Business and Economy
Past President Of Chartered Institute If Bankers Of Nigeria Cautions Business Owners On Non-Performing Loans
Past President, Chartered Institute of Bankers Of Nigeria, Dr.
Uche Olowu has identified Non -Performing Loans as one of the factors responsible for some business collapse in Nigeria.
Dr.
The Past President of Chartered Institute of Bankers Of Nigeria whose presentation centred on “Non-Performing Loans and Risk Mitigation Strategies advised business owners to always acquire knowledge on financial management towards ensuring effective risk mitigation strategies.
“Banks are involved in the buying and selling of money and they collect liabilities and create risk assets, making them risk aggregators and they as well face a wide range of risks during their operations” He stated.
In his words”The possibility that the actual outcome could differ from the expected outcome and this discrepancy can result from: economic policies of the government, political and social issues, technological factors, human dynamics, where self-interest conflicts with professional responsibility among others.
“Risk Management
Organizations should establish prudent policies and procedures to identify, measure, monitor, and control risk through a well-defined framework” Dr Olowu stressed.
According to him, in lending activities, banks face credit risk and the possibility of a loss due to a borrower’s failure to repay a loan or meet contractual obligations.
“Credit risk types include: default risk, concentration risk, country risk and downgrade risk.
“A credit facility is performing if both principal and interest payments are up-to-date as per agreed terms (CBN prudential guidelines) and a loan is non-performing if interest or principal is unpaid for 90 days or more and interest payments of 90 days or more have been capitalized, rescheduled, or rolled over” He emphasized.
“Success in managing credit risk requires a strong credit culture, which includes: medium to long-term time horizons for goal attainment, balancing business development and quality control, understanding risk-reward principles and diversifying risk, enforcing agreements and conditions, utilizing subject matter experts, regularly reviewing loan portfolios, assessing changes in borrower creditworthiness, using credit enhancement structures (hedging, swaps, options), restructuring loans to facilitate repayment, realizing collaterals among others ” He added.