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  • Business - Banking & Finance
  • Updated: August 18, 2020

Banks Now Debiting Debtors External Account, Withdraw N50m In Nine Days

Banks Now Debiting Debtors External Account, Withdraw N50m I

Nigerian banks recovered N50.32 million within nine days from debtors after the financial institutions began the Global Standing Instruction (GSI) which enables Nigerian banks to go after debtors' accounts in other banks to retrieve their loan. The implementation of the GSI began on August 1, 2020.

The GSI increased the rate of recovery of debt following the challenges banks face with Non-Performing Loans. Some debtors have been avoiding repayment and not servicing their debt - this promoted the Central Bank of Nigeria (CBN) to empower banks to apply the GSI.

AllNews had reported the new banking policy last month. While speaking about the exercise and impact it has had on the Nigerian industries, Director of financial policy and regulation, Kevin Amugo, said, “The CBN had introduced the GSI as part of measures to curtail the rising non-performing loans (NPLs) in the Nigerian banks and its impacts on the industry.

“It was specifically introduced to support the banking industry in reducing the rate of unserviced loans, improve loan recovery and recovery efforts of banks. The amount recovered was, however, insignificant compared with the total of N1.66 billion worth of bad debts by 26,057 customers triggered by the lending banks.

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“The size of the recovered NPLs was due to the fact that the CBN was still working on the GSI protocol for non-individual debtors, which means the recovery was made from individual loan defaulters," Amugo said at a webinar organised by the Chartered Institute of Bankers of Nigeria (CIBN) Dialogue Series 3.0.

Amugo also stated that "the CBN report showed that the NPLs ratio declined from 6.6 percent in April 2020 to 6.4 percent in June 2020; however the figure still remains above the 6 percent stipulated threshold by the CBN,” Amugo explained.

“Also, credit to the economy grew by N3.46 trillion, about 22 percent, of which new credit in June 2020 alone accounted for N773 billion, up from N412.7 billion in May 2020. The number of new borrowers similarly rose by about 42,000 to 93,578 from 51,700 in May.”

Meanwhile, First Bank's chief risk officer, Olusegun Alebiosu, who represented First Bank MD, Adesola Adeduntan, at the webinar said that the recovery figure will rise in time, “N50 million recovered is excellent; I am sure after one year, the number of recoveries will increase."

Alebiosu also stated that "GSI is what we have been looking forward to as a coordinated approach to addressing the NPL issue in the banking industry. You will agree with me that banks’ failure is not ordained, it’s just the behaviour of what we have. So, culture is a very big issue to credit; we need to address it.”

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Banks Risk Penalty For Wrongful Debit

AllNews learnt that other measures must have been taken before the banks enforce the new directive. Also, any bank that wrongfully debits any customer, will be fined N500,000 per incident. Also, banks are not allowed to use the GSI to recover penal charges accrued on a credit/loan and included as part of the outstanding balances/obligations of a borrower.

While all recoveries and releases through the CBN's new directive, GSI, must be reported to the CBN. Already, banks are sharing the credit history of their customers before approving loans, so the new directive is an upgrade empowering banks, even more, giving them control over the customer's account.

According to the guidelines, the account types that the standing instruction can be applied to include individual and joint savings accounts, current accounts, domiciliary accounts, investment/deposit accounts (naira and foreign currency), and electronic wallets. The CBN believes the GSI  will reduce non-performing loans (NPLs) in the banking industry, strengthen credit repayment among debtors and place loan defaulters on watch-list.

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