Global standing instructions cause stir in banking sector

Global standing instructions cause stir in banking sector

From August 1, 2020, a loan defaulter who has funds in other bank will have those funds withdrawn to offset his debts owed to any financial institution, the Central Bank of Nigeria has declared. However, this declaration has caused a stir in the nation’s banking sector.

This declaration is in line with the Global Standing Instructions, (GSI) which was released recently by the CBN in line with international standard practices. However, since the declaration by the apex bank, there has been uneasy calm in the banking sector especially with regards to seamless implementation of the policy by Deposit Money Banks. Also, many see the policy as a trap for chronic loan defaulters who have always had their way in evading loan repayment.

The CBN in a circular issued to commercial banks and other financial institutions titled “Operational Guidelines on global standing instruction- Individuals’ says it is aimed at reducing nonperforming loans as well as keeping a close eye on chronic loan defaulters.

Checks by Daily Times shows that GSI guidelines gives banks the ultimate power to debit loan and accrued interest due from bank accounts of loan defaulters across all banking institutions using the Bank Verification Numbers of the customers.

The entire process and operations will be managed by the Nigerian Inter-Bank Settlement System (NIBSS). However, the process is said not to be clearly spelled out especially with regards to corporate bodies and entities who are also loan defaulters. Stakeholders in the banking sector fear it may just pile up litigation upon litigation. Also, by the new pronouncement, any loan defaulter having funds across any financial institution should prepare to receive a debit alert at any time.

However, in the situation of wrong debit, the customer can report the bank to the regulatory authorities and the bank will pay N500, 000 as fine. Experts have lent their views to the recent guidelines.

An economist and the National President, Association of Capital Market Academics of Nigeria (ACMAN), Prof. Uche Uwaleke supported the guidelines and its aim, saying the roles of all the stakeholders involved in the GSI is clearly spelt out, from the borrower, the participating bank, the NIBBS and the Central Bank

Asked whether the guidelines will not amount to breach of trust between the creditor bank and the customers, he explained that “The creditor bank owes the duty of confidentiality to customers but there are also some conditions which is at the express permission of the borrower, especially when the customer accepts all the guidelines in the mandate from to access loans.

“The borrower must understand the terms and conditions of the GSI, The creditor banks explain to the borrower. Subsequently, when the customer doesn’t fulfill the law obligation, the banks has a right of set off after issuing the Customer a notice. But the right of set off had been only in one bank. Now, it is in all banks.

“Overtime, there has been a culture of borrowers in the country, and there are group of borrowers known as Predatory debtors’.

Therefore there must be a way to cure it, even the CBN brought some measures but these debtors still find a way of escaping which is what brought about AMCON and today, the agency is carrying over N5 trillion of toxic assets of bank debts. GSI will ensure nonperforming loan goes down and helping banks carry out good credit appraisal.”

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Speaking on how banks will recoup loans from corporate bodies if there is default, Uwaleke stated that the GSI is in specific reference, but in terms with cooperate entities, it deals more with cooperate governance.

As such, he urged banks to ensure that before credit is given, there must be analysis, ranging from purpose, and amount as well as repayment capacity of such organization as well as its collateral security. He said the value of the collateral should be higher than the value of money which is being taken, while advocating for a special court to treat cases arising from loan default, now that the GSI will be effective soon.

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Omotayo Yusuf

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