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NAIRAWAY Forum / Agriculture / How N40bn non-performing loans crippled Bank of Agriculture (1 Post | 287 Views)
How N40bn non-performing loans crippled Bank of Agriculture by nairaway(m) : 9:46 am On Jul 21, 2017
Despite efforts by the Federal Government to reposition and restructure Bank of Agriculture (BoA), the bank appears trapped in serious debt amounting to N40 billion as a result of financial recklessness of its former management.
The bank saddled with the mandate of providing low cost credit to small holder commercial farmers, including small and medium rural enterprises, has now become the shadow of itself due to poor management and lack of commitment to organisation’s mandate over the years.
At inception, BoA was structured to provide micro financing to small and medium scale non-agricultural enterprises with the aim of ensuring effective delivery of agricultural and rural financing services on a sustainable basis to support the national economic development agenda, including food security, poverty reduction, employment generation and reduction in rural to urban migration. Its activity was also expected to naturally help Nigeria become less dependent on imported food items, and increase in foreign exchange earnings. But poor management had crippled the bank from being able to carry out any of these functions and leaving it a legacy of failed dreams for Nigerians.
Daily Sun learnt that at the heart of this crisis is a N40 billion deficit that accumulated through a catalogue of non-performing loans dating back to 20 years, which has made the bank become structurally weak and not digitalised as management has to be strengthened and restructured, considering that commercial banks are not always enthusiastic lending to agriculture.
Stakeholders said the bank, created in 1972 to provide credit and technical support to farming projects, lent at least N41 billion to 600 businesses across Nigeria in over 10 years. Today, unfortunately, some of the loans cannot be retrieved because the condition under which they were given did not allow defaulters to pay back.
Against this background, the Federal Government, in 2016, inaugurated a 21-man Steering Committee to restructure and recapitalise BoA to enable it to attract up to N1 trillion ($3.2 billion) to effectively provide loans for farmers at affordable interest rates.
The Minister of Agriculture and Rural Development, Audu Ogbeh, confirmed that the bank was too weak structurally to be of any benefit to Nigerian farmers at present.
Ogbe added that BOA is in deficit to the tune of nearly N40 billion, saying the Federal Government was about to start measures to reposition the bank. He said the bank will become the largest bank in the country after its restructuring to attract up to 25 and 30 million depositors and shareholders.
Investigations by Daily Sun revealed that CBN would be made to provide about N750 billion for the recapitalisation project since the biggest challenges of agriculture is access to affordable loan. But stakeholders are concerned that after so much noise by the Federal Government to recapitalise the bank with N1 trillion, nothing concrete has been heard yet and there has been no concrete steps taken to recapitalise the bank expect the reshufflement of management in the the bank.
Others who spoke on condition of anonymity called for the probe of the past management considering the size of the non-performing loan relative to its authorised capital.
Lagos State Chairman of All Farmers Association of Nigeria (AFAN), Otunba Femi Oke, said “we heard that the bank would be recapitalised, that was the time we heard the Federal Government was allocating N1 trillion to them that they are even going to withdraw their certificate from Federal Ministry of Agriculture to CBN and we farmers were very happy about that but since then, we have not seen any reaction or any action being taken by the government.
“On the debt, the bank knows it can retrieve every debt. We were told the truth that the bank gave loans to some farmers but as at the time we were talking about, they are not real farmers and that is why AFAN is very paramount because we know each other. Now, it is very difficult for them to retrieve some of this money through all these people the money was given to because it was not based on clusters but on paddy-paddy business.”
He called on the new management of BoA to work closely with AFAN, which is the umbrella body of all farmers, saying that for everybody, there are some commodities and whatever commodity that bank wants to deal with has National President under AFAN.
Oke urged the new bank management to make it a mandatory that AFAN executives or AFAN chairman in each state should be able to sign to guarantee everybody that would be given money, stressing that doing so would guarantee safety sanity in the whole system.
He further exhorted: “They should be careful in dealing with individuals and clusters that are not visible; they should work closely with associations. We have tomatoes, livestock, poultry associations, among others, under AFAN. If they do like they did some years back with some of the commercial banks that AFAN chairman of every state is now liable for all the loans, you will see that people will not just go into the bank and swindle the money.”
Meanwhile, for the National President of Nigeria Cassava Growers Association (NCGA), Pastor Segun Adewunmi, Nigeria’s approach to agriculture has to be changed while the process of giving out agricultural loan must be reviewed.
He explains: “When you give loan to a farmer and you are not in the position to monitor whether the loan was actually used for farming, especially in this period of hardship combined with herdsmen menace, there are going to be issues.
For example, loan given to cassava farmers, when the entire farm was insured, now the herdsman came and destroyed the farm. By the time we wrote to the Nigerian Agricultural Insurance Corporation (NAIC) to submit all the authentic papers and the police reports, NAIC said the herdsman project is a malicious damage, which is not covered by their policy, so the farmer loses and has to pay back.”
He, therefore, urged the government to have configured plan for farming, which would be demarcated and shared to farmers, adding that farmers can operate under consultants, so the issue of refusal to pay when they get loan from BoA or the farm went bad would not be there.
He added: “Some people with money looking for farmland, when they get one and cannot plant modern farming, these are the issues. In some other countries, the government would make arrangement for a big land, clear it, which is called provision of enabling environment under agriculture, so whatever loan goes to the farmer, does not go to the farmer itself, it go to the farm and the farmer will just be supervising.
There are some instruments now called GPS, which can be used to measure farmland and document it. They should also assist BoA by inviting the farmers as well to make contribution to how money can go out. The system of land in Nigeria does not ensure to pay back loan, that is the bank doesn’t belong to anybody.”
Giving an instance, he said some investors came from America and they wanted to invest in an ethanol plant, Saying NCGA got land that are supposed to used as part of the association’s equity participation, said but the bank would not take the land even though it has C of O.
He bemoaned: “It is only in Nigeria that agricultural land is not use for collateral. In Malaysia, ordinary palm tree is used as collateral. So the American guy just went to Ghana, he got the land and the people who partner with him were able to use the land as part of their equity. If you have your father’s land and used it as part of collateral for loan, you won’t want it to be confiscated. For all the problem being faced here, is not the problem of BOA alone, it is the system. So the system is the contributing factor to why the bank has not performed.”
He said if government wants to revive the bank, all these factors should be taking into account and Nigeria can now have an organized way whereby no kobo of the loan would not be recovered.
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