfolio investors to flee the Nigerian capital market in
droves. Market capitalization of the Nigerian Stock Exchange, plunged from N13 trillion to N5 trillion within six
months. The sum of N1.5 trillion in margin facilities was trapped in the collapsing capital market.

A similar development occurred in the downstream sector of the oil industry, where banks shunned the single
obligor rule in their exposure to petroleum product marketers. The marketers had borrowed money at an
exchange rate of N116 to the dollar to import fuel. With tumbling oil prices and less income from the sale of
crude oil, the CBN allowed the naira to find its level in the foreign exchange market. The naira plunged to
N150 to the dollar, within weeks.

The petroleum marketers now had to repay their loans at an exchange rate of N150 to the dollar. Worst still,
the international market value of the products they imported with the loans had plunged by at least 70 per
cent due to tumbling crude oil prices. No one in the banking system could call in the debts.

By the time Sanusi Lamido Sanusi became governor of the CBN in May 2009 the financial system was teetering
on the brink. The CBN hurriedly set up AMCON to bail out the banks by buying their non-performing loans and
clearing their balance sheets to push their negative capitalisation to ground zero, from where new investors
could recapitalize them.

The first phase of the rescue mission was completed in December 31, 2010 with the purchase of N2.2 trillion
worth of non-performing loans at N1.036 trillion. AMCON plans to purchase more loans. That single act
imposes on AMCON the responsibility of managing the assets that go with the failed facilities it purchased.

It again, makes AMCON a major debt collector in the country. However, the architects of AMCON’s enabling
law apparently had in mind the peculiar circumstances in Nigeria where loan defaulters run to courts and
obtain ‘cash-and-carry’ injunctions stopping their creditors from taking possession of properties pledged as
collateral for the loans. Appropriate steps were therefore taken to protect the corporation. Section 53[1][a]
under offences and penalties provides that “Any person who makes false alarm in material respect in respect to
any moveable or immovable property used as collateral for any loan with a view to defeating the realisation of
the debts commits an offence and is liable on conviction to a fine of not less than N5million or imprisonment for
a term not less than three years or both such fine and imprisonment” .

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That is expected to provide a measure of protection for AMCON, if the judiciary is willing to cooperate and allow
the law to take its course. However, there is a new phenomenon which no law can shield AMCON and its
operators from, as the corporation begins the massive manhunt for high profile bank debtors.

Bank debtors have now adopted the system of blackmailing their creditors in a desperate bid to divert attention
and deter them from embarking on debt recovery. Investigation shows that most of the chilling stories on
monumental scandals and bank frauds now making the rounds in the print and electronic media, about top
management officials of banks are being sponsored by some high profile debtors bent on diverting the
attention of the banks from pursuing debt recovery.

That is where AMCON officials would have to watch their backs. The managing directors and some top officials
of the creditor banks are having problems with the bad debtors because many of them have skeletons in their
cupboard. AMCON officials can only escape the chronic debtors blackmail weapons, by living above board.
There are fears that intensive lobbying of AMCON officials by the debtors might have started.

The same people blackmailing the managing directors of some banks were publicly listed by the CBN as
debtors to banks in a move that was largely seen, as direct affront to banking customer confidentiality rules.
But, they had little option than playing to the gallery, but resorting to litigation, because they could not
blackmail Sanusi, the CBN Governor.

Both the electronic and print media now form a devastating tool in the hands of high level debtors to banks
who either diverted the money to projects other than what was contained in the loan agreements or actually
lost the money in the process of share price manipulation in the NSE. Ironically, some of them are very
powerful politicians and are now in the fund raising committees of leading political parties.

Very soon, they would turn their media blackmail arsenal against AMCON as the Corporation moves to recover
the non-performing loans it purchased from banks. But like Sanusi, AMCON and its top managers would have
nothing to fear if they have nothing to hide. The basic reality of life is that everyone should avoid doing what
he does not want people to hear, because there is no way people would not hear it.

The debtors on their part, should cooperate with AMCON in the impending debt recovery drive and work out
realistic ways of paying their debts, rather than resorting to blackmail. If the debtors repay their debts, the
money would be recycled in a process that would engender economic growth and reactivate the business of the
debtors themselves. Everybody stands to benefit from economic boom.

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Friday, February 25, 2011

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http://www.ngrguardiannews.com/index.php?option=com_content&view=article&id=396
84:debtors-and-the-health-of-banks&catid=37:editorial&Itemid=612

Debtors and the health of banks


Friday, 25 February 2011 00:00 Editor Opinion - Editorial

THE Asset Management Corporation of Nigeria (AMCON) has just read the riot act to bank debtors who are
working to subvert its intentions over banks’ toxic assets. All stakeholders should therefore support the AMCON
and the Central Bank of Nigeria (CBN) in the timely intervention to call to order stubborn debtors who are
avoiding negotiations with their creditors, employing unconventional means to avoid debt repayment
obligations.

At a time like this, the banks should be shielded from further damaging experiences or “the menace of
harrowing borrowers”. Certainly, the financial services industry can do without such distractions by the legion
of intransigent bank debtors. AMCON’s warning that the debtors won’t get better terms when it restructures
their loans is reassuring, as it is bound to send a strong message to the defaulters that the banks are not
charity institutions.

The AMCON move is coming also against the background of its seeking the apex bank’s approval to start the
second phase of its programmes to buy bad debts from the deposit money banks. We support every move to
sanitize the industry in the interest of the economy, just as chief executive Mustafa Chike-Obi indicated that
non-performing loans to be purchased under the second phase will be “from healthy banks and others missed
in the first phase”.

For a while, it has become more fashionable to shun or default in loan repayments. But this is a disturbing
signal from the key sector of the economy. It is a fact that when debtors shun contractual obligations with the
banks, they distort institutional plans as well as place the banks at risk of new investments. A serious threat is
therefore constituted to the nation’s economic growth and development.

Essentially, a deliberate refusal to honour loan agreements should be classified economic sabotage on the part
of the intransigent borrowers, their actions bordering on delinquency. It is an abuse of privilege, besides the
fact that banks would naturally restrict flow of similar facilities to intending borrowers, in an attempt to cut
risks of exposure to non-performing loans.

As the banks amassed huge non-performing loans that in some cases were carelessly secured, the trend left
many financial services providers chasing shadows on overdue facilities now computed in the region of about
three trillion naira. We urge the regulatory authorities to remain steadfast in their convictions to return the
economy to the path of sanity, before further havoc is wreaked.

The scenario recognizes two groups of borrowers: the genuine borrowers who wish to service the debts but
have been hampered by the recent global downturn in the economy. For this group, we cannot discountenance
re-negotiations; they deserve assistance in their quest to weather the storm. However, the second category of
unwilling debtors should not be spared; what they are promoting is breach of trust.

We urge the authorities to insist on saying no to a culture of impunity. There must be a way to stop the antics
of delinquent borrowers who have found a way round acceptable standards, mostly by colluding with
unscrupulous loan officers or the approving authorities. It could only send negative signals to foreign investors
the country has been trying to woo back to the economy.

Bankers too have to pay better attention to the ethics of their profession. Every industry has its own
challenges, but it won’t remove anything from its image if the industry jointly confronts a common enemy that
seeks to place moral questions on collective interests. The issue of inadequate security must be addressed, to
check abuses by managers who collude with serial loan defaulters.

Abuse of legal processes is another means of frustrating the system, as the borrowers buy time by resorting to
the courts to obtain orders or injunctions inimical to lenders’ interests. We urge the judiciary to always
dispassionately look at issues to avoid the collateral damage to banks and the economy. The fundamental
rights of borrowers must also be respected.

There have been justified complaints too of debtors going beyond the cases in dispute to impugn on the
integrity of banks and their directors to distract from the demands being made on them. This is unhelpful to
banks that are willing to extend credit to credible customers. Customer defaults would only always complicate
a revolving loan system. This makes it imperative on the banks to apply caution in granting unsecured facilities
while not shutting the door against genuine applicants.

AMCON definitely has a mandate to reform the process, and it must work assiduously to achieve that goal. But
in doing so, there is the tendency that banks can misunderstand the corporation’s role. That would make it
more difficult for them to perform their core primary duties. We urge a more interactive and coordinated

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approach to economic issues to achieve the overall objective of solidifying the economy. The notion that
debtors would wait until their loans become non-performing should be deplored by all.

A number of operators in the system have suggested a functional bureau to oversee bank credits, and in
particular to provide vital information about loan applicants and their credit history for informed judgment in
granting facilities. That would be an idea worth implementing to curb abuse by both borrowers and officers of
the lending banks.

Loan exposure is a risk in itself, so the borrowers ought to be prepared for eventualities, harsh economic
climates or not. The runaway debtors must be identified and forced to repay or make legal commitments.
Conscious efforts must be made to recover the bad loans. Where necessary, sanctions should be applied,
otherwise other applicants would make worse attempts to further sabotage the system.

We also support suggestions by stakeholders to raise a commercial court to try infractions in the industry by
the operators. Restoring the banks to full health is not negotiable. It demands a holistic approach by the
relevant government agencies and regulatory bodies. Underhand deals in the banking system have to stop, but
then the outstanding debts must first be recovered from the delinquent borrowers.

http://www.proshareng.com/articles/2224

http://www.vanguardngr.com/2011/02/when-debtors-refuse-to-pay/

When Debtors Refuse To Pay


Vanguard Editorial Feb 25, 2011

The consumer is king. Bankers are seeing the other side of kingly consumers. Some bank debtors are refusing
to meet their obligations. They are not even willing to enter the normal banker-client negotiations on terms of
redeeming the situation.

Before the 14 August 2009 intervention of the Central Bank of Nigeria, how bankers and their clients managed
their debts was shrouded in utmost confidentiality. None of the parties was complaining, though some of the
banks were straining under the weight of bad loans.

Many bank debtors then claimed sudden recall of their loans jeopardised their businesses. Others said that the
harsh economic climate was responsible for their inability to repay loans.

Some of the cases were genuine. There were instances also where the banks did not carry out due diligence on
the assets the borrowers used to guarantee the loans. These cases, in addition to loans that were diverted to
unauthorised uses are responsible for most of the bad loans banks have.

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The embarrassment of publishing debtors’ names and the euphoria that greeted the hyped attempts to recover
loans have withered with time. Many have forgotten who the debtors are. Many of them have resurfaced in
new roles to rescue Nigeria, mostly as chief launchers at events to benefit politicians.

It is most unlikely that they are not already pressing these relationships to keep the banks at bay. The banks
want their money, but the debtors play above the law. They would even prefer the cases go to court, where
they believe the matters will rest for a long time, without the banks getting back their money.

The money these debtors have put to other uses is public funds, whether they are deposits or shareholders
funds. Their recklessness in denying the rightful owners of the money access to it is a matter that should be
treated with more seriousness.

What sense does it make for the Central Bank of Nigeria to pump trillions of public funds into setting up the
Asset Management Corporation of Nigeria, AMCON, to save the banks when bank debtors are not punished?
Are they not waiting for the next round of borrowing once the banks stabilise?

The CBN told Nigerians that 10 Nigerians were owing banks more than N1 trillion. What has happened to the
cases? Are the debtors not free? Were the debts ever recovered? What statement is the CBN making with the
inability of its management teams for the banks to recover the loans? If one of the main purposes of the clean
up in the banks was to recover loans has it been achieved?

Since August 2009, the economy slowed down considerably in reaction to the changes in banks. Loans have
ceased and the various developments that would have been benefited from bank credits have been on hold.
Bank managers who granted some of the dubious loans are not on trial, again their powerful collaborators
protect them. There is more to unpaid bank loans than the banks are telling us.

Sunday, February 27, 2011

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Mixing Banking with Politics
27 Feb 2011, 0101SK-backpagex.jpg-0101SK-backpagex.jpg

Simon Kolawole Live!: Email: simonkolawole@thisdayonline.com

Two recent reports—both on the banking industry—have set off alarm bells in my head. The first was on
the blackmail tactics being adopted by bank debtors to avoid settling their liabilities. The second is
the move to take over some rescued banks by suspected money launderers, especially politicians. There is no
doubt whatsoever that the Central Bank of Nigeria (CBN) has taken bold steps to clean up the banking industry
after the associated problems that came with a glut of petrodollars into the economy following the post-
consolidation oil boom of 2006-2008. As we prepare for another round of oil boom arising mainly from the
“political reform flu” that is afflicting and destabilising the Arab world, it only makes sense that we remember
our past so that we don’t repeat the mistakes that got us into this mess in the first place.

A report published by some newspapers about two weeks ago said many banks were getting worried by the
“blackmail tactics” being adopted by some big-time debtors to evade their repayment obligations. Some of
the high-profile debtors, it was reported, have launched a full-scale media war to malign the chief
executives of the creditor banks. An unnamed top bank manager was quoted as saying: “Rather than
debtors engaging with their creditor banks and negotiating their responsibilities, they have resorted to
deploying the mischievous tactic of using the media, both print and electronic, to embarrass and
impugn the reputation of banks.” This approach, it is believed, would cause the banks and their
principal officers some public embarrassment to keep them at bay. The irony, as pointed out by one of
the bank MDs, is that the same debtors are donating millions of naira to political campaigns while
neglecting their obligations to the banks.

I would say Nigerian debtors are lucky. Not only are our laws very lax, it is also very easy for debtors to co-opt
the judiciary and get phantom injunctions. In Dubai , for instance, indebtedness is a criminal offence. If you
don’t meet your repayment obligations, the emirate will prosecute you. This is intended to protect the lender
so that the financial system does not dissolve into anarchy. It is not just enough to say lend; the lender also
needs protection for the risk he is taking. In South Africa , commercial courts are functional. Judgements are
executed within 48 hours. What this means is that the financial sector has double protection—one collateral,
the other judicial. In Nigeria, the creditors almost always take all the risk. The low-level debtors, who have no
political connections, may suffer, but the politically connected ones go on with the bazaar as usual. This
impunity contributed in no little way to getting the banks into this mess in the first place; failure to address it
will even bring a bigger mess.

When CBN governor, Mallam Sanusi Lamido Sanusi, took the unusual step of publishing the names of bank
debtors in 2009, I was uncomfortable with it but I supported it because there seems to be a rule in
Nigeria that the big fish must never be touched. When “unknown” Nigerians suffer the consequence of
any government policy or action, no comets are seen. Court orders are routinely obtained and fifes are
executed against this class of Nigerians. But as soon as you make any attempt to touch the high and the
mighty, a ferocious media war and political interventions are unleashed to cow the banks into submission. Tell
me any sane human being or any rational investor who will feel very comfortable with such a system. This is
the kind of thing that got the banks into trouble—where debtors failed to honour their obligations partly
because of political protections and partly because of lax corporate governance in the banking hall.

The banking crisis was generally blamed on non-performing loans arising from the global financial meltdown
and collapse of oil prices. But then we cannot discount the fact that many of the debtors—both corporate and
individual—were also complicit. How many of the non-performing loans could be directly attributed to the
meltdown? How many were caused by the diversion of loans to private accounts? How many were caused by
capital flight to acquire choice property abroad? Isn’t it incredible that some of those who were held
responsible for the banking crisis are now treated with kid gloves? Many are now raising funds for 2011
elections for the politician friends. As if that is not bad enough, they launch all-out war to malign
the creditors! And to add insult to injury, they successfully get the courts on their side. Something
is wrong with us in Nigeria.

I think we need to remember our history a bit because we are now behaving as if we don’t have a “previous”.
When Sanusi took over as CBN governor in 2009, he ordered a special examination of banks. Ten of them were
found to be “distressed”. They were asked to come up with recapitalisation plans. Nine of them, minus Unity
Bank, were put up for sale. Today, preferred and reserve bidders have emerged and MOU negotiation is
ongoing. These transactions are expected to be completed by December this year. When CBN went public on
the state of the “rescued” banks (we call them “rescued” to avoid using the word “distressed”, but how do you
rescue something that is not distressed?), we were all scared that the banks would go down, that depositors
would have a run on them. But, somehow, the CBN managed to close the tap through such measures as
guaranteeing the deposits.

Now we have the Asset Management Company of Nigeria (AMCON) to clean up the “toxic assets” and restore
the banks to manageable, good health. So far, N1.04 trillion of non-performing loans have been bought by
AMCON mostly from the rescued banks. By the end of next month, about N2 trillion worth of bad loans would

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have been purchased by the company. All these are necessary to shore up investor confidence and make the
banks attractive again. It appears all would soon be set to sell the rescued banks. And that brings me to the
second point today: the absolute need for transparency and due diligence in the sale of the banks. Anything
short of an open book will further compound the problem and reawaken old insinuations about vested interests
and predetermined agenda. So the CBN must tread carefully so as not to fall foul of the same corporate
governance issues it accused the banks of in the first place.

One, it is alleged that negligent non-executive directors and those who colluded with previous management
boards to defraud shareholders and depositors still sit on the boards of these banks. It is also believed that
they have continued to make key decisions including the selection of the preferred bidders for the banks. This
will call to question the integrity of the process, except the regulators pay close attention to it. We may be
returning to square one. We should remember that our entire financial system is at stake, so also the fortune
of depositors and tax payers’ money that AMCON is pumping into acquiring the toxic assets.

Two, industry analysts are beginning to raise questions about the intention and quality of potential buyers.
Mergermarket, a publication of

Financial Times, reported last week that the relatively unknown Vine Capital has been approved by the boards
of both Afribank and FinBank as preferred acquirer, over several Nigerian banks. It is even said to be going for
a third bank. This, I understand, is causing discomfort in the industry. CBN must pay attention to the details—
in the national interest. There must be proper scrutiny of potential buyers and their backers. All ethical issues
have to be well addressed. Suspicion of money laundering must be thoroughly investigated. We don’t have to
go through the whole mess again.

These two headaches are for Sanusi actually: helping to rein in the flamboyant debtors and selling
the banks to credible investors. We can’t afford to mix business with politics.

http://www.thisdaylive.com/articles/mixing-banking-with-politics/86921/

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Monday, February 28, 2011

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