GSI: CBN Matches Words with Action

Godwin Emefiele
Godwin Emefiele

The strategy of the Central Bank of Nigeria to tackle the menace of non-performing loan in the Nigerian banking industry may have started yielding result as the apex bank announced that it had commenced the process of recovering about N1.6billion from individual debtors. Within nine days in August, N50million was recovered. The banking regulatory authority is confident that recovery will increase significantly as it points its searchlight to the big companies and small and medium enterprises. Bamidele Famoofo writes

The move to discourage borrowing without the intent to pay back by borrowers may have commenced in earnest as the Central Bank of Nigeria (CBN), has made true its promise to empower banks to take back what their debtors owe them from their accounts.

As at August 9 (nine days after the new policy took effect), the apex bank hinted that the banks had recovered a total sum of N50million from loan defaulters. The CBN said it had already treated cases of defaulters involving 26,057 accounts valued at N1.660 billion as at August 9, 2020.

Director of Financial and Regulation of the CBN, Kevin Amugo, has warned that the Global Standing Instruction (GSI) policy had come to stay as he said guidelines will soon be issued on recovery of non-performing loans from companies and SMEs.

“What we have done is the first tranche of the GSI policy, which is limited to individual accounts. We will soon release the operational guidelines that will extend it to corporate accounts. Then the level of recovery will be quite huge,” Amugo said.

He added: “The level of recovery would grow significantly when corporate accounts and other deposit financial institutions are included in the GSI protocol. This recovery today may appear small, but it is not little because it will grow when we include corporate accounts. He added that from the recovery so far recorded, loan recovery under the GSI might not be 100 per cent but the good thing about it is that there are no hiding places any longer for the predatory borrowers. Wherever their accounts are, as long as they are in the banking system, they are open to being accessed if they have defaulted on their loan obligations with their banks.”

Stakeholders in the banking industry believe the apex regulatory body of the financial industry is headed in the right direction to curb the challenge of loan –default confronting the industry.

As reported by THISDAY earlier, President of the Chartered Institute of Bankers of Nigeria (CIBN), Mr. Bayo Olugbemi, noted that the scourge of bad loans has been a long-standing menace to the Nigerian banking sector and described the introduction of the GSI as a new dawn in credit management and debt recovery process in our clime.

Olugbemi said: “The issues of NPLs, particularly those emanating from the attitude of serial and unrepentant debtors will be more efficiently resolved as a result of this policy because a lot of these debtors move like herdsmen from one bank to the other leaving bad debts in their trail.

“Let me at this junction state that the CIBN is fully in support of the GSI policy, which will not only enhance the loan recovery process and financial system stability, but also promote economic prosperity because when borrowers repay their loans, funds will be made available for others to encourage shared prosperity.

“We needed to curb the cake sharing culture mentality of people that take loan and not use the money for specifically what it was meant for. The theme of this series is very apt in view of the experiences in the Nigerian financial system.”

Also, the President of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Mrs. Saratu Aliyu, who was represented by Mrs. Margaret Orakwusi, commended the CBN for introducing the GSI policy, which will improve credit repayment culture and reduce the volume of NPLs in the Nigerian banking system by watch-listing chronic loan defaulters in the system.

Aliyu said: “As the voice of the Nigerian businesses, the NACCIMA is of the opinion that the GSI policy has the capacity to promote a stable financial system and enhance loan recovery across the Nigerian banking system.

“The objective of the GSI may not be achieved if it is limited to personal accounts given that majority of bad debts in Nigeria, according to reports, are corporate loans rather than individual loans.”

The NACCIMA, however, noted that the guideline did not provide for sanctions against banks that might wrongly debit customers’ accounts under the GSI.

Also, an industry player, Managing Director and Chief Executive Officer of the First Bank of Nigeria (FBN), Mr. Adesola Adeduntan, who was represented by the Chief Credit Officer of the FBN, Mr. Olusegun Alebiosu, said the introduction of GSI was a relief to the banking sector because it provided a coordinated approach to addressing the NPLs’ issues in the industry.

According to the CBN, “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 bank also 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. Central Bank 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. 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.