The excruciating recession has come and gone, but the ill effects are still biting hard on the citizenry and businesses across the country. One of the businesses that felt the bad side of the recession were the deposit money banks. At the onset of the recession the economy contracted, many businesses and individuals were badly affected as many of them who took loans from their banks prior and during the
recession were unable to service such loans as at when due despite repeated demands for them to pay back.
Following the huge toxic assets they are carrying in their books, many commercial banks in the country are said to be increasingly finding it very challenging to cope with the difficult operating environment. Consequently, many of the banks are now carrying high non-performing loans which they must provide for in their books, thus limiting the quantum of loans they can grant to new customers and reducing their performance in the operating year.
Newspaper reports also indicate that the deposit money banks accumulated as much as N230.6 billion non performing loans in the first six month of this year alone. Such non performing assets may increase to a point that would make the banks unsalvageable if urgent efforts are not made by the government and the
regulatory authority to safe the banks from going under. More than 50% of the Deposit Money Banks are said to be in serious financial problems and if the problems persist, the spectre of failure would confront the banks. The failure of banks also affects the health of the economy as many businesses will go down with it, while the economy may relapse into recession again.
Now that the country is out of recession, a salvaging effort should be put in place to safe the banking institutions from imminent danger of going under. In doing this the Central Bank of Nigeria (CBN) would need to first reassure the nation of the safety and soundness of deposit money banks. Then, the CBN and the NDIC should carry out a proper audit of the banks to establish their level of healthiness and determine the appropriate measures needed to take them out of the problem.
Some of them may want to increase their capitalisation by going to the capital market to raise money; unfortunately a time like this may not be an appropriate time to raise such money as most investors and their businesses are yet to shake off the shackles of recession. In the alternative, the banks would need some accommodation from the CBN to keep their books in good shape and be able to perform optimally. Such accommodation should be for about twelve to eighteen months after which they must pay back such money to the CBN. Such a rescue effort should also be keyed in to the economic recovery and growth plan of the government so that the country can achieve increased growth and development once again.
