- IFRS 9 commences January 1
A number of bank directors have been fired by the Central Bank of Nigeria following cases of insider abuse relating to non-performing loans, it has been learnt.
Specifically, the banking sector regulators, the CBN and the Nigeria Deposit Insurance Corporation, have in their books records of bank directors who lost their seats on the Boards of some Deposit Money Banks after being linked to the NPLs.
The Director, Banking Supervision, NDIC, Mr. Adedapo Adeleke, disclosed this in a presentation on the topic: ‘Curtailing the growth of non-performing loans in banks’.
He did not give details of the directors and the banks affected.
Adeleke cited this as one of the outcomes of measures that the regulators had been taking to reduce the growth of bad loans in the financial services industry.
The NDIC director spoke at a training workshop organised for financial journalists by the agency in Kano on Friday.
Adeleke stated, “We have the Code of Corporate Governance and Code for Bank Directors. You sign these codes before you become a director. It is part of the employment terms. One of the things in these codes is that if you are having a non-performing loan, it is a ground to remove you from being a director.
“Some banks have also included this clearly in their Memorandum of Association. So, this is the stand of the regulator in terms of the NPL by a director and it is being enforced. Maybe the regulator has not been dramatic in publishing the names of those that have been removed.”
He said these were part of the measures regulators had taken to address the spate of the NPLs among banks.
According to him, banks’ huge exposure to the oil and gas sector has led to higher NPLs following the decline in oil price in 2014.
He said although the situation had improved, there was a need for the banks to work harder on their capital as higher NPLs had caused erosion of capital and deterioration in their asset quality.
Adeleke recalled that some foreign rating agencies had recently commenced the downgrade of some Nigerian banks over issues traceable partly to asset quality.
The NDIC director also stated that the implementation of the International Financial Reporting Standard 9 would commence on January 1, 2018, and banks would be required to make provisions for expected loan losses.
This is expected to put more pressure on banks’ capital as the lenders will need to use part of their profits to make provision for loans that are expected to become non-performing, after making provisions for those that are already non-performing.
Following the deterioration of the lenders’ capital in the past two years due to the recent recession, dollar shortage and exchange rate challenges, the banks’ capital has become eroded, causing the asset quality to decline.
Adeleke said, “In line with the CBN prudential guidelines, banks make provisions for non-performing loans after 90 days, 180 days and 360 days. But what the IFRS 9 is saying is that if you are expecting a loss, you need to be forward looking by making provision for that loss ahead.”