Here's Why CBN's Suspension Of Loan Payments Does Not Apply To All Banks

Two weeks ago, the Central Bank of Nigeria (CBN) directed banks and other financial institutions to suspend repayment of loans for customers in other to mitigate COVID-19 effect on individuals' and households' income. However, it has been learnt that the directive will not apply to some banks, meaning some customers will not benefit from the suspension of loan repayment amidst COVID-19.

The announcement by the CBN had caused confusion among some customers who were still being contacted to pay their debts to banks. While clarifying the directive by CBN, the Managing Director/Chief Executive Officer of Mainstreet Microfinance Bank Limited, Adegoke Adegbami said the public had misinterpreted the directive.

Adegbami explained that the directive is only for CBN-related loans. He said the apex bank gave the moratorium on repayment for loans given directly by the CBN to individuals or corporate organisations. Also, the directive is for loans issued by CBN through commercial banks and other financial institutions; such loan is called on-lending.

He said the banks that have on-lending loans are expected to suspend repayment of such loan given to customers, but banks and other financial institutions are not directive to suspend repayment of loans issued by the banks themselves and have nothing to do with CBN. He said the moratorium doesn't cover non-CBN loans.

"On the issue of loan extension or moratorium, it is the choice of the MfB to decide what to do. Don’t forget it’s a business relationship; the banks need the customers as much as the customers need the banks. It is in the interest of each party that the other party survives this crisis period. There will be life after this COVID-19.

"I have also heard some people say that the CBN directed us to give loan extension to customers. That is not true. The governor made reference to extension or moratorium on the CBN loans. People should know that the CBN is not only a regulator but also a bank. That is why it is called Central Bank of Nigeria; because it is a bank.

"The CBN also gives loans to people and corporate organisations. Some of those loans they give directly to people while they pass others through other banks like commercial banks, development banks and microfinance banks. The ones that are passed through other banks are called on-lending. CBN in a way is a development bank. CBN’s money is public money and CBN is not after profit. It is those CBN loans that the governor was referring to.

"Any bank that has loans under the CBN on-lending schemes must automatically apply the moratorium and pass the effects to the end beneficiaries. At present, we don’t have any on-lending from the CBN. Currently, we have on-lending from BOI and DBN. For BOI, they have approved the moratorium and we have applied them to our customers accordingly. For DBN, we are working out that with them and we will apply to our customers accordingly. But it must be noted that on-lending from these sources constitute only a small portion of our loan portfolio." He told The Nation.