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CBN reveals plans to deduct bad loans from bank balances of defaulters in any bank in Nigeria

CBN, Bankers Committee agree to recover bad loans from accounts of defaulters in any bank in Nigeria. How it will work…

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CBN reveals Aishah Ahmad

Reports reaching Nairametrics indicate the Central Bank of Nigeria (CBN) in conjunction with the NIBSS and the Bankers’ Committee have agreed to launch an initiative that will allow lenders to recover loans from deposit accounts of loan defaulters from any bank or financial institution in the country. 

Media reports monitored by Nairametrics reveal this decision was announced by Aishah Ahmad, the Deputy Governor of the CBN at the end of the meeting of the Bankers’ Committee held in Abuja on Monday 26th of August.  

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Reasons: According to TheCable, Ahmad said the directive was to encourage banks to increase lending in the country with more comfort. 

[READ MORE: CBN issues disclaimer: Warns public to beware of false loan empowerment scheme]

  • Confronting credit challenges: Ahmad said, “We are not unaware of the challenges/reasons why credit has not been growing. Part of that was the appetite of banks to lend especially when you have customers that willingly refuse to pay their loans.  

“In this respect, we have come up with a new clause that will be included in the offer letters that will be granted going forward.” 

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  • Leveraging on BVN and TIN: According to the report, Ahmad also said, “This is going to be a credit risk protection clause. Basically, it will contain the BVN details and TIN of the customers and more or less it will be a commitment on the part of the customers that you agree that should you default on the loan, the total amount of deposits you have across the banking industry would be applied towards repaying the loan.” 

How this will work: Nairametrics also understands that the new system might be handled by the NIBSS on behalf of the banks in exchange for fees. This is how we understand it will work: 

  • A bank lends money to a customer under the typical terms and conditions. However, all banks which sign up to this arrangement will have to get their borrowers to sign a right of setoff against their balances across any bank. 
  • Right of setoff has existed among banks in the past but hasn’t been as effective as it should be. This arrangement should now make it easier for banks to benefit as NIBSS will basically operate it on their behalf. 
  • Once a customer defaults on their loans, relying on BVN, NIBSS will first recover the loans from the defaulter’s balance in any account within the bank. If that is not enough, it will proceed to other accounts deposited in other banks. 
  • We understand this service only applies to individual accounts only. Thus, it may not function for accounts that have more than one signatory 
  • They will also only recover Principal Amounts as this may not apply to penalties, fees, and charges.
  • The Federal Inland Revenue Service can also request for tax payment to be deducted at source using BVN and Tax Identification Number (TIN) to debit customer accounts.  
  • From what we read, the banks will continue to recover their money from any accounts tied to the BVN until it is fully paid. They might also limit to just 90% of the amount in the bank. 
  • All financial institutions that accept deposits can partake in this scheme.

It is however not clear how FinTEch firms also operating in the lending space will benefit from this initiative. Most of them are not deposit-taking banks or institutions.  

Why this is important: The CBN has mandated Nigerian banks to increase lending to SME’s and the private sector in general rather than concentrate on a few obligors (debtors).  

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  • Recent report from the National Bureau of Statistics revealed that about 1,887,877 obligors (debtors) borrowed about N15.2 trillion as at the first quarter of 2019.  
  • Out of this amount, the top 100 debtors alone borrowed N7.4 trillion or 47% of total credit to the private sector. Top 5 customers alone borrowed N2 trillion. 

To provide bank and other lending institutions comfort and as an incentive, the CBN believes moves like this will help reduce default rates among banks. Non-performing Loans (NPL) was 9.36% as of June 2019, the lowest in about 40 months. Initiatives like these as well as the collateral registry is expected to help reduce credit risk. 

[READ ALSO: Forex ban on food import has commenced, says CBN]

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Patricia

Olalekan is a certified media practitioner from the Nigerian Institute of Journalism (NIJ). In the era of media convergence, Olalekan is a valuable asset, with ability to curate and broadcast news. His zeal to write was developed out of passion to shape people’s thought and opinion; serving as a guideline for their daily lives. Contact for tips: [email protected]

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Hospitality & Travel

Passengers can now arrive 90 minutes before departure for domestic flights – FG

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international passengers, Coronavirus: FG enforces immediate screening of travellers at airports with new directive

The Federal Government has announced the reduction of arrival time for passengers from three hours to one hour and a half before departure for domestic flights.

This was disclosed in a tweet post by the Minister for Aviation, Hadi Sirika, through his Twitter handle on Monday, July 13, 2020.

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The minister said that the decision was arrived at after they have reviewed passenger facilitation at the airport while noting that passengers should check-in online.

In the tweet post, Sirika said, ‘’My colleagues and I have reviewed passenger facilitation at our airports, consequently I am happy to announce that, henceforth travellers are to arrive one hour and half before their departure time for domestic flights. Travellers are advised to check-in online, please.’’

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It can be recalled that the Federal Airports Authority of Nigeria (FAAN) had earlier in June issued flight resumption protocol for both international and local passengers across the country, advising passengers to arrive at the airport three hours before their time due to the new COVID-19 safety checks for domestic flight operations and five hours for international flight operations.

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Economy & Politics

Seyi Makinde Proposes N3 billion investment plan for water supply

The local governments in Oyo are advised to submit a list of 10 faulty boreholes in the LG. 

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Seyi Makinde Proposes N3 Billion plan for water supply

The Governor of Oyo State, Seyi Makinde announced the proposal of a N3 billion investment plan dedicated to water supply in rural and urban areas of the state.

Speaking through the Chairman of Rural Water Supply and Sanitation Agency (RUWASSA), Mr. Najeem Omirinde in Ibadan on Monday, he added that N500 million of the N3 billion would be used for repairing broken and faulty state-owned boreholes.

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All Chairmen of each of the Local Governments in Oyo are advised to submit a list of 10 faulty boreholes in the Local governments.

The Oyo State governor also ordered that all new boreholes must be compliant with solar-powered pumps, to enable their longevity and save costs.

Urging residents to patronize the agency if they need to dig up boreholes for water, citing that it would be cheaper if done through the state agency than with private drilling companies.

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Minister of Finance, Zainab Ahmed stated last year that Nigeria needs an estimated N36 trillion annually for the next 30 years to solve Nigeria’s infrastructure problem. The investment, although a tiny fraction of what Nigeria needs is a bold step by the Oyo State government.

 

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Economy & Politics

FG asks UK court for more time to appeal $9.6 billion arbitration judgement

Malami stated that the Evidence of P&ID’s highly orchestrated scam had only recently come to light. 

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FG asks UK court for more time to appeal $9.6 billion arbitration judgement

The Federal Government has approached a UK court to appeal for more time to appeal the $9.6 billion arbitration award against it over the breach of contract with Process & Industrial Development (P&ID) Ltd.

Nigeria has said that it needs more time to pursue its argument that the 2010 gas supply contract with Process & Industrial Development Ltd was a sham.

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The legal dispute with P&ID is coming against the backdrop of the huge drop in the country’s revenue due to the collapse in oil prices globally. Nigeria had applied to US courts in March seeking for documents from 10 banks which includes Citigroup Inc. and JPMorgan Chase & Co, in a bid to prove its corruption allegations.

P&ID, however, has denied any wrongdoing in the whole transaction, arguing that Nigeria missed its opportunity to appeal.

The Nigerian Lawyer, Mark Howard, on Monday, the first morning of a 2-day hearing, said ‘’It is very unusual in a fraud case to discover a single smoking gun. By its very nature, fraud is conducted in secret, which makes it hard to detect and justifies an extension.’

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READ MORE: The effect of the United States’ Shale Oil on Nigeria?

The legal representatives for Nigeria are seeking another hearing for the judge to decide whether any misconduct has taken place and whether it justifies overturning the contract

The Attorney General and Minister for Justice, Abubakar Malami in a statement said, ‘’Evidence of P&ID’s highly orchestrated scam had only recently come to light.’’

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It can be recalled that last year, a UK judge upheld an earlier arbitration award to P&ID, which had accumulated to about $9.6 billion. The arbitration decision was over a failed contract to build a gas processing plant in the Southern city of Calabar.

The Nigerian lawyers disclosed that they have uncovered alleged bribes to government officials and their family members dating back to 2009.

Malami in his court filing on March 24, submitted that ‘’There is good reason to believe that ministers at the highest level were involved in a corrupt scheme to steal money from Nigeria.’’

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