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CBN grants approval for banks to debit accounts of loan defaulters 

The CBN has finally granted DMBs the approval to directly debit bank accounts belonging to loan defaulters across all banks in the country.

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Banks' stakeholders express 4 main concerns bothering the sector right now, CBN, MARKET UPDATE: CBN’s historic agriculture lending; Is it yielding the desired results? 

The Central Bank of Nigeria (CBN) has finally granted Deposit Money Banks the approval to directly debit bank accounts belonging to loan defaulters across all banks in the country.

The CBN Director, Banking Supervision, Ahmed Abdullahi made the disclosure on Thursday while briefing Journalists at the end of the bankers’ committee meeting.

The details: According to the CBN, the approval became necessary as a new measure to mitigate the rising spate of Non-Performing Loans. It should also be noted that concerns had been mooted in recent times as the CBN’s new policy directed banks to lend up to 65% of deposits to the real sector of the economy.

[READ ALSO: Total loans in Nigeria’s banking sector hit N15.35 trillion]

Speaking after the banker’s committee meeting, the CBN Director stated that as the apex bank was encouraging banks to lend, the CBN was also poised to defend banks against possible future loan defaulters.

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A new Clause: At the end of the bankers’ meeting, it was also learned that the CBN approved that the clause permitting banks to apply the new measure as part of loan agreements to all customers.

Abdullahi’s statement reads: “To encourage the banks to lend, the CBN has agreed that there will be a clause that an obligor will sign that will enable the bank net off against any amount he or she has in any other bank.”

Reacting to the approval from the CBN, the Executive Director, Risk, Standard Chartered Bank, Mubola Faloye, reportedly said the new CBN 65% loan to deposit ratio would force banks to lend to some vulnerable sectors and it is important for the apex bank to help deposit money banks mitigate the risk.

“One of things the committee reiterated is that there are some vulnerable sectors the committee will be lending to and it’s important that we mitigate our risks and have what we call a credit cross-default clause that allows us to net off the obligations of defaulting party against any other money the defaulting party has in the industry. That is good support from the CBN for the banking community and it’s very important for us to include that clause in our loan agreement,” Faloye was quoted as saying.

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The Backstory: Earlier in May 2019, as published on Nairametrics, the bankers’ committee disclosed plans to go tough on efforts to bring loan defaulters to book. According to the committee, plans have been perfected to go beyond publishing the names of defaulters. This time, all banks would be speaking with one voice, sharing information about those entities, and refusing to do further business with them until they settled their obligations.

  • Similarly, the CEO addressed smear campaigns by defaulters which are always targeted at banks and their CEOs in a desperate bid to either delay repaying loans or avoid meeting their debt obligations completely.
  • While the banks have been increasing efforts to reduce bad loans, the CBN introduced a 65% loan to deposit ratio – a policy which means bad loans may surge.
  • Nairametrics was first to publish that the CBN had reviewed the earlier 60% LDR to 65%.
  • According to the CBN, the major reason for the newly revised LDR was the noticeable “growth in the level of the industry gross credit”.

[READ ALSO: A total of 34.7 million bank accounts are not yet linked to BVNs]

How this affects you: With the latest approval granted by the CBN to banks, loan defaulters who have funds in accounts across any bank in the country should expect debit alert from their respective banks any moment from now.

  • The new approval also means that for interested loan applicants, a new clause has been introduced, which mandates you to give consent to your bank to debit your accounts in any Nigerian bank where you have funds in the event of you defaulting.
  • Although, the right to setoff account balances has existed among banks in the past but hasn’t been operational.
  • It was learned that 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.

In the meantime, this move by the CBN is expected to drive down the huge non-performing loans in Nigerian banks and also strengthen the country’s financial sector.

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Samuel is an Analyst with over 5 years experience. Connect with him via his twitter handle

6 Comments

6 Comments

  1. Anonymous

    October 4, 2019 at 1:59 pm

    Good move by the apex bank. Does this apply to MFBs too, as they do lots of lending too

  2. adekunle

    October 4, 2019 at 8:01 pm

    i believe will also apply Microfinance

  3. Anonymous

    October 5, 2019 at 3:24 pm

    Microfinance banking is full reserve banking. I doubt it.

  4. Anonymous

    October 6, 2019 at 12:01 pm

    Nigerians will beat the system still. People will hide their monies in their spouses accounts, in their children’s accounts, etc. The environment for doing business in Nigeria encourages defaulting. A barber runs his generator 24/7. And so do most businesses. Money spent buying diesel in coldrooms can pay off loans. Nigerian government is not serious. Banks will still cry.

  5. Anonymous

    October 16, 2019 at 7:52 am

    ^^^This your reason does not justify defaulting on loans. It is an agreement between parties that must be honored.

  6. Anonymous

    October 17, 2019 at 1:55 pm

    The business environment in Nigeria is terrible. U take a loan for a business, and now no electricity Inthe environ for upward of 6mths. The generator purchased to support PHCN has finally broken down due to overuse. The road to your business has become so bad that the only means of transporting goods was to hire transport cos company vehicle is now unserviceable, customers are not ready to come around cos of bad road unless u deliver. Imagine the additional cost on production cost which u cannot pass to customers cos of competition. Remember unexpected increase in vat, bank deposit/withdraw charges etc. In Nigeria as SME, u are not protected. The disposable income of ur customers is limited perhaps reducing. Hence d default to loan repayment. I suggest BOI should do due diligence and spread loan repayment over a longer period and if possible, reschedule the loan for a soft landing.

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Coronavirus

Covid-19: Nigeria needs serious controls not a second lockdown – House Committee on Education

A member of the lower legislative house has advised the government to focus on serious control measures to help prevent the spread of COVID-19.

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Professor Julius Ihonvbere, Chairman, House Committee on Basic Education & Services, said the Federal and States governments should not impose a lockdown, but rather focus on serious control measures to help prevent the spread of the coronavirus.

He disclosed this during an interview with Channels TV on Sunday evening.

  • “I do not think we need a national lockdown now, I think what we need now is the first instance is serious controls. Let me say that the Governor of Lagos is the ‘poster man’ for the fight against covid-19. If we see you outside without a mask, we will arrest you and charge you to court, that is the kind of courage we need.”

He cited serious controls like buying hand sanitizers and washing materials to schools and urban areas in Lagos as part of the controls that should be commended.

  • “The issue is not a lockdown. If you lock people down, and you are not doing the right thing inside the lockdown, the cases will still increase. They (masses) will break it and will challenge it as they did during the first lockdown. So, the real issue is to bring out the policies and implement them.
  • “The Federal Ministry as a supervisor, yes states have the autonomy, but we give the state’s money from UBEC every year, we give them billions, what are they doing with it?

He urged that the FG should investigate what States use their Universal Basic Education Funds for, as Nigeria is in a time for “retooling and repurpose” and UBEC funding should be utilized in the fight against Covid-19.

What you should know 

  • Nairametrics reported last week that the Federal Government said Nigeria is not contemplating another lockdown and urged Nigerians to ignore social media posts circulating the possibility of another lockdown.

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Coronavirus

Covid-19: Ghana’s healthcare could be overwhelmed – President Akufo-Addo

Ghanaian President has warned that he might impose a partial lockdown as healthcare facilities are overwhelmed by growing cases of coronavirus.

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Africa: Ghanaian inflation rate drops for the 3rd straight month to 10.1%, Ghana’s cedi becomes investors’ best choice ahead Nigeria’s naira, Ghana restricts flights into country after detecting Coronavirus but Nigeria ignores measure

The Ghanaian Government has warned that Ghana’s second wave of the coronavirus pandemic is rising fast and could overwhelm its already extended Covid-19 treatment centres.

This was disclosed by President Nana Akufo-Addo on Sunday in a Reuters report.

The Ghanaian President warned that he might impose a partial lockdown in the coming weeks as cases might reach peak levels.

Active cases in Ghana climbed to 1,924 from about 900 since the 5th of January. He also confirmed that the new variant was present in the country, as cases were imported from people entering Ghana.

The President said,

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  • “Our COVID-19 treatment centres have gone from having zero patients to now being full because of the upsurge in infections. At this current rate, our healthcare infrastructure will be overwhelmed.
  • “Work is ongoing to determine the presence and extent of spread of the new variants in the general population.”

What you should know

  • Nairametrics reported that the Federal Government also alerted Nigerians that hospitals across the country were running out of facilities to handle more serious cases of coronavirus infections, as the virus is spreading fast with mild symptoms in some victims and severe illnesses and death in others.

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Business

AfCFTA: Nigerian Commodities Exchange prepared for agreement – MD

The Managing Director of the Nigerian Commodities Exchange has stated that the agency is fully prepared to take advantage of the AfCFTA.

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Q1 2020, AfCFTA, African Continental Free Trade Area, Africa Free Trade Agreement, Business new, Nairametrics news

The Nigeria Commodity Exchange (NCX) is well-positioned to take advantage of the African Continental Free Trade Agreement (AfCFTA), through the implementations of several measures to ensure smooth export operations of Nigerian Commodities.

This was disclosed by the Managing Director of the Commodities Exchange, Mrs. Zaheera Baba-Ari, in an interview on Sunday in Abuja.

  • “The establishment of the continental trade bloc will be beneficial to African countries if properly managed.”

She added that the NCX had an established network of 20 warehouses across major production areas in the six geo-political zones of the country for efficient receipt and storage of agro-commodities to be traded on the exchange.

The warehouses, located in Zamfara, Kano, Kaduna, Nasarawa, Benue, Bauchi, Sokoto, Plateau, Ebonyi, Ekiti and Kogi, have a combined capacity to store 50 trillion tonnes of goods. She added that warehouses in Adamawa, Gombe, Taraba, Jigawa, Edo, Cross River and Ondo States would be ready within the year.

The NCX boss said that AfCFTA would help Africa fight challenges that were caused by the pandemic in the continent’s economies through trade.

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  • “The NCX has acquired robust Trading Application System for seamless buying and selling of commodity to ensure market integrity, price transparency and the facilitation of cross border trades.
  • “It has also acquired a Warehouse Management System that assures an efficient management of warehouse inventories. We have perfected Memorandum of Understanding with relevant foreign and Nigerian Commodity Associations like the Ethiopia Commodity Exchange and the Export Merchants Association of Sudan to trade in selected agro-commodities.”

She added that the NCX has also launched Quality Assurance Laboratories in each of the delivery warehouses, stating that the labs would be used for testing the quality of commodities such as paddy rice, cocoa, sesame seed, soya beans, maize, sorghum and cashew nuts that would be traded on the exchange.

The NCX Chief said the labs were certified to ISO22000 certification which combines ISO 9001 with Food Safety Management and Hazard Analysis, including Critical Control Point System (HACCP).

  • “The HACCP identifies specific hazards and proffers measures for the control of identified impurities in the food processing sector. The issue of tariff on agro-commodity exports from Nigeria should be addressed to increase efficiency of trade flows.
  • “There is also the need for Nigeria to improve its position on the World Bank’s Ease of Doing Business Ranking from its current 131st rung of the ladder.”

What you should know 

  • Nigeria was the 34th African country to fully ratify and submit its Instrument of Ratification of the African Continental Free Trade Area (AfCFTA).
  • Mr. Bismarck Rewane, Chief Executive Officer of Financial Derivatives Company Limited said that the African Continental Free Trade Area would create the desired impetus to stimulate the economic growth of Nigeria in 2021.
  • Customs officials in the continent agreed to draft continental guidelines to enable the movement of goods, services and people for the agreement.

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