INTERROGATING THE LEGAL FRAMEWORK OF LOAN RECOVERY BY NIGERIAN BANKS: CHALLENGES AND SUGGESTED SOLUTIONS

Abstract

The banking sector is notably significant for the promotion of the development of the economy of any nation including Nigeria. As one of the most crucial sectors of the economy, it determines the financial architecture of Nigeria. Though there are laws that regulates the lending, borrowing and recovery procedures of loans by Nigerian Banks, the difficulty of recovering loans and advances from borrowers has become one of the major challenges of the banking sectors that has plunged several banks in Nigeria to liquidation. Thus, this paper examined the legal framework of loan recovery by Nigerian banks and the challenges of enforcement. The paper adopted a qualitative methodology using a doctrinal method of legal research. The paper found that the current laws on loan recovery by Nigerian banks are fragmented but incapable of ensuring the safety of the banking sector as to guarantee the recovery loans. However, Nigerian banks suffer certain enforcement challenges in recovery of loans from borrowers. These challenges include but not limited to complex and ineffective legal framework, dishonest debtors’ practices, and legal procedures amongst others. Thus, to address these challenges, the paper suggested reform of judicial processes for loan recovery, strengthening credit appraisal and due diligence, use of technology and artificial intelligence in loan management and recovery, promotion of alternative dispute resolution mechanism and strengthening institutional coordination. The paper concluded that Nigeria has laws regulating loan recovery by banks. However, recovery remains difficult due to the many challenges identified in this paper. The adequacy and implementation of the suggested recommendations in this paper would make the current laws adequate, potent, and effective for the recovery by Nigeria banks.