What is the Credit Risk with Nigerian Banks?
Some Banks in Nigeria can be a credit risk for big foreign companies that deal with them. Perhaps the obvious credit risk is that if a bank were to go into liquidation, big time corporate depositors or business partners would lose their money or business reputation. In the extreme, if a bank goes into liquidation, the borrowing company or business partner could face a call from the liquidator for the immediate repayment of a loan. The need to find an alternative source of funds at very short notice would almost certainly force the borrowing company to pay more.
Also, the sudden closure of a bank and the threat of lost deposits might still seem a remote and unlikely event. However, the closure of the Bank of Credit and Commerce International (BCCI) in July 1991 should still send a warning to many big time corporate depositors as well as other business partners with the bank.
A more dangerous credit risk for a borrower is when a bank, perhaps because it is making losses and suffering from a deteriorating balance sheet, or is taking a more aggressive approach to the management of its loan portfolio, decides to reduce the size of the facilities it will grant to certain class of customers.
While the Lender (Bank) assesses the creditworthiness of its customer, the Borrower (big time Corporate Depositor) or those doing business with the bank should also assess the credit risk in borrowing from or doing business with any particular bank.
