Ballooning corporate debts can only be taken for granted in an era of arbitraging gone crazy.

Mercifully, the unedifying face-off in the courts of law and the media between African Petroleum (AP) Plc and Access Bank has been brought to closure. The wrangle, while it lasted, created a pall of uncertainty. The conventional wisdom since then converges on the assumption that there is a deep and significant malaise afflicting the financial payments system. Something has to be done.

The imbroglio between the aforementioned corporate gladiators is probably the tip of a troublesome iceberg. Already eight banks are apprehensive about how to resolve over N204 billion worth of syndicated debt owed by one company in the petroleum sector. It is going to require financial engineering of the ingenious kind to sort that one out. To compound matters the on-going assets quality audit by the Central Bank of Nigeria (CBN) could expose more credit related shenanigans, resulting in more losses being written off by banks.

With the uniform year-end looming, there has been an intensification of debt recovery drives, with the procurement of the assistance of the law enforcement agencies. We can also expect more write-offs and balance sheet adjustments. Some banks have already sensibly announced huge loan loss provisions and it is clear from the body language of the CBN that the regulator expects them to fully bite the bullet much sooner than later. The trend indicates that there has been an awful over-exposure and not just in the well established cases of margin-trading and petroleum products importation but in a lot of other areas as well. The quality of credit analyses, risk management and external controls clearly leaves much to be desired.

Now that the era of light-touch regulation has ended, the chickens have clearly come home to roost. It must be accepted that the regulators cannot limit their enquiries to insider abuse alone. If there is an established sea of corporate debtors and the banks are under threat, should lame ducks go to the wall? Any government intervention must come with a price, including restructuring the managerial teams and the composition of the boards and audit committees.

If the government is to set up a resolution trust-type asset management company to take over the toxic assets, the assets must necessarily have to be written down at market value. The proceeds from this exercise should be targeted specifically at the real sector if it is to be worthwhile. This will also allow a reinvigorating effect on the economy as a whole and give fillip to efforts to create employment opportunities. Like any other debt forgiveness, the piper has a right to dictate where the proceeds should go. In this case, it is up to government to determine its areas of priority.

Whatever the policy measures adopted, there are still deep fault lines that must be tackled. For example, the cumbersome confiscatory Land Use Act makes the straight forward issue of loan transactions cumbersome. A whole sea of debts is induced by a ludicrous system of legalising loan transactions. The method of obtaining the consent of a state governor to perfect transactions is so cumbersome as to foster the existence of a minefield, making the operating terrain even more tenuous. Reform of this debilitating act is part of the President's seven-point agenda. It should be placed on the front burner and treated with the highest priority.

In addition, we must realize, painful as it may be, that the fiscal framework adopted since the devaluation of the mid-1980s has had a stultifying effect on genuine economic development. A whole myriad of options adopted, discarded, re-adopted and fine-tuned has led only into one direction: speculation, arbitrage and rent-seeking activities at the expense of production and the real sector. This has led to the development of a swashbuckling mentality which has continuously put pressure on the naira. Constant speculation on the movement of the currency has led managers of the payments system to take their eyes off their day job with quite disastrous results.

Ballooning corporate debts can only be taken for granted in an era of arbitraging gone crazy. Likewise, fiscal policies that lead to double-digit interest rates can only induce mountains of debts. Common sense alone dictates that even in an economy dominated by cartels there is hardly any area where legitimate profits can sustain double-digit interest rates. Unless the fiscal operating structure is changed it will continue to be a lose-lose situation and a regulator's nightmare. This is why a new fiscal regime will have to be put in place to ensure macro-economic stability predicated on low interest rates and a stable, firmer currency. It will not be out of place to consider the issuance of dollar denominated certificates as the funding mechanism for the three-tiers of government as part of a coordinated fight-back.

It is obvious that all is not well and that a deep re-thinking of the entire payments system, including the adequacy of the regulatory framework, is urgently needed. The payments interface must be re-worked and it may require some very painful surgeries.