By Osaze Omoragbon
Loan defaulters are in for tough times as the Central Bank of Nigeria (CBN) has issued guidelines that will allow Deposit Money Banks (DMBs) to debit accounts of chronic debtors across the banking system, which is also in line with its desire to reduce the level of Non-Performing Loans (NPLs). In a circular tagged “Operational Guidelines on Global Standing Instruction-Individuals” issued to all banks, the apex bank directive gives the DMBs the authority to debit loans and accrued interests due from bank accounts of loan defaulters across the banking system. The guidelines which are expected to take effect from August 1 will be managed on behalf of the banks by the Nigerian Interbank Settlement System (NIBSS).
The circular reads: “The Bankers’ Committee, at its meeting on February 18, 2020, approved the go-live on the Global Standing Instruction, which aimed at facilitating an improved credit repayment culture; reducing non-performing loans in the Nigerian banking system; and watch-listing consistent loan defaulters.”
“The banks would review and validate the GSI mandate instrument prior to loan disbursement. They would indemnify the Nigeria Inter-Bank Settlement System and other participating financial institutions from all liabilities that may arise from inappropriate use of the GSI infrastructure,” it added.
The CBN added that the banks would retain copies of physical or digital version of the executed GSI mandate and provide same when required. According to CBN, the participating financial institutions must execute the GSI mandate agreement with NIBSS.
To make it work, going forward interested loan applicants will have to give consent to their banks to debit their accounts in any Nigerian Bank where they have funds in the event of a default. So once customers’ defaults on their loans, using Bank Verification Numbers (BVN), the NIBSS will first recover the loans from the defaulter’s balance in any account within the bank. If that falls short of the amount due, the NIBSS will move into other banks where the customer has other accounts.
Legality of directive
On the legality of the directive, a top banker with Zenith Bank who pleaded anonymity said: “it is legal because we have the backing of the CBN and it is a fall out of agreement reached at the Bankers’ Committee meeting. We will no longer need off-set letters from defaulters to do this when the directive comes into force. So everyone is on board” he says. However a defaulter can capitalise on any loophole that may have arisen in the course of securing such loan to take the bank to court. “If in the course of getting the loan, things were not properly done such as absence of acceptance, acceptance letters, and loan disbursement sheet before a draw down, then the customer can use this loophole to his advantage” he submits. Asked if the CBN will be sued by aggrieved defaulters, he says the apex bank can defend itself because it is the sole regulator of the banking system that is backed an Act of parliament.
On why these loans were not handed over to AMCON, he noted that the qualifying loans are long standing loans that do not meet AMCON requirement because the defaulters have the capacity to repay but have refused to honour their obligations. “These defaulters have character issues” he surmises.
Industry watchers believe the apex bank will issue a similar directive soon for corporates in which case the veil of incorporation could be lifted so the banks can go after beneficial owners of these entities that issued personal guarantees for the loans.