Abuja — Non-performing loans which used to be the bane of the Nigerian banking industry has reduced drastically as the strong economic growth of the last three years empowers banks to write off some bad loans while the liquidity in the system enables more loans beneficiaries to honour their repayment commitments.

A report on the Nigerian banking industry published recently by Standards & Poors (S&P), a leading international rating agency which rates 110 sovereign states, however, considers the Nigerian banking industry to be of high risk despite this soothing news. The low ranking of the banking system in Nigeria reflects the high operational and credit risks facing the very young and increasingly competitive banking sector, Standard & Poor's noted in a report titled

"Bank Industry Risk Analysis: Boosted By Strong Oil Prices, Nigeria's Economy Buoys Risky Banks".

The ranking is supported by the currently favorable macroeconomic environment, which is built upon Nigeria's abundant natural resources, and the Tier 1 banking sector's good liquidity, profitability, and capitalisation. The agency which ranks Nigerian banks along with that of Costa Rica, Lebanon and Tunisia blame the high operational risk faced by Nigerian banks on political instability, a weak judiciary system, poor corporate governance, internal security problems and infrastructural deficiencies.

The S&P report noted that "These risks are a legacy from the old military dictatorships, which by means of chronic underinvestment and economic mismanagement, have caused poor infrastructure, low wealth, and poor development levels that are currently encumbering Nigeria today".

The report lamented that the deficiencies created by years of military dictatorship had raised credit risk and restricted financial intermediation for the banks by creating a concentrated economy, low development levels, and a large informal working sector. The issue of poor corporate governance is a major problem in the nation's banking industry. The Central Bank of Nigeria (CBN), recently sacked the board of Spring Bank Plc. for breaching the corporate governance code prevailing in the industry.

Right now the apex bank and the Nigeria Deposit Insurance Corporation (NDIC), are beaming their search light on Wema Bank where serious breach of corporate governance led to an alarming rate of non-performing loans, which has eaten deep into the bank's shareholders' fund. The managing director of the bank, Mr. Jeremiah Adebisi Omoyeni, was arrested last week for alleged offences bordering on the breach of corporate governance.

Omoyeni, is accused of conspiring to alter the minutes of the meeting of the bank's board to give the impression that the sum of N450million advanced to him was up-front payment for his rent allowance which was to be deducted at the rate of N90 million per annum.