..As GSI guidelines takes off 1st August
Nigeria’s central banks has given orders to confiscates loan defaulters funds across commercial banks nationwide over 4.5 trillion naira debts.
Reports from Asset Management Corporation of Nigeria (AMCON) revealed that 105 debtors were responsible for about Naira 4.5 trillion debt affecting the financial health of the Nigeria banking industry.
Based on the guidelines from the apex bank’s operational guidelines for Global Standing Instruction (GSI), this allows financial institutions to access funds of defaulting debtors that are deposited in other banks with effect from August 1, 2020.
The Global Standing Instruction, which is a mandate authorizing recovery of past due obligations from any and all deposit accounts maintained by a defaulter. The GSI is limited to debt recovery only and is limited to only individual accounts. Although it can be used recovery of repayment amount, the GSI cannot be used to recover any additional fees, charges or penal rate for default.
In a circular issued by the CBN Director, Financial Policy and Regulation Department, Kevin Amugo the GSI is targeted at facilitating an improved credit repayment system, reducing non-performing loans in the Nigerian banking system and watch-listing consistent loan defaulters.
The CBN in collaboration with stakeholders had last year developed the necessary protocols to facilitate a seamless implementation of the GSI process, including eligible loans granted from August 28, 2019.
Accordingly, it had issued the guideline to regulate the operations of the GSI which will be implemented with effect from August 1, 2020, as a way to enhance loan recovery across the banking sector.
The guideline states that the GSI shall serve as a last resort by a Creditor bank, without recourse to the Borrower, to recover past due obligations (Principal and Accrued Interest only, excluding any Penal Charges) from a defaulting Borrower through a direct set-off from deposits/investments held in the Borrower’s qualifying bank accounts with participating financial institutions.
To set up the mandate, customers will fill in their BVN, Credit Risk Management System (CRMS) number, the full repayment amount, the loan duration and the repayment account. The GSI is being maintained by NIBSS which is the custodian of BVN and holds records of all bank accounts in the country.
Once a debtor defaults on a loan, the GSI is triggered with the creditor bank activating the mandate on GSI Module specifying the recovery amount. Once triggered, the available accounts for recovery are identified, available balances for the accounts are retrieved and funds from the accounts according to Recover Logic are recovered.
Participating financial institutions by the GSI mandate must honor all transactions from NIBSS with a valid GSI Mandate code. The GSI Transactions can be triggered upon default on repayment, seven days after scheduled repayment date or before application of penal rates.
Nigeria Banks seek loans restructure
Manufacturing and general commerce sectors constitute the bulk of the restructured facilities by lenders, Ahmad said. “The coronavirus-induced global economic crisis is pervasive, with heightened uncertainty for the medium-term economic outlook,” she said in the note prepared after the May 28 meeting of the committee.
“Credit to the oil and gas sector accounted for about 26% of the industry’s total loans and advances, making the sector the single most important in terms of credit exposure of the banking system,” Edward Adamu, another monetary policy committee member, said. “Related to this source of vulnerability is the foreign-currency exposure of the industry which stood at approximately 41% in April 2020.”
In 2019 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.
“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.”