By Kayode Tokede
A group of experts at Debtors Africa have said Fintech companies are to have harsh time in loan recoveries post COVID-19 as the majority of them do not have transparency mandates that would support their recovery process.
The company in its latest research cited situation where many people would have lost their jobs during the COVID-19 period, making it difficult to enforce recovery as the delinquency would be more a problem of revised individual cash flows than any deliberate attempt at the avoidance of loan repayment.
According to the company report on Bank “NPLs (DR 1) – The Case for a New Industry Approach”, Nigerian banks, at different times, have had to face bad patches of lending cycles with non-performing loans as a proportion of loanable assets rising steadily as liquidity shrank.
The report stated that, “More recently, this was seen in bank statement of financial position between December 2015 and December 2018 when large-sized banks saw their loans to the power and energy sector and the oil and gas business spiral into trouble.
“The bigger money centre banks (DMBs) were more severely affected than their smaller counterparts as asset concentration amongst the bigger banks was more noticeable than their smaller rivals.
“The high credit concentration of large cap local banking institutions meant that they were more vulnerable to external shocks.
“The price shocks in the oil and gas sector and the cost recovery difficulties in the power sector made for a cocktail of problems banks found difficult to handle.
“Between 2015 and 2018 bank statements of financial position had been pressed into a corner.
“In 2018, in particular, the implementation of the international financial reporting standard Rule 9 (IFRS9) on impairment provisions on a fair market value basis meant that”.
The report stated that “the downturn in the international oil market between 2015 and 2016 saw oil prices tumble from over U$114 per barrel in July 2015 to $52.29 per barrel in June 2016.
“The reversal of international oil price fortunes between 2015 and 2016 resulted in a decline in operating cash flows and a thinning of operating revenues which flattened profits before tax, depreciation and amortisation (EBITDA).
“The dramatic fall in oil revenues between 2015 and 2017 led to a dip in cashflows and a fall in cash flow interest cover.
“The mild recovery in oil prices between 2017 and 2018 resulted in a modest recovery of revenues amongst oil companies but did not lead to a strong enough increase in net sales to cope with the accumulating finance charges.
“The harsh fiscal position of the oil companies was reflected in the difficulties they had in meeting growing credit obligations between 2015 and 2019. The oil majors were victims of both uncontrollable external factors and disappearing business rationale.
“The assumptions which made business sustainable ere gradually but clearly being eroded by sliding global oil prices, excess international supply and persistent manufacturing inefficiency. The oil and gas “prosperity illusion” was fading fast and banks were beginning to feel the effects of rising impairment charges.”