Nigerian banks may be giving out loans to key management personnel at below market interest rates, Nairametrics analysis show.
Key Management Personnel is defined as members of the Board of Directors of the bank, including their close members of family and any entity over which they exercise control.
Close member of family are those who may be expected to influence or be influenced by that individual in dealings with the bank.
Take Access Bank for instance which granted various credit facilities to directors and other key management personnel (and close family members) as at 30 June 2016 of N1.17 billion which are repayable in various cycles ranging from monthly to annually over the tenor, and have average interest rates of 7.98 percent and a tenor of 4 years, according to its financial statement.
Access Bank claims that “the rates and terms agreed are comparable to other facilities being held in the bank’s portfolio.”
However we would be hard pressed to believe that since according to the Central Bank of Nigeria (CBN) in its latest economic report, the weighted average prime and maximum lending rates of Nigerian banks rose by 1.05 percentage points and 1.06 percentage points to 17.82 percent and 27.93 percent, respectively, at the end of May.
In UBA, interest rates on loans and advances to key management personnel’s related persons range between 9 percent and 18 percent data from its financials show.
For GTB where an aggregate of N429.4 million was outstanding on insider facilities at the end of the H1, 2016 period, the bank provided no clarity on interest rates being paid by insiders only saying
“Interest rates charged on balances outstanding are at rates that would be charged in the normal course of business.”
Zenith Bank says its loans to key management personnel include mortgage loans and other personal loans and are given under terms that are “no more favourable than those given to other staff.”
The bank says no impairment has been recognized in respect of loans granted to key management as they are performing.
Mortgage loans amounting to N715 million are reportedly secured by the underlying assets, while all other loans are unsecured.
“Interest charged on loans to related parties and interest and other fees paid to related parties are similar to what would be charged in an arms’ length transaction,” Zenith Bank further claimed.
FBN Holdings for its part did not disclose any information on insider related loans in its Half Year financial statement, which we find curious and extremely opaque.
The five Tier-One Banks control approximately 60 percent of Nigeria’s banking sector assets.
