The Central Bank of Nigeria (CBN) has released the operational guidelines on commencement of Global Standing Instruction (GSI) that mandates creditor banks to deduct bad loans from bank balances of defaulters in any bank in the country. The apex bank in a circular signed by Kevin N. Amugo, Director, Financial Policy and Regulation Department to deposit money banks (DMBs) and other financial institutions (OFIs) approved the go-live of the GSI.
The guidelines also stipulated that, “where a Creditor Bank activates a Global Standing Instruction mandate in error (including when it is inconsistent with Prudential Guidelines), the erring Creditor Bank shall pay a flat fine of N500,000.00 per incident and the associated GSI charges borne by the Creditor Bank shall not be refundable. The GSI shall serve as a last resort by a Creditor bank, without recourse to the Borrower, to recover past due obligations (Principal and Accrued Interest only, excluding any Penal Charges) from a defaulting Borrower through a direct set-off from deposits/investments held in the Borrower’s qualifying bank accounts with participating financial institutions. The objective of GSI, the CBN disclosed would facilitate an improved credit repayment culture, reduce Non-Performing Loans (NPLs) in the banking industry and Watch-listing consistent loan defaulters. The apex bank, however, noted that the GSI shall not serve as a tool to recover ANY Penal Charges that may have accrued on a credit/loan and included as part of outstanding balances/obligations of a borrower.
It further states that “where a participating financial institution fails to grant the GSI permission to debit an eligible account, the erring PFI shall pay a flat fine of N100,000.00 (per initial incident and each subsequent repeat request/instruction), regardless of the GSI Trigger Amount. The guidelines stipulate that participating banks will have to get their borrowers to sign a right of setoff against their balances across any bank. The right of set-off has existed among banks in the past but hasn’t been as effective as it should be. This arrangement should now make it easier for banks to benefit as NIBSS will basically operate it on their behalf. It would be recalled that the CBN in conjunction with the NIBSS and the Bankers’ Committee 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. It was reported that the decision was announced by Aishah Ahmad, the Deputy Governor of the CBN at the end of the meeting of the Bankers’ Committee held in Abuja on Monday 26th of August, 2019.
