Only about 10 to 15 of the 113 bad debtors (companies) that the Central Bank of
The low recovery rate by
Their inability to pay their loans, THISDAY gathered, stemmed from the CBN directive, which has hampered their capacity to refinance and restructure loans, thus worsening their situation.
Sources close to the central bank told THISDAY that though the concept of blacklisting debtors, who have defaulted on their loans is standard practice in the banking industry, the strategy on implementation has failed to yield the desired result of making the debtors pay.
Instead, the directive has forced most of the companies to exist on a hand-to-mouth basis and totter along, but have been unable to pay back the debts to
"One would have thought that what a debtor who is indebted to a bank for a period of between three and five years would need is for his loan to be restructured and refinanced through fresh capital injection," a CBN source said. "So if the CBN bars such a debtor from further borrowing how will he survive?" he asked. The outcome of the directive has put
The CBN official said
However, CBN has failed to respond to
The CBN in
In order to ensure compliance, the CBN then warned that any bank that flouted the directive would be compelled to make an immediate provision of 100 per cent of the total principal and interest outstanding in the account of the customer and related parties, in addition to whatever regulatory penalties the CBN might decide to impose. Though the move by the CBN was hailed by many, others at the time cautioned against the directive, saying it would be counterproductive.
Former Minister of Aviation, Mr. Babatunde Omotoba, described the decision to bar banks in the country from extending further credit to 113 companies and 419 directors and shareholders as "ill advised". According to him, the decision would precipitate the demise of the companies rather than revive them. Omotoba explained that when a company is weighed down by huge debt, the rational reaction is not to starve it of funds, but that would mean killing it off completely and taking away several jobs in the process.
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