Godwin Emefiele, CBN Governor

…Analysts demand coverage for instant credit vendors

By Julius Alagbe

The announcement, last week, by the Central Bank of Nigeria, CBN that its new policy of inter-bank debit of debtors’ accounts, would soon take off has received a thumb up from stakeholders and experts.
The policy is for the activation of a global standing instruction that permits inter-bank debits on debtors account. The newly introduced Global Standing Instruction (GSI) which is expected to take effect from August 1, 2020, would serve as a last resort by a creditor bank.
Experts who spoke to Business Hallmark on the subject said the move will reduce the burden of non-performing loans and lighten lenders’ risk management costs, thus increasing access to credit for eligible businesses and individuals. Specifically, Tellimer, an emerging market financial service firm based in London, said the guidelines will improve repayments, reduce NPL ratios, serve as a credit profiling tool and improve private sector credit.
Meanwhile, the apex bank has further explained that only registered financial institutions are authorised to activate the mandate and it only applies to individual accounts.
In its view, the analysts at Tellimer think this is a forbearance measure to cushion the growing NPL figures of banks owing to the CBN’s 65% LDR mandate. Some other industry observers generally feel that Nigerian banks debtors will be in trouble following the activation of the policy. As a result, the prognosis is that the banking sector non-performing loan ratio will drop significantly.
Tellimer’s equity research analyst, Nkemdilim Nwadialor, explained that banks will be allowed without recourse to the borrower, to recover past-due obligations. These include both principal and accrued interest, but exclude any penalties from a defaulting borrower through a direct debit.
These direct debits could be from deposits/investments held in the borrower’s qualifying bank accounts with participating financial institutions (PFI’s). The thinking then is that the GSI mandate is effectively the creation of a credit profiling database.

In addition to debiting the accounts of defaulters, the GSI as maintained by the Nigeria Inter-Bank Settlement System (NIBSS), which is the custodian of BVN and holds records of all bank accounts in the country – is only applicable to an individual or joint individual accounts.
Tellimer explained that the NIBSS will also create and maintain a watch-list of consistent loan defaulters to enable banks to screen out problem lenders and disburse loans more prudently. The GSI will be applied retrospectively for loans disbursed from August 28, 2019.
According to the GSI guidelines as released last week, it requires lenders to properly educate borrowers about the mandate and its implications. Tellimer said this will now be included in the loan application process going forward but also applied to eligible (individual loans) granted from August 28, 2019.
“Once a debtor within this category defaults on a loan, the GSI mandate is activated in the creditor bank. Once triggered, the available accounts for recovery are identified, available balances for the accounts are retrieved and funds equal to the past due obligation(s) are recovered from these accounts”, Tellimer explained.
According to the report, analysts recognize that some other financial institutions are presently not covered under the GSI. Tellimer says it is aware that a growing portion of private sector credit has lately come from fintech lenders such as Carbon, Migo, Branch and Fairmoney, who will undeniably benefit from the introduction of such a provision.
However, the GSI guidelines currently only authorize recognized finance institutions to initiate the GSI trigger, an analyst said. Given that coverage for instant creditors in this regard is desirable, analysts task the apex bank to take remedial steps to include them, as financial technologies firms provide accessible credit supports, analysts explained.
The firm’s analyst stated that consumer credit lending to individuals and private households accounts presently for about 10% of loan book coverage in Nigeria. With the introduction of the CBN’s LDR mandate, many banks had lamented the potential rise in NPL’s that could follow the implementation of the policy considering how little recourse the banks had in pursuing defaulters.
The CBN in mediation with the financial institutions realized that the biometric identification number (BVN) system implemented to curb or reduce illegal banking transactions and to reduce fraud in the banking system, could also be used to improve the private sector credit repayment culture.
Tellimer’s analyst said banks, however, need to tread with caution as the guidelines include penalties for even the slightest misconduct.
Meanwhile, the CBN has also listed some sanctions for banks and other financial institutions in case of violation of any of its provisions. The apex bank stated that where a Creditor Bank activates a Global Standing Instruction mandate in error which is inconsistent with Prudential Guidelines, a fine of N500, 000 per incident is applicable.
Also, where a PFI incorrectly places a CBN approved restriction on an eligible account to shield it from the GSI Trigger, the erring PFI shall be fined to the tune of the amount in that ‘restricted/shielded’ eligible account. If PFI fails to grant the GSI permission to perform a status enquiry check or to debit an eligible account, the PFI shall pay a flat fine of N100, 000 per initial incident and each subsequent repeat regardless of the GSI Trigger Amount.
Again, CBN stated that where an account is debited in error due to an error from the PFI, the erring PFI shall pay a fine equivalent to the amount erroneously debited to the wrong account. Stressing further, CBN indicates that where the arbitrator rules against the Creditor Bank for a disputed GSI claim, the creditor bank shall pay a fine of N10 million or 10% of the disputed sum, whichever is greater.
“Where a Creditor Bank includes Penal Charge in the GSI Trigger amount, in the event of a Successful GSI Trigger, the Creditor Bank shall refund the full penalties charged to the borrower with interest from the date of GSI trigger to refund date”, the CBN stated.
An ex-banker, Mr Victor Ochiegbu, in a chat with Business Hallmark hailed the GSI policy, describing it as long overdue and shared his experience on how the policy could have helped him was it to have been in place even before now.
‘It is a nice move and indeed a long overdue one. Some of us had issues and faced too many disciplinary committees because of some of these serial debtors. Anyway, it’s better late than never. A welcome development I must say. I hope it’s religiously implemented and the inherent benefits achieved especially the ease of getting credit by genuine business people.
I remember in 2009 I gave a customer N100m. This customer defaulted and ran to another bank and got another credit from them. Our banking system could not help us then and indeed, we later found that the same customer had bad loans with three other banks. With the GSI, banks will be able to know a performing debtor. When you commit a crime in Germany, all the EU Countries will be aware and countries like the US, Canada, etc will be aware too. That’s how banking is supposed to be.’
On the stipulated sanctions being introduced by the apex bank, Ochiegbu says that also would be helpful:
‘Yeah. For sure. Without legal backing, no bank can instruct or advise another bank to put a lien on an account and make such deductions. BVN is more of a tool to fight financial crimes. Our problems will however still have to do with effective implementation across the board. Otherwise, there might be some powerful persons you wouldn’t dare touch their accounts.” And that would be ‘where the rubber meets the road,’ literally speaking!

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