Introduction
The Central Bank of Nigeria (“CBN”) on 27 May 2020 approved regulatory forbearance for the restructure of loans of Other Financial Institutions (“OFIS”) impacted by the outbreak of COVID19. The initiative is part of CBN’S policy measures to mitigate the impact of the pandemic on Nigeria’s economy. On 16 March 2020, the CBN had granted similar regulatory forbearance to Deposit Money Banks (“DMBS”). This article highlights the CBN’S latest regulatory intervention to cushion the impact of the pandemic on households, businesses and other stakeholders.
CBN’S Regulatory Forbearance to OFIS
The CBN Circular dated 27 May 2020 with reference number FPR/ DIR/GEN/CIR/06/55 (the “27 May 2020 Circular”) sets out the scope of CBN’S approved regulatory forbearance for restructuring of credit facilities in the OFI sub-sector as follows:
(i) A further one-year moratorium for CBN’S intervention facilities offered through participating OFIS effective from 1 March 2020.
(ii) A reduction of interest rates on CBN’S intervention facilities through OFIS from 9% to 5% per annum effective from 1 March 2020.
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(iii) The grant of leave to OFIS to consider temporary and time-limited restructuring of the tenor and loan terms for households and businesses affected by the COVID-19 outbreak, subject to the recently issued guidelines for restructuring affected credit facilities in the OFI sub-sector.
The 27 May 2020 Circular also states that the CBN will continue to monitor developments and implement appropriate measures to safeguard financial stability and support stakeholders affected by the COVID-19 pandemic.
Section 61(1)(a) of the Banks and Other Financial Institutions Act, 1991 (“BOFIA”), empowers the CBN to supervise and regulate the activities of OFIS. OFIS are defined under section 66 of BOFIA to include micro-finance banks, primary mortgage institutions, development finance institutions, bureaux de change, discount houses, finance companies etc.
Echoes of CBN’S Regulatory Forbearance to DMBS
The CBN had rolled out its first set of palliative measures on 16 March 2020. The measures were contained in a Circular with reference number FPR/ DIR/ GEN/ CIR/ 07/ 49 ( the “16 March 2020 Circular”). The palliative measures were aimed at supporting individuals, businesses and other stakeholders against the adverse impact of the COVID-19 outbreak. The 16 March 2020 Circular was specifically addressed to “Deposit Money Banks and the General Public”. Accordingly, CBN’S credit facilities channeled through OFIS were excluded from the approved regulatory forbearance.
Instructively, the CBN’S approved regulatory forbearance to OFIS in the 27 May 2020 Circular is drafted in similar terms as the approved regulatory forbearance to DMBS in the 16 March 2020 Circular. Notwithstanding the disparity in the dates of the announcements of these initiatives, the one-year moratorium and reduction of interest rates on intervention facilities through DMBS and OFIS are effective from 1 March 2020.
Grant of One-year Moratorium for CBN’S Intervention Facilities
The CBN has granted borrowers of its intervention facilities through participating OFIS a one- year moratorium. The moratorium period commences on 1 March 2020. The one-year moratorium is expressed in similar terms as that in relation to DMBS in the CBN’S 16 March 2020 Circular. The CBN’S 16 March 2020 Circular stated as follows: “All CBN intervention facilities are hereby granted a further moratorium of one year on all principal repayments, effective March 1, 2020. This means that any intervention loans currently under moratorium are hereby granted additional period of the year.” In contrast to the 27 May 2020 Circular, the CBN in the 16 March 2020 Circular had further “directed” DMBS to provide new amortization schedules for all beneficiaries.
Reduction of Interest Rates on CBN’S Intervention Facilities
The CBN has reduced the interest rates on its intervention facilities through OFIS from 9% to 5% per annum. The reduction is effective from 1 March 2020. In a similar vein, in the 16 March 2020 Circular, the CBN had stated (in relation to DMBS) that: “Interest rates on all applicable CBN intervention facilities are hereby reduced from 9 to 5 percent per annum for 1 year effective March 1, 2020.”
Grant of Leave to Consider Restructuring of Tenor and Loan Terms
The CBN has granted approval to OFIS o consider temporary and time-limited restructuring of the tenor and loan terms for households and businesses affected by the COVID-19 outbreak. The CBN granted a similar regulatory forbearance to DMBS in the 16 March 2020 Circular. Accordingly, the 27 May 2020 Circular has now extended the regulatory forbearance to OFIS. In the 16
March 2020 Circular, the CBN had disclosed its resolve to work closely with DMBS to ensure that the use of the forbearance is “targeted, transparent and temporary”. In contrast, the 27 May 2020 Circular is silent in this respect. This notwithstanding, CBN would be expected to act in that regard in relation to the regulatory forbearance to OFIS in line with its supervisory and regulatory powers under section 61(1)(a) of BOFIA.
Conclusion
The CBN’S latest intervention is commendable in these extremely challenging times. However, as is the case with DMBS, OFIS are under no compulsion or obligation to take advantage of CBN’S regulatory forbearance. The 16 March 2020 and the 27 May 2020 Circulars merely grant DMBS and OFIS respectively leave to “consider” restructuring the applicable loans. This notwithstanding, DMBS and OFIS are expected to tap into the CBN’S initiatives to avert a tsunami of defaults, cash flow insolvencies of viable businesses and job losses.
In contrast to the CBN’S approach, Governments and Central (or Reserve) Banks in some countries such as Egypt, Albania, Bulgaria Czech, Kosovo, Montenegro, Philippines, Romania and Serbia have imposed mandatory moratorium on loan repayments. Furthermore, the Slovenian Parliament has adopted an emergency law requiring banks to allow a 12-month moratorium on payment of loans falling due after 12 March 2020. Hungary’s Government has passed a Decree for payment moratorium between 19 March 2020 and 31 December 2020.
Courtesy:
Legal Practitioners
