No more place to hide for loan defaulters as CBN goes after accounts

The Central Bank of Nigeria (CBN) has taken a hard stand on the issue of bad loans in the banking sector which is limiting the banks capacity to increase lending to SMEs as a result of unpaid loans.

At the end of the Bankers’ Committee meeting in Abuja on Monday, the CBN in partnership with the NIBSS and the committee have decided to launch an initiative that will allow lenders to recover loans from deposit accounts of loan defaulters from any bank or financial institution in the country.

The Deputy Governor of CBN, who announced the initiative at the end of the meeting, said the CBN understood the challenges why credit has not been growing, noting one of such is the appetite of banks to lend especially when you have customers that willingly refuse to pay their loans.

“In this respect, we have come up with a new clause that will be included in the offer letters that will be granted going forward.”

Ahmad also said, “This is going to be a credit risk protection clause. Basically, it will contain the BVN details and TIN of the customers and more or less it will be a commitment on the part of the customers that you agree that should you default on the loan, the total amount of deposits you have across the banking industry would be applied towards repaying the loan.”

National Daily gathered that that the new system might be handled by the NIBSS on behalf of the banks in exchange for fees. This is how we understand it will work.

It was gathered that the banks will continue to recover their money from any accounts tied to the BVN until it is fully paid. They might also limit to just 90% of the amount in the bank.

It is however not clear how FinTEch firms also operating in the lending space will benefit from this initiative. Most of them are not deposit-taking banks or institutions.

The CBN has mandated Nigerian banks to increase lending to SME’s and the private sector in general rather than concentrate on a few obligors (debtors).

Recent report from the National Bureau of Statistics revealed that about 1,887,877 obligors (debtors) borrowed about N15.2 trillion as at the first quarter of 2019.

Out of this amount, the top 100 debtors alone borrowed N7.4 trillion or 47% of total credit to the private sector. Top 5 customers alone borrowed N2 trillion.

To provide bank and other lending institutions comfort and as an incentive, the CBN believes moves like this will help reduce default rates among banks. Non-performing Loans (NPL) was 9.36% as of June 2019, the lowest in about 40 months. Initiatives like these as well as the collateral registry is expected to help reduce credit risk.