CBN Grants Banks’ Approval To Debit Loan Defaulters

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The Central Bank of Nigeria (CBN) has given approval to the banks to debit any defaulting debtor across all the banks where the debtor has funds.

The CBN also approved that the clause permitting the banks to apply this measure should be part of loan agreements to all customers.

This measure is one of the new mitigating conditions against the spate of Non-Performing Loans (NPLS) as the CBN is pushing the banks to rev up lending to the real and other sectors of the economy. This new measure was disclosed yesterday at the end of the October 2019 bankers committee meeting.

Also, recall the CBN recently reviewed the loan to deposit ratio to 60 per cent which lapsed September 30th 2019. The CBN in another circular raised the LDR to 65 per cent in the second phase of prepping banks lending and has given up to December 31st 2019 for all banks to comply.

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At the end of the 60 per cent phase of LDR implementation, the CBN debited 12 banks a total sum of N500bn for failure to meet up the threshold.

The N500bn debited will be kept in the vault of the CBN without any interest and the banks can’t invest the money until the CBN releases the money to them.

Briefing journalists at the end of the bankers committee meeting, Ahmed Abdullahi, the CBN Director, Banking Supervision said: “To encourage the banks to lend, the CBN has agreed that there will be a clause that an obligor will sign that will enable the bank net off against any amount he or she has in any other bank.”

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Mr Ebenezer Onyeagwu, the MD Zenith Bank, said LDR has helped to boost credit in the system. “It’s not a fine or sanction like has been reported. Yes the debit has taken place at a particular date, but that’s at the commencement point,” he explained.

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Explaining further the decisions of the committee, Mubola Faloye, the Executive Director, Risk, Standard Chartered Bank said “one of the things the committee reiterated is that there are some vulnerable sectors the committee will be lending to and it’s important that we mitigate our risks and have what we call a credit cross-default clause that allows us to net off the obligations of defaulting party against any other money the defaulting party has in the industry.”

“That is good support from the CBN for the banking community and it’s very important for us to include that clause in our loan agreement” she emphasized, adding that the CBN is supporting the banks to enforce that agreement when the need arises.

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