Advance Recovery Techniques -The danger signs and signals on bad and doubtful debts are so many to mention. The danger signs are often available but in most cases they come by surprise. Experiences and instinct will make you as a banker to start sensing and spotting problems accounts. Below are the useful information and guide that may be useful to credit managers.
- Account becoming almost dormant. There is no swing again on the daily or weekly turnover. It becomes difficult to cover any clearing cheque on the account.
- It becomes difficult to produce financial statements particularly audited accounts of the borrower.
- Borrowing from other sources, for example trade account can as well be considered an option.
- Liability to meet up with scheduled repayments like loans standing orders etc.
- Continues stopping of cheques at the instance of the customer for reasons best known to them.
- Refusal by the customer to honour banks invitation to come for discussion on how to get him out of the woods.
Advance Recovery Techniques
In this part of the world (Nigeria) we do not have borrowing and repayments habit unlike the develop world (USA). It is difficult for us to repay any sum borrowed or credit given and usually we find one excuse or the other. And this has contributed to trillions of naira being owed the Nigerian banking sector by individuals and corporate organisations.
Nevertheless, we are going to look at the Advance Recovery Techniques or methods that are being employed by the banks to recover their doubtful and lost accounts. Banks use orthodox and unorthodox methods or means of recovering their debts. The introduction of prudential guideline in 1990 and promulgation of failed banks (Recovery of debts) and financial malpractice Decree NO 18 of 1994 and the inauguration of the Tribunal have all helped in the recovery of already lost accounts.
One will not fail to mention that poor quality of loans and advances, protracted legal process and the attitude of some bank managers who are not living up to their responsibilities have contributed to the low recovery of such loans.
Orthodox Methods Of Advance Recovery Techniques
These are the Advance Recovery Techniques or methods as they are included in the orthodox methods;
- Demand Letter – This is the latter written to the borrower, one month before the maturity of the loan to remind him that his loans and interest thereon is due for repayment. It is best written by the legal department of the bank, who will insert some clauses in the failed bank (Recovery of debts and financial malpractice in banks decree No 18 of 1994) could be incorporated into the latter. This is a threat letter and most customers respond to the letter. Those debtors who fail to repay their debts could be sued to court of law.
- Personal visit and Telephone Calls – The bank officer could make personal visits to the debtors business premises to discuss and see things for himself. Telephone calls could also be used constantly, as this will keep the customer restless.
- Debt counselling – The bank officer would be able to discuss with the customer the nature of his problem (personal or business), especially why he has not made good of the debt. After the exercise, the bank will be able to advise the customer as to know how to re-order his priorities and start repaying his debt. This could do magic as the customer will now see the bank as a friend who has interest in the success of his business. In fact, debt counselling has been tested and given a clean bill as an effective means of debt recovery even those debts that have been classified as bad and lost.
- Life assurance and loan Insurance – It is important to take out various types of insurance policies to cover risk, which may result due to customer’s failure in repaying borrowed amount to the bank. this insurance will protect all the assets financed or the borrowed, to guarantee repayments of the credit even of he dies while the loans is on. Below are the various forms of policies that could be accepted. (i) Fire and Special Peril mortgage protection policy (ii) Mortgage Protection Policy (iii) Term-life Assurance policy.
- Fire and Special Peril Mortgage is used when the customer insures the assets financed by the bank or used as security for the facility. The interest of the bank noted on the policy as beneficiary in case there is any loss as a result of fire outbreak or any other peril.
- Mortgage protection is the life assurance in which the sun assured is sufficient to pay off a mortgage loan in the event that the mortgage holder dies before the mortgage is paid off.
- Term Assurance Policy – This is life assurance whereby the assurance sum is only payable in the event of the death of the person assured within a specified period of time. Under this method the policy will lapse upon the total liquidation of the loan.
Sale Of Mortgage Properties
A mortgagor has no power over his property particularly legal mortgage if he has defaulted the terms of legal mortgage. The indenture creating the legal mortgage could give the mortgagee the power sell either by private treaty or by public auction and if by public auction the provision of the auction ACT of 1979 or sale by Auction law of Abia state of Nigeria applicable in Ebonyi state must be strictly compiled with otherwise the sale will be declared null and void.
It is difficult a task to adhere to the provision of these laws before selling a property without the customer mortgagor suing/getting an injunction from the court getting the bank to stop its activities or its agents to stop the sale of the property. Today banks have learnt on how to deal with this problem of injunctions. Banks now go to different location away from the customer to advertise the sale in national newspaper. For instance, a customer is indebted to Union Bank Plc Kano state branch and has mortgaged his property at the school road Kano state. Instead of advertising the sale in New Nigeria Newspaper, the bank, Union Bank Plc will now advertise the sale in Nigeria Patriots Newspaper that is widely read in Abakaliki, Eastern States. Here the property would be sold and if the customer goes to court, the sale will be upheld as a valid sale.
Litigation is the last resort to any banker in Nigeria because of the time wasted and the attitude of judiciary to financial institutions. The courts are always in sympathy with the debtor/customer. Nevertheless, when the debtor is unwilling to pay, the ban may go to court after obtaining judgement. This type of action is taken if no security was perfected or taken when the loan was given to the borrower. Also litigation could be resorted to if the security attached has been realized and is not enough to pay off the debt, and the balance may have to be proven in the law court.
When a judgment is given to the bank (creditor) or solicitor, the right of enforcement has been granted by the court, therefore the bank take over his assets like, the plant, vehicle and premises for sale to satisfy the judgement.
Local Purchase Order (LPO)/Domiciliation Of Payments
Banks accept local purchase order from reputable companies provided the payments to be made to the debtor customer is domiciled to the bank lent the money to the debtor customer. When the local purchase order is obtained, the proceeds will be domicile into the customer’s account so that part of it will be used to offset the debt, while the balance is released to the customer after the bank must deducted its principal plus interest.
Appointment Of Receiver
When Receivers are made out of court, it is the deed of Debenture or Mortgage which grants the power to either the trustee of the Deed or the Debenture holders to make an appointment. In another form, a receiver could be appointed through the appointment, the Deed usually states the event upon which a Receiver can be appointed. Once a Receiver is appointed, floating charges crystallized and become fixed and the company can no longer deal with the assets of the company without the consent of the Receiver
The banking business is a complicated one, it comes with a whole lot of processes and steps which must be followed in order to stay in line with the doctrines of the banking code. One of the sectors of the economy that works hand in hand with the banking or financial institution is the judiciary arm of governments. This is because there are laws that govern the financial sectors which must be adhered to, these laws cover for loans, bad debts, doubtful debts, advances, depositing with the financial institution, overdraft, opening of account with the financial institution, closing of account with the institution etc.
The thing is that laws guiding the businesses that concerns the financial institution must observe these laws governing it. There have been cases where either the bank or the individual did not follow the law getting punished, for example a situation where the bank doesn’t follow the five C’s of bank lending in issuing out loan, if there is a default, the bank will bear the consequences of the decisions. I have heard a lot of people say that laws are meant to be broken, however, anyone who has an intention of breaking the laws guiding this sector must be ready to bear the outcome, because most times, the outcome of these decisions are gravious.
On a final note, ensure you go through every document given to you to sign, in essence carry out a thorough review of these documents in order not to agree to deals without complete knowledge or details of the deals. This is essential for not falling victim of negligence on your own part. To make it a little more easier, employ the services of a legal personal to help you in interpreting the legal terminologies on the documents.