Nigeria’s apex bank, the Central Bank of Nigeria (CBN) in its global standing instruction (GSI) guidelines published on Monday, has decided that effective from August 1, banks will be able to debit the accounts of loan holders in other banks to settle defaults.
The apex bank said the GSI, developed in collaboration with stakeholders, should be the last resort used by a bank to settle loan defaults and that the directive would apply to eligible loans granted from August 28, 2019.
“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 said.
The CBN 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.
The bank, however, 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.
The guidelines specified 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.
The CBN further said banks must regularly report to the CBN on recoveries made through the GSI and releases made to other banks.
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