Central Bank’s GSI Initiative: An Overdue Revolution To Curb Bad Debts

By Oludare Mayowa

In a bid to curbing the activities of recalcitrant debtors in the banking industry, the Central Bank of Nigeria (CBN) early this week rolled out a policy that empowers financial institutions to recover their debt from borrowers and reduce the burden of Non-Performing Loans (NPLs) in the sector.

The regulatory bank initiative tagged Global Standing Instruction (GSI), which is expected to go live by August 1, 2020, will ensure that borrowers attach all their accounts in other financial institutions with their loan requests with standing instruction that in the event of default any money in other accounts held by them can be used to offset their debt. The fact that the CBN policy will ensure that banks can now use the deposits of those debtors in other banks to offset their debt without going through the cumbersome judicial process before they can recover their debt is a step further to secure the future and stability of the banking industry.

The policy was designed to complement the previous efforts through the credit bureau where banks and other financial institutions are expected to subject loan requests from their customers to scrutiny through a database of banks debtors to ensure that the customers are not exposed to other banks in a precarious condition while seeking fresh facilities in another bank.

The credit bureau, which is also an online initiative established to deter recalcitrant borrowers from moving from one bank to another to borrow without the intention of wanting to payback has not sufficiently addressed the challenges of NPLs in the industry, therefore the need to devise other measures to tighten up the system against recalcitrant debtors. The latest initiative, which was agreed upon by the CBN and the Bankers’ Committee in February this year, was a step further by the regulatory bank to fully curb the activities of recalcitrant debtors and ensure the stability of the banking sector.

However, on the face value, the GSI should largely address the challenges of bad debt in the industry and ensure discipline by borrowers some of who had gotten away with bad behaviour in the past through dubious means and with the help of the inefficient judicial system and weak credit and risk administration. Today, the Assets Management Corporations of Nigeria (AMCON) is saddled with over N5 trillion outstanding debt from the legacy debt from some failed banks in 2010 while the process of recovery has remained windy and challenging for the institution.

AMCON is saddled with huge seized assets of debtors in the process of debt recovery that they cannot dispose of due to the nature of those assets and the judicial roadblocks mounted on the path of the corporation by the debtors. The downside to the operations of the GSI is the absence of a relevant provision in the guidelines for the recovery of debt from people who may have the intention of devising other means to keep their funds away from the system to avoid being penalised through the activation of the standing instruction.

The GSI does not make provision for addressing insider abuse within the banking sector, which sometimes is huge and provides the way of escape for most debtors who have used their privileged position in the time past to accumulate huge debt without the willingness to repay. There should also be provisions for penalty for bank officials who failed to carry out the proper risk assessment and willingly approve unqualified loans as a result of interest or dereliction of duty.

The CBN should in addition to the new policy, engage the National Assembly on how to tighten the nose through effective legislation to curb loopholes in the existing rules and laws guiding the recovery of debt by financial institutions. There are some Nigerians businesses that will always devise an ingenious means to circumvent the process of debt recovery through whatever means and ensure that they get away with bad behaviour.

Notwithstanding the few lapses in the new policy, it is bound to revolutionise the banking industry and help to a certain extent curtail the activities of some person and businesses from exploiting the loopholes in the credit administration to fleece the system.
With a diligent pursuit of the policy by the regulatory bank, there shall be no hiding place for deliberate loan defaulters and debtors who are always ready to put obstacles on the path of their creditors from recovering outstanding debt.

The main deal breaker was the attachment of the BVN to track all the accounts of the debtors in other financial institutions for the purpose of redeeming and recovering their outstanding debt in the event of defaults. From investigations, there are many debtors on the books of banks and even AMCON, who are still living large with the proceeds of the loans they took from banks while the financial institutions are not able to recover the debts due to legal technicalities and the slow pace of judicial process in the country.

It is also important that both the banks and the CBN diligently prosecute this policy as a platform for establishing credible credit and risk administration system in the country.
This should also encourage banks and other financial institutions to carry out due diligence on their potential customers to ensure that they have what it takes to back whatever loan request being made. The country also needs an efficient credit system that will discourage cash transactions and encourage the acquisition of assets by those who have the means through credit and process of paying back in an orderly manner.

…Mayowa, a respected journalist is the publisher of GFD

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