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CBN, banks go after loan defaulters, to seize deposits

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The honeymoon may be over for predatory borrowers in Nigeria’s financial sector as deposit money banks (DMBs) in the country have resolved to seize debtors’ deposits for loan settlement.

Deputy Governor, Financial System Stability at the Central Bank of Nigeria (CBN), Mrs. Aishah Ahmad, who disclosed this while briefing journalists on the outcome of the Bankers’ Committee meeting in Lagos yesterday, said the decision was taken to encourage banks to increase lending to the real sector of the economy. 

She further stated that the move was also meant to show that there would be no hiding place for loan defaulters, adding that defaulting debtors would lose their assets in the banking system.

According to her, henceforth, the offer letter given by DMBs to customers intending to borrow from the lenders would have a clause containing the Bank Verification Number (BVN) and Tax Identification Number (TIN) details of such customers and would require them to sign that if the loan defaults, the customers’ deposits in other banks can be seized by the creditor bank to settle the indebtedness.

She explained that the decision was also to support CBN’s recent directive that DMBs should maintain a minimum Loan to Deposit Ratio (LDR) of 60 per cent with effect from September 30, 2019.

Mrs. Ahmad, who said she was mandated by the CBN Governor, Mr. Godwin Emefiele, to address the special press briefing owing to the importance the apex bank attached to the issues discussed, said one of the reasons why credit has not been growing was that some customers deliberately refuse to pay their loans.

She said: “We are not unaware of the challenges/reasons why credit has not been growing. Part of that was 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.

“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.

Keep Naira clean

“This is not uncommon because banks already have rights of set-off within a bank, which means you take money from a bank, the bank usually has a clause in the letter that allows your bank to repay your loan from the assets you have with the bank. This is just extending it across the industry.”

She further announced that in its bid to increase lending to the economy, CBN had decided to establish a mortgage guarantee company to reduce credit risk in the mortgage finance sector and increase access to mortgage loans.

Also briefing journalists at the event, the Director, Banking Supervision Department, CBN, Mr. Ahmad Abdullahi, explained that the new directive only applies to fresh loan offers.

He noted that the development would boost the fortunes of credit bureaus in the country as it would encourage bank customers to have good credit scores that would make them eligible to access loans.

According to Abdullahi, “all new loans that are coming on board have to have BVN; there will be a clause whereby the borrower will have to sign an agreement that if for any reason there is a default of that particular loan that the bank has the right to set off with any deposit or any amount that the obligor has in the industry.

“We are also working on the credit scoring system in the banking industry whereby all obligors that want to get loan will get credit score that will enable them to have easy access to credit. It will be all the assets within the banking industry.”

Stressing the need for the new directive, the Group Managing Director, Guaranty Trust Bank, Mr. Segun Agbaje, told journalists that banks have discovered that some debtors who refuse to pay their debts deliberately stop funding their bank accounts and move their funds to other banks.

According to him, the new directive was mainly targeted at such dishonest customers.

The GTB CEO said that apart from encouraging retail lending, DMBs had also decided to step up efforts to boost consumer credit in the economy.

“There is the push in the country now to go into retail and consumer lending. Over the last couple of years, banks have been giving loans to salary advances to customers. One of the things CBN want to do is pure consumer credit, where you will be able to get loans to buy cars, where supermarkets start to extend credit and as incentives to help the banks,” Agbaje stated.

Also, the Group Managing Director, Access Bank, Mr. Herbert Wigwe, announced that in line with the Bankers’ Committee’s efforts to increase lending to the creative sector of the economy, especially for fashion, movies (Nollywood), music and information technology (IT) hubs, the committee is partnering with the Lagos State government to develop the areas around the National Theatre in Lagos. According to him, the project, which is on a pilot run, would likely take off before the end of the year.

Wigwe disclosed that apart from Lagos, a similar facility would be established in Kano and then eventually to other parts of the country.

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