Beware of Zombie Banks

The recent laughable IMF report does make a few valid points on performance in the economy during the first half of 2017.

One of these notes that non-performing loans have risen to 15% – a disastrous level creating banks which look good on paper but are dead inside i.e. Zombie Banks.

Naira Insider has long stated that the banking sector is in trouble because of its failure to deal with poor and corrupt lending practices to almost exclusively the Oil and Gas sector without diversifying is risk.

When that sector does badly, then so do the banks.

The banks try to hide the situation by constantly restructuring the loans (agreeing new terms with the borrower).

This resets the repayment clock to zero and reclassifies the loan as performing. Several months down the line, when the borrower is still not making repayments, it is restructured again thereby avoiding the non-performing classification.

This method is standard practice in banks to avoid loans being classified as non performing and their affecting the capital they are required to hold as defined by the regulator.

The bank loan restructuring scan means that the real percentage of NPLs is likely to be much higher. Perhaps as high as 30%.

This high level has several impacts.

Firstly, it makes the bank technically insolvent as the value of the NPLs is high enough compared to the capital the bank has to offset its obligations.

Secondly, it means that the bank can not lend to legitimate borrowers and is a factor in reducing the credit that is available to companies to invest and help grow the economy.

Zombie Banks always die at some point.

There is no outlet for the bad debt they are carrying (the failed AMCON experiment has effectively been killed by the corrupt elite).

Just make sure you are not a share holder or hold debt paper in a Zombie bank at the point they finally keel over and die.

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