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CBN’s new guideline to enhance loan recovery across banking sector

The Central Bank of Nigeria (CBN) on Monday, issued a guideline on Global Standing Instruction (GSI) to enhance loan recovery across the banking sector.

The GSI is expected to 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.

This is in pursuant of the powers conferred on the Central Bank by Section 2 (d) of the Central Bank of Nigeria Act, 2007; to promote a sound financial system in Nigeria.

The objectives of GSI include to facilitate an improved credit repayment culture; reduce Non-Performing Loans (NPLs) in the banking industry; and watch-listing consistent loan defaulters.

A report by CBN staff showed a marginal increase in the non-performing loans ratio in April as compared to February 2020. Also, there were modest declines in key profitability indicators including Return on Equity (ROE) and Return on Assets (ROA), but increase in industry size at May 2020 still depicts a robust banking system.

The CBN noted that the GSI shall not serve as a tool to recover any penal charges that may have accrued on a credit/loan and included as part of outstanding balances/obligations of a borrower.

The types of accounts that qualify for GSI are individual savings accounts; individual current accounts; individual domiciliary accounts; investment/deposit accounts (N & Foreign Currency); and electronic wallets, as well as joint accounts.

GSI stakeholders as outlined in the guideline include borrower, creditor bank, Participating Financial Institutions (PFI), Nigeria Inter-Bank Settlement System (NIBSS) and the CBN.

The borrower is expected to execute a GSI mandate in hard copy or digital form, ensure that the terms and conditions of the mandate are clearly understood before execution, and ensure that all qualifying accounts are linked to his/her BVN.

The guideline noted that in the event that a borrower’s qualifying account which is not linked to his/her BVN is identified, such BVN shall be watch-listed.

On the other hand, the role or responsibility of the creditor bank is to ensure that borrowers are properly educated about the GSI mandate and its implications; and enshrine same in their loan application process.

Such a bank needs to review and validate the GSI mandate instrument prior to loan disbursement, indemnify NIBSS and other Participating Financial Institutions from all liabilities that may arise from inappropriate use of the GSI infrastructure, and retain copies of physical or digital version of the executed GSI mandate and to provide same when required.

The creditor bank is to ensure that the GSI trigger amount is only for outstanding principal amount and accrued interest (excluding ANY Penal Charges), comply with CBN’s prudential guidelines as it applies to classification of loans, and as a risk management tool, the managing director/CEO of each PFI shall routinely update the board of directors on the GSI process as it relates to frequency of use and amounts recovered or released.

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