An Assessment of Legal Mechanisms for Debt Recovery by Commercial Banks in Ogun State

Non-performing loans represent a significant threat to the stability of Nigerian commercial banks, and the legal mechanisms available for debt recovery are frequently criticised as slow, expensive, and inaccessible for smaller lenders. This study assesses the effectiveness of debt recovery mechanisms used by commercial banks in Ogun State, South West Nigeria, including court actions, statutory security enforcement under the Companies and Allied Matters Act, and out-of-court resolution through the Asset Management Corporation of Nigeria. A descriptive survey of 12 bank branches in Abeokuta and Sagamu was conducted, supplemented by analysis of 40 court files from the Ogun State High Court relating to bank debt recovery actions filed between 2019 and 2023. Results indicate that the average debt recovery litigation period was 38 months. Only 23 percent of court-obtained judgments were actually enforced within 12 months of judgment. Banks increasingly preferred negotiated settlements and restructuring over litigation. AMCON intervention was reserved for large corporate exposures, leaving smaller non-performing loans inadequately addressed. The study concludes that debt recovery mechanisms in Ogun State are excessively time-consuming, reducing their deterrent value and contributing to moral hazard in borrowing behaviour. Recommendations include creation of dedicated commercial divisions in all Ogun State courts, mandatory pre-action mediation protocols for bank debt recovery, and reform of the Sheriffs and Civil Process Act to facilitate faster judgment enforcement.

Keywords: debt recovery, non-performing loans, commercial banks, Ogun State, AMCON