The apex monetary authority of Nigeria, Central Bank of Nigeria (CBN) has issued guidelines aimed at reducing Non-Performing Loans (NPLs) in the banking sector and to monitor chronic loan defaulters whereby facilitating an improved credit repayment culture.
This is contained in the ‘Operational Guidelines on global standing instruction – Individuals’ circular that was issued by CBN to all banks and other financial institutions.
This new guideline is expected to take effect from the 1st of August, 2020. According to the GSI guidelines, banks have the power, vested on them by CBN to debit loans and accrued interest due from bank accounts of loan defaulters across the Nigerian banking system. The entire operations of the GSI will be managed by the NIBSS, through the Bank Verification Numbers (BVN) of customers.
Guidelines on global standing instruction
The guidelines on the Global Standing Instruction (GSI), which was signed by the Director, Financial Policy and Regulation Department, CBN, stated,
“The banks would review and validate the GSI mandate instrument prior to loan disbursement. They would indemnify the Nigeria Inter-Bank Settlement System and other participating financial institutions from all liabilities that may arise from inappropriate use of the GSI infrastructure,”
“The Bankers’ Committee, at its meeting on February 18, 2020, approved the go-live on the Global Standing Instruction, which aimed at facilitating an improved credit repayment culture; reducing non-performing loans in the Nigerian banking system; and watch-listing consistent loan defaulters,” it added.
The CBN added that the banks would retain copies of the physical or digital version of the executed GSI mandate and provide the same when required. According to CBN, the participating financial institutions must execute the GSI mandate agreement with NIBSS.
The guidelines stated that they must ensure that accounts in NIBSS’ ICAD are correctly tagged with correct Bank Verification Number, and ensure and maintain connectivity to the Nigeria Central Switch.
It also stated that “They must also ensure all qualifying accounts were properly maintained and visible to NIBSS on the industry customer accounts database or by any other service created or provisioned for this purpose”.
How Does GSI work
The GSI mandates that bank borrowers are expected to sign a hard or soft copy of the form, whereby all qualifying accounts will be linked to their BVN.
- Once a borrower defaults on an outstanding principal and interest, the bank instructs NIBSS to debit the bank account of the defaulter.
- Qualifying accounts include savings accounts, current accounts, domiciliary accounts, investment accounts, and joint accounts.
- These accounts are all expected to be linked to a BVN. If for any reason the borrower has an account that is not linked to their BVN, the account will be watchlisted.
What This Means For Entrepreneurs
This new development by the CBN to banks means that entrepreneurs who default in paying their loans and have funds in accounts across any bank in the country should expect debit alert from their respective banks, starting from the 1st of August.
These guidelines apply to savings accounts, current accounts, domiciliary accounts, domiciliary accounts, investment accounts, and joint accounts.
Also for an entrepreneur who is interested in a loan; as an applicant, a new clause has been introduced, which mandates you to give consent to your bank to debit your accounts in any Nigerian bank where you have funds in the event of you defaulting.
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