Directive to curb accumulation of non-performing loans, hamper to financial system stability.
The Central Bank of Nigeria, CBN, on Wednesday barred all financial institutions from extending further credit facilities to loan defaulters in the country’s banking system.
Shortly after assuming office last month, the newly appointed CBN Governor, Godwin Emefiele, pledged to go after loan defaulters, who have continued to accumulate bad debts on credit facilities advanced to them.
In a letter No. BSD/DIR/GEN/LAB/07/015 dated June 30, 2014, to all deposit money banks, DMBs, Development Finance Institutions, DFIs, and the Asset Management Corporation of Nigeria, AMCON, CBN’s Director of Banking Supervision, Tokunbo Martins, said no financial institution should give any loan to defaulters without its prior approval.
“No Institution shall, except with the prior written approval of the CBN, grant a facility to any potential borrower who has a delinquent facility of any amount whatsoever which has been taken over by the Asset Management Company of Nigeria (AMCON),” the CBN said.
The CBN expressed concern at the level of impunity by some bank borrowers who default on their loans from some institutions, only for further credit facilities to be extended to them by other Institutions under the same or sometimes different identity.
Mrs. Martins said this development was capable of triggering serial defaults and an accumulation of non-performing loans, NPLs, which could negatively impact liquidity in the financial sector and ultimately hamper its stability.
The directive covers defaulters to the tune of N500 million and above in DMBs, and N250 million and above in development banks and banks in liquidation.
Besides, all Institutions are expected to ensure that all returns on credit facilities granted and their performance status were rendered on the Credit Risk Management System, CRMS, while also reporting to two Credit Bureaux in line with previous circulars of September 10, 2013 and October 21, 2013 respectively.
As part of the credit appraisal process, Mrs. Martins reminded institutions that it was mandatory for them to perform credit checks on a potential borrower on CRMS and from at least two Credit Bureaux in line with its circular of April 30, 2010.
While stating that the prohibition threshold would regularly be reviewed to inculcate responsible and appropriate credit culture in borrowers, she said the CBN would not hesitate to invoke the relevant provisions of the law against any defaulting organization and their directors.
Part of the penalty against those that contravene the directive include an immediate 150 per cent provision of the affected facility in addition to other existing regulatory sanctions that the CBN may apply.
Failure to report a facility, its status on the CRMS, or to at least two Credit Bureaux as required, would be considered as concealment and misrepresentation.
The penalty for such an offence, the CBN said, shall be in accordance with the relevant provisions of the Banks and Other Financial Institutions Act, BOFIA, LFN 2004 CAP B3.
In addition, the Chief Executive Officer, Chief Financial Officer, Chief Compliance Officer (or their equivalents) shall be liable to sanctions in line with the relevant provisions of the BOFIA.