By Adedapo Adesanya
The Central Bank of Nigeria (CBN) in conjunction with Nigeria Inter-Bank Settlement System (NIBSS) and the Bankers’ Committee have agreed to launch an initiative that will allow lenders to recover loans from deposit accounts of loan defaulters from any bank or financial institution in the country.
This was disclosed by Ms Aishah Ahmad, the Deputy Governor of the Central Bank of Nigeria at the end of the meeting of the Bankers’ Committee held in Abuja on Monday, August 26, 2019.
According to Ms Ahmad, the directive was to encourage banks to increase lending in the country with more comfort.
“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,” the banker formerly with the defunct Diamond Bank said.
Ms Ahmad also said, “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.
“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 added.
The CBN deputy governor further noted that the directive will enable banks to lend with more confidence especially to those within the SME sector confident that moves like this will help reduce default rates among banks.
Speaking further, Ms Ahmad said the apex bank is also guarding against increasing the rate of non-performing loans in the system despite the recent directive that banks should increase the loan to deposit ratio (LDR) to 60 percent.
Non-Performing Loans (NPL) was 9.36 percent as of June 2019, the lowest in about 40 months. Initiatives like these as well as the collateral registry is expected to help reduce credit risk.