MITIGATING CRISES IN THE NIGERIAN BANKING INDUSTRY THROUGH EFFECTIVE APPLICATION OF PRUDENT MORTGAGE PRINCIPLES
1.0.Background of the Research
Crisis in the Nigerian banking industry has become a common phenomenon. It predates the country‟s independence.Nigeria began experiencing crisis in its banking industry in late 1940s and early 1950s during which period 25 banks failed. The country again witnessed another phase of bank failures between 1994 and 2006, during which a total of 49 banks failed. In 1998 alone, 26 banks failed.2
Similarly, in the year 2009, Nigeria again had another taste of banking crisis in which 8 banks were affected. The timely intervention of the Central Bank of Nigeria was able to salvage the condition of the affected banks and saved them from collapsing. The intervention involved the injection of N620 billion into the affected banks and the sack of management staff of some of the banks.In the year 2010, a total of 103 micro finance banks also went into liquidation while 83 others had their licences revoked in 2014 Also, in 2012, three banks had their licences revoked by the Central Bank of Nigeria. As at date, a total of 48 deposit money banks and 187 microfinance banks are in liquidation.These bank failures come with grave consequences on depositors, employees, creditors, shareholders and the economy. The former Governor of the Central Bank of Nigeria Sanusi Lamido Sanusi described the effect of bank failure on depositors in the following words:
Thousands of poor people, who have kept their life savings in the bank, lose it. Children‟s school fees, savings for retirement, medical bills, gone into thin air … How many people have died of heart attacks due to this tragedy? How many honest businessmen have been rendered bankrupt? How many people have committed suicide? How many have died because they were unable to pay medical bills as their monies were trapped in these institutions? How many children have dropped out of school? … We do not know? …
What we do know is that we have today, among those parading themselves as role models in society, people who profited from failed banks. Owners and managers who go on to become governors and senators. Bad debtors who are multi- billionaires, having taken the money belonging to those poor dead souls and not paid back.
The last sentence of this quotation is the central issue around which this research revolves – instances where banks lend monies and are unable to recover them. This has contributed to the collapse of many banks and other financial institutions.
Lending is essential for the growth of any economy. In fact, it is essential for the continued existence of banks. This is because, given the nature of banking business, loans and advances constitute the bulk of their assets. Paradoxically, when loans are not repaid they become lethal to the banks instead of asset. Similarly, when loans are irregularly granted and their recoveries are impeded, they affect a bank‟s liquidity and throw the bank into distress. For instance, a total sum of N178,918,430,000.00 was owed 45 banks in liquidation as at the date of their closure. Hallmark bank alone was owed N29,716,740,000.00. As stated earlier, these loans affect the banks‟ liquidity and cause crisis in the banking industry.
It is therefore our belief that an in debt understanding and effective application of prudent mortgage principles by parties to loan transactions can mitigate the crises in the banking industry; a scourge which has remained a recurrent night mare in Nigeria.