How airline operators are putting banking sector at risk —CBN

Contrary to belief that it is only the oil and gas sector that has been putting the banking sector at high risk with non performing loans, it has now been revealed that the aviation sector has also contributed in no small measures in seeing banks record bad debts.

Reports say as at June 2016, the total bad debts owed banks stood at $5.2bn, which government in a bid to avoid collapse of the banks created the Assets Management Company of Nigeria (AMCON) in 2011 to acquire the toxic loans.

Various sources had linked the risks on commercials banks in the country only on the oil and gas sector, which was said to have been holding more than 70 percent of the said loans.

But new findings have pointed to the direction of the aviation industry, which was competing with the oil sector in creating the huge bad debts.

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Confirming this, the Central Bank of Nigeria (CBN) assistant director, Infrastructure and Finance, Boma Benebo, said part of the loan burden on banks was the N300 billion intervention fund meant to assist both the power and airlines industries but which was totally consumed by the aviation sector alone. 

He said to date, most of the airlines had gone under without repaying the loans.

The CBN director said by the time the apex bank reaalised that the aviation industry had eaten dip into the banking system; more than 14 percent of the loans in the sector had been classified as nonperforming loans. 

“We took a review of the situation and resolved that one of the ways to come out of the problem and save the system from total calamity is begin the process of restructuring the loans on short and long term basis.”

He  equally identified the fact that some of the loans were entered into with high interest rate as high as 23 percent, a factor that is also responsible for non servicing of the loans.

However, the airline operators were quick at stating their own side of the story, adding that the federal government facility was used mainly to acquire new aircraft and fund operation, as to meet the ICAO standard.

“Contrary to the impression being created, the government facility was not direct cash, but rather a guaranty with which the banks agreed to extend loans to us. And this was done without any inclination that the economy will witness recession a few years after,” said Femi Gbadebo, an official of Nigerian airline Operator Association (NAO).

By Emma Eke