CBN Says Banks Can Now Debit Accounts Of Loan Defaulters In Other Banks By August 1

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By Kolawole Ojebisi

Starting from August 1, banks will be able to debit the accounts of loan holders in other banks to clear defaults.

This was revealed in Global Standing Instruction (GSI) guidelines published by the Central Bank of Nigeria (CBN) on Monday.

According to the CBN, the GSI, which was developed in collaboration with stakeholders, should be the last resort used by a bank to settle loan defaults.CBN Says Banks Can

Read also: FX Repatriation: CBN Governor, Emefiele Allays Foreign Investors Fears

The apex bank said the directive would apply to eligible loans granted from August 28, 2019.

At its meeting held on August 26, 2019, the bankers’ committee of the CBN agreed that loan defaults will be settled using customers’ deposits in other banks.

Read also: CBN’s Policy, FX Issue, Others Threatening Nigerian Banks’ Survival, Stakeholders Cry Out

“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,” the guideline document read.

A bank setoff happens when a financial institution removes money from a deposit account to cover a missed payment on a loan.

Read also: How COVID 19 Crisis Forced CBN To Reduce MPR to 12.50%, Other Metrics Remain Unchanged

The apex bank listed the objectives of the GSI to include facilitating an improved credit repayment culture, reducing Non-Performing Loans (NPLs) in the banking industry and watch-listing consistent loan defaulters.

It warned banks not to use the GSI to recover penal charges that may have accrued on a credit/loan and included as part of outstanding balances/obligations of a borrower.

Read also: Covid-19 Vaccine: CBN Announces Plan To Fund Nigerian Researchers, Scientists

According to the guidelines, the account types that the standing instruction can be applied to include individual and joint savings accounts, current accounts, domiciliary accounts, investment/deposit accounts (naira and foreign currency), and electronic wallets.

Banks already have to get the credit history of customers before approving loans.

The CBN said banks must be transparent in their transaction with the apex bank by regularly reporting to the CBN on recoveries made through the GSI and releases made to other banks.

Read also: Pandemic: CBN Asks Banks To Recalibrate Business Models

In the event of wrongful debit, the guideline provides that an erring bank would be made to take full liability and pay a flat fine of N500,000 per incident.

'Dotun Akintomide
'Dotun Akintomide
'Dotun Akintomide's journalism works intersect business, environment, politics and developmental issues. Among a number of local and international publications, his work has appeared in the New York Times. He's a winner of the National Youth Service Corps (NYSC) Award. Currently, the Online Editor at The New Diplomat, Akintomide has produced reports that uniquely spoke to Nigeria's experience on Climate Change issues. When Akintomide is not writing, volunteering or working on a media project, you can find him seeing beautiful sites like the sandy beaches that bedecked the Lagos coastline.

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