CBN Orders banks to collect Loan Defaulters Funds across Banks

The Central Bank of Nigeria (CBN) has moved a step ahead of bank loan defaulters with a new guideline that allows seizing of their funds in other accounts.

According to the Asset Management Corporation of Nigeria (AMCON), 105 debtors were responsible for about Naira 4.5 trillion debt affecting the financial health of the Nigeria banking industry.

According 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.