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CBN gives banks approval to debit bank accounts of chronic loan defaulters starting August 1

If you owe in Bank A your debt can be set off against your account balance in Bank B.

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The Central Bank of Nigeria (CBN) has issued guidelines aimed at reducing non-performing loans in the banking sector and to monitor chronic loan defaulters. This was disclosed in a circular the apex bank issued to all banks and other financial institutions tagged ‘Operational Guidelines on global standing instruction – Individuals.’

The Guidelines are expected to take off from August 1, 2020. The GSI guidelines give banks the power to debit loan and accrued interest due from bank accounts of loan defaulters across the Nigerian banking system. The NIBSS will manage the entire operations of the GSI on behalf of banks using customers Bank Verification Numbers (BVN).

Guidelines on global standing instruction

The circular, which was signed by the Director, Financial Policy and Regulation Department, CBN, stated,

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.

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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.

It stated, “They must also ensure all qualifying accounts were properly maintained and visible to NIBSS on the industry customer accounts database or by any other service created or provisioned for this purpose.”

The guidelines stated that they must “ensure that accounts in NIBSS’ ICAD are correctly tagged with correct Bank Verification Number, and ensure and maintain connectivity to the Nigeria Central Switch.

How GSI will work

Bank borrowers are expected to sign a GSI mandate in hard copy or digital form. Once this is done all qualifying accounts are linked to his/her BVN.

  • Qualifying accounts include savings accounts, current accounts, domiciliary accounts, domiciliary accounts, investment accounts and joint accounts.
  • These accounts are all expected to be linked to a BVN. If for any reason the borrower has an account that is not linked to their BVN, the account will be watch listed.
  • Once a borrower defaults on an outstanding principal and interest, the bank instructs NIBSS to debit the bank account of the defaulter.

Back story

Last year the central bank revealed plans that it was in conjunction with the NIBSS and the Bankers’ Committee agreeing  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. This was a process that started in May 2019 by the bankers committee “declaring war” on non-performing loans.

In August, CBN Deputy Governor Aishah Ahmad, the Deputy Governor of the CBN at the end of the meeting of the Bankers’ Committee held in Abuja revealed that they have now allowed banks to come up with a credit risk protection clause that allows banks to recover their loans.

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“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.”

What this means

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 across all banks.
  • 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.
  • The guidelines apply to savings accounts, current accounts, domiciliary accounts, domiciliary accounts, investment accounts and joint accounts.
  • Download GSI guidelines.

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Abiola has spent about 14 years in journalism. His career has covered some top local print media like TELL Magazine, Broad Street Journal, The Point Newspaper. The Bloomberg MEI alumni has interviewed some of the most influential figures of the IMF, G-20 Summit, Pre-G20 Central Bank Governors and Finance Ministers, Critical Communication World Conference. The multiple award winner is variously trained in business and markets journalism at Lagos Business School, and Pan-Atlantic University. You may contact him via email - [email protected]

1 Comment

1 Comment

  1. Elkana

    August 9, 2020 at 7:50 pm

    What if the company you loan with temper with your account by over dabeting with not less than 16k which you have clear their loan and when your contacting them to refund the money they block ur number if you chat them up they are not replying. My question is how will you you get back your money they over dabetated u sir

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CBN says 22 banks to restructure over 35,000 loans due to COVID-19

This is seen as part of measures by the apex bank to curb the rise in non-performing loans.

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CBN, Aishah Ahmad,

The Central Bank of Nigeria (CBN) has disclosed that 22 Nigerian banks submitted requests to restructure 35,639 credit facilities of businesses that were impacted by the coronavirus pandemic, as of July 20, 2020.

This represents 41.92% of the total industry loan portfolio and has partly reflected in improved industry risk profile, as non-performing loans ratio declined from 6.6% in April 2020 to 6.4% in June 2020.

The disclosure is part of the personal statement made by the CBN Deputy Governor, Financial System, Aisha Ahmad, during the last Monetary Policy Committee (MPC) on July 20, 2020.

She said that the net interest margin remained quite robust despite lower interest income, due to much lower industry interest expense, as deposit rates continued to decline.

This is seen as part of measures by the apex bank to curb the rise in non-performing loans in the system due to the impact of the coronavirus pandemic and low oil prices.

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Also, as part of the drive to reduce non-performing loans, Nairametrics reported that the CBN had given approval to banks to debit bank accounts of chronic loan defaulters with other banks. They were given the power to debit loans and accrued interests due from bank accounts of loan defaulters across the banking system.

She also said, “The loan-to-deposit ratio (LDR), Global Standing Instruction, streamlining of access to Open Market Operations securities and other complementary measures have been strong tailwinds which have strengthened intermediation via increased lending to the key sectors such as manufacturing, agriculture and consumer markets (gross credit grew by an additional N300 billion from N18.6 trillion to N18.9 trillion between end April and end June 2020 respectively) and lower market lending rates, which have insulated the financial system from the worst impact of the pandemic.”

Aisha Ahmad explained that these efforts were supported by various ongoing CBN interventions to reduce the impact of the coronavirus pandemic on businesses and households.

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Some of these interventions include the N50 billion SME and household facility, out of which N49.195 billion has been disbursed to over 92,000 beneficiaries; the N100 billion healthcare facility, and N1 trillion manufacturing and agricultural interventions alongside other significant interventions.

In her note, she said sustained credit to the real economy, particularly for SMEs and households, would be crucial to economic recovery, therefore maintaining banking industry liquidity would be paramount.

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Financial Services

Fitch forecasts that banks’ earnings will be hit hard by CBN’s CRR policy, others

The CRR debits on Nigerian banks have exceeded the N2 trillion mark in 2020 alone.

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Foremost International Rating Firm, Fitch Ratings, has forecast that punitive policies by the Central Bank of Nigeria (CBN), especially the Cash Reserve Ratio (CRR) debits on Nigerian banks, will negatively impact on their earnings.

According to the rating firm, this is coming at a time when most other countries are giving banks extra leeway to fight the economic fallout of the coronavirus.

READ MORE: CBN maintains MPR at 14% for the 11th consecutive time

The Senior Director for Europe, Middle East and Africa at Fitch, Mahin Dissanayake, in an interview, said:

“The Central Bank of Nigeria has been highly interventionist. Where peers like South Africa and Kenya followed the global trend of giving banks more room to lend, Nigeria hasn’t budged. Instead, it stuck with a cash reserve ratio that compels lenders to park 27.5% of their deposits with the central bank.’

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“The CRR is unique and hugely punitive. The regulation is aimed at reducing the amount of money in the financial system to keep inflation in check.’’

READ MORE: Loan: CBN disburses over N300 billion to SMEs, health, agric, manufacturing sectors

Dissanayake pointed out that keeping those huge idle cash with the CBN in a non-interest yielding account puts a lot of pressure on the earnings of the banks, as they would have been put to better use through ventures such as lending. The inability of the banks to meet the requirements of the apex bank results in the debiting of the banks’ accounts with the shortfall.

The CBN also debits the accounts of banks who fail to meet the 65% loan to deposit ratio (LDR) regulation, a policy which is aimed at stimulating credit in the economy.

READ ALSO: Nigerian banks have written off N1.9 trillion impaired loans in past 4 years

The CRR debits on Nigerian banks have exceeded the N2 trillion mark in 2020 alone, some of which are speculated to be aimed at reducing the capacity of the lenders to participate in the foreign exchange market and as a result reducing the pressure on the naira.

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According to an earlier report from Nairametrics, some analysts suggest that the CBN debits the accounts of banks arbitrarily without adhering to the 22.5% CRR, just to manage the liquidity in the system.

Dissanayake disclosed that enforcement of these policies and penalties have caused an effective hit on capital to between 40% and 50%.

He said, “Nigerian banks compared to other markets operate in a volatile environment. The banks have to deal with economic shocks, short credit cycles and persistent problems in the oil sector. They also have to deal with policy actions, policy uncertainty and regulatory risks.”

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He, however, said that the positive side of this is that the strong revenue-generating capacity in a large Nigerian economy allows the banks to absorb the higher cost of risk even when income from interest charges on loans deteriorate.

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The financial results for the first half of the year saw Nigerian banks record trading and foreign exchange revaluation gains which had neutralized the lower yields on government bond holdings, slower loan growth and fewer transactions from customers due to the effect of the coronavirus pandemic.

Dissanayake forecasted an estimated 20% decline in revenue, with a decline as well in profitability. The degree of decline in profitability will depend on the extent of loan impairment charges and the size of trading and translation gains.

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Company Results

Sterling Bank reveals N215 billion sequestered by CBN as CRR Debits

Sterling Bank Plc, one of Nigeria’s tier 2 banks reported that the Central Bank of Nigeria’s CBN restricted about N215.5 billion of its customer deposits as of June 2020.

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Sterling Bank

Sterling Bank Plc, one of Nigeria’s tier 2 banks reported that the Central Bank of Nigeria’s CBN restricted about N215.5 billion of its customer deposits as of June 2020.

The bank reported this in its 2020 half-year interim results published on the website of the Nigerian Stock Exchange. According to the data, Sterling Bank’s confirmed the amount of its customer deposits now held by the CBN is about N215.5 billion and explained it “represent mandatory reserve deposits and are not available for use in the bank’s day-to-day operations” which can be interpreted as Cash Reserve Requirement “CRR”.

READ ALSO: CBN debits banks another N459.7 billion for failure to meet CRR target

Sterling Bank Data

  • Deposits from Customers – N915.3b (N892. 6billion)
  • Loans to customers – N615 billion (Dec 2019: N618.7 billion)
  • Sterling Bank CRR – N215.5 billion (Dec 2019: N122.1 billion)
  • Sterling Bank got debited N93 billion so far this year
  • This breaks down to about N71.1 billion and N21.9 billion debited in the first and second quarters respectively.
  • CRR as a percentage of deposits as at June 2020 – 23.5%

READ MORE: As AMCON nears possible ‘liquidation’, what should we expect?

CBN CRR Policy

The central bank of Nigeria increased its cash reserve requirement (CRR) to 27.5% from 22.5% at the monetary policy committee meeting held on January 23rd to 24th. The CRR is the amount the CBN debits from banks accounts in compliance with its monetary policy objective of mandatorily keeping cash on behalf of banks. The amount is not available for banks to use.

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Sterling Bank Results

The Bank also published its 2020 second-quarter results showing net interest income was up 16% to N18 billion.

  • Pre-tax profits also rose 24% YoY to N3.3 billion despite the Covid-19 pandemic induced economic lockdowns.
  • Despite the improved profits, the bank did report a spike in its provisions for impairments jumping almost 3 folds to N5.3 billion.
  • To put this into context, Sterling Bank suffered an impairment of N5.8 billion in the whole of 2019.
  • Sterling Bank’s cost to income ratio remains high at about 86%.

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