Non-performing loans have been identified by Dr. Uche Olowu, ex-President of the Chartered Institute of Bankers of Nigeria (CIBN), as a notable cause for business downfalls in Nigeria.
Olowu emphasized the significance of financial management and risk mitigation tactics for business proprietors while addressing a virtual event titled “Bankruptcy Cases – The Nigerian Perspective” hosted by Turnaround Management Association of Nigeria (TMA).
In his lecture titled “Strategies for Mitigating Risk and Non-Performing Loans,” he highlighted the importance of entrepreneurs acquiring financial management expertise to efficiently mitigate risks.
According to Olowu, banks participate in the purchase and sale of money as well as gathering liabilities and developing risky assets. Consequently, they are considered aggregators of risk with a substantial exposure to various types of risks throughout their business operations.
He observed that differences in projected versus realized results are influenced by a range of reasons, including economic strategies, political and societal concerns, advancements in technology, as well as human interactions where individual interests may clash with professional obligations.
Dr. Olowu promoted the establishment of cautious policies and procedures within risk management organizations to effectively recognize, quantify, supervise, and manage risks by utilizing a clearly outlined framework.
He stated that banks encounter credit risk when lending, implying potential loss due to the borrower’s incapacity to repay a loan or adhere to established terms.
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The categories of credit risk were detailed by him, which comprised default risk, concentration risk, country risk and downgrade risk.
According to him, a credit facility is deemed as performing if timely principal and interest payments are made in accordance with the approved terms (as stated by CBN prudential regulations).
On the other hand, a loan becomes non-performing when either interests or principals remain unpaid for more than 90 days. It can also be classified as such when interest payments of over three months have been restructured, postponed or added up into the total figure.
Olowu emphasized the importance of a robust credit culture for efficient management of credit risk.
Some of the essential elements to consider are defining objectives for both short and long-term periods, managing growth while ensuring quality control measures are in place, comprehending risk-to-reward ratios thoroughly, minimizing potential risks by diversifying loan portfolios.
Additionally important factors include making sure agreements are enforced properly bringing on experts within specific fields as necessary; continuously evaluating loan portfolios regularly assessing borrower creditworthiness changes over time using various structures designed to enhance creditstanding when required.
restructuring loans accordingly so payments can be made more easily and finally prioritizing collateral protection when determining each step along with considering all potentially relevant contingencies.
“The President of TMA, Mr. Dele Bello Williams noted that the upcoming session is slated for August 21st, 2024,” he remarked.
He stated that the session will cover “The resolution procedure for troubled loans and potential possibilities for Turnaround Professionals involved in it.”
