The Central Bank of Nigeria (CBN) has ordered the country’s lenders to debit the accounts of all debtors directly.
The CBN gave the directive in a series of guidelines it released Monday and said the operation would commence from August 1, 2020. The guidelines on Global Standing Instruction (GSI), the regulator said, are expected to help banks debit loan defaulters without recourse to the account owners.
CBN, in its guidelines, defined a GSI transaction as “All balance inquiry, debit and credit activity that results when a Creditor bank attempts recovery using GSI”.
“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,” CBN further explained.
According to the central bank, the objectives of this order are to facilitate an improved credit repayment culture; reducing Non-Performing Loans (NPLs) in the nation’s banking industry, and watch-listing consistent loan defaulters.
The CBN has set a limit of 5% non-performing loans for the country’s banks. A rise in NPLs was one of the factors that crippled Nigeria’s financial system during the global financial crisis of 2008-9.
CBN listed the types of accounts that qualify for GSI as individual Savings Accounts; Individual Current Accounts; Individual Domiciliary Accounts; Investment/Deposit Accounts (Naira and Foreign Currency), and Electronic Wallets.
In the execution of the GSI, the central bank identifies roles for all the parties involved: the lenders, the customers, and the CBN itself.
It said the lenders’ debtors are to execute a GSI mandate in hard copy or digital form and ensure that the terms and conditions of the mandate are clearly understood before execution. They are also to ensure that all qualifying accounts are linked to his/her BVN.
Where a borrower’s qualifying account is not linked to his or her BVN, the regulator said: “such a BVN shall be Watch-Listed”.
For the creditor banks, they are to educate their customers properly about the GSI mandate as well as its implications and going forward enshrine these rules in their loan application processes.
To further guard against loan default, the central bank ordered the banks to review and validate the GSI mandate instrument prior to loan disbursement.