On August 1, a new policy that will deny serial bad debtors any cover to operate went live in the Nigerian banking system. The Central Bank of Nigeria (CBN) says the Global Standing Instruction (GSI) policy will facilitate improved credit repayment culture in the country; reduce non-performing loans (NPLs), and promote watch-listing of chronic loan defaulters in the Nigerian Banking System.
The policy, introduced by the CBN by virtue of Section 2 (d) of the CBN Act, 2007, is to promote a sound financial system and enhance loan recovery across the Nigerian banking sector. It was approved by the Bankers’ Committee on February 18, 2020.
On July 13, 2020, the Financial Policy and Regulation Department of the Central Bank of Nigeria (CBN) in circular No. FPRD/DIR/GEN/CIR/07/056 to all banks and other financial institutions announced the operational guidelines for the new policy for individual bank customers in the country.
To regulate effective implementation of the GSI process, including eligible loans granted by banks from August 28, 2019, the CBN issued the guidelines for all banks and other financial institutions.
The following explainer is to highlight not only the importance and significance of the GSI to the country’s banking and financial system, it will also show how the policy will work and the role of the different parties involved.
Under the GSI, it will no more be possible for a bank customer to take a loan or credit from one bank and refuse to pay back, while continuing to maintain several other accounts in other banks with enough credit balance that could have paid back the debt of the first bank.
For instance, with the new policy, if a bank customer or account holder is granted a loan or credit by a bank (say GTB), and defaults in paying back when the facility becomes due in line with the agreed GSI repayment mandate, GTB can contact any other bank(s) in the country where the defaulting customer holds an account(s) with credit balance that is enough to offset the full value of the loan or credit and recover the loan or credit from there.
For instance, if a customer takes a loan or credit from GTB and defaults in repaying according to agreed repayment schedule, GTB can contact Zenith Bank, Access Bank and First Bank, if the customer has accounts with sufficient credit balances in those banks, and the accounts are linked by his or her bank verification number (BVN), to recover the full value of the loan or credit without any further recourse to the defaulting customer.
Under the GSI, the creditor is the person responsible for setting-up, updating, triggering and deleting GSI mandates. The execution of GSI mandates to recover past due loan or credit obligations (principal and accrued interest only) from a defaulting borrower through a direct off-set or deduction from deposits/investments held in the borrower’s qualifying bank accounts with any PFI in Nigeria, is without further recourse to the borrower.
The banks are not allowed to deploy GSI as a tool to recover any penal charges that may have accrued or accumulated on a credit/loan by a customer included as part of outstanding balances or obligations he or she is owing. The GSI is a last resort by a creditor bank to recover its loan or credits.
The types of accounts that would be affected by the GSI policy include individual customer’s savings and current accounts; individual domiciliary account; investment or deposit accounts (Naira & foreign currency-denominated), and electronic wallets held by the customers.
Even if these accounts are held jointly, any money found in them as credit balances would still be recovered, as long as they are linked to the affected customer’s BVN.
Under the GSI, apart from the CBN, which is responsible for ensuring uninterrupted availability of the Credit Risk Management System (CRMS) platform and connectivity to NIBSS platform, various parties involved in the process have different roles to play. The parties include the borrower, creditor bank, PFIs, and the Nigeria Inter-Bank Settlement System (NIBSS).
Apart from the responsibility of executing the GSI mandate in hard copy or digital form, the CBN said the borrower is also responsible for ensuring that the terms and conditions of the mandate are clearly understood before execution.
GSI mandate is an instruction (written or digital) executed by a customer or Account Holder in a PFI who has borrowed money or taken a loan or credit from a bank authorizing the creditor bank to recover an amount specified by the creditor from any or all accounts maintained by the Account Holder across all PFIs in the country.
Also, the borrower is responsible for ensuring that all qualifying accounts are linked to his/her name bank verification number (BVN). Where any of the borrower’s accounts is found not linked to his/her BVN, such BVN would be placed on watch-list by the relevant anti-graft agencies, including the Economic and Financial Crimes Commission (EFCC).
On its part, the creditor bank, which is a participating financial institution (PFI) that granted a loan/credit to a borrower for which a GSI mandate was executed, is responsible for ensuring that detailed information the GSI policy and the mandate are included in their loan application process and borrowers properly educated about them and their implications before granting the loan or credit.
Each of the PFIs in the scheme shall conform to the minimum requirements, including being a financial institution duly licensed by the CBN; have adequate IT infrastructure to meet all the connectivity and protocol requirements at NIBSS and CBN; provide access to customers’ Nigeria Uniform Bank Account Number (NUBAN) accounts.
The bank will also review and validate the GSI mandate instrument prior to loan disbursement; indemnify the Nigeria Inter-Bank Settlement System (NIBSS) and other PFIs from all liabilities that may arise from inappropriate use of the GSI infrastructure.
Copies of the physical or digital versions of the executed GSI mandate are to be retained by the bank to be produced on demand; ensure the GSI trigger amount is only for outstanding principal amount and accrued interest, excluding any penal charges.
In addition, the bank has the responsibility to ensure compliance with CBN’s prudential guidelines applicable to all classification of loans, while the Managing Director/CEO of each PFI would routinely update the Board of Directors on the GSI process as it relates to frequency of use and amounts recovered or released as part of its risk management responsibilities.
For the PFIs, the CBN said they have the responsibility of executing the GSI mandate agreement with NIBSS; ensure all qualifying accounts are properly maintained and visible to NIBSS on the Banking Industry Customer Accounts Database (ICAD), or by any other service created or provisioned for this purpose.
The PFIs would also ensure that customer’s accounts in NIBSS’ ICAD are correctly tagged with the correct BVN linking the person; ensure and maintain connectivity to the Nigeria Central Switch, while ensuring all balance enquiries and debit advice received from NIBSS for GSI trigger is accepted and honoured in accordance with the master agreement, including GSI recall instructions.
The GSI Trigger is an electronic instruction from a creditor bank to NIBSS and all PFIs connected to NIBSS Instant Payment (NIP) platform to initiate a GSI transaction against a defaulting borrower subject to the provisions of the CBN Prudential Guidelines to deduct the outstanding principal amount and accrued interest on a loan or credit in Line with the terms stated in an executed offer letter.
The MD/CEO of each PFI shall routinely provide update to the Board of Directors on the GSI process as it relates to the frequency of use and amounts recovered or released.
The role of the NIBSS in the process is to execute the Master GSI agreement between PFIs; administer the back-end of the GSI services by utilizing NIP protocols where the creditor bank has initiated a balance enquiry, debit instructions on identified accounts and completes the GSI operations by instantly transferring the collated funds to the borrowers pre-designated repayment account in the creditor bank.
The NIBSS will also provide back-end related status report(s) to the CBN in a format and frequency, as may be required.
The agency is also to ensure that the availability of the ICAD database is uninterrupted for PFIs to update, while also rendering periodic reports as may be prescribed by the CBN, which is the regulatory agency responsible for uninterrupted availability of the Credit Risk Management System (CRMS) and connectivity to NIBSS platform.
Any creditor bank that activates a GSI mandate in error against any customer, apart from violating the CBN Prudential Guidelines shall be liable to a fine of N500,000 per incident, in addition to not getting the refund of all associated charges borne over the error.
Any PFI that wrongly places a CBN approved restriction on an eligible account to shield it from the GSI Trigger, resulting in the GSI being unable to either perform an account status check enquiry or debit the account shall be liable to a fine equivalent to the amount in the ‘restricted/shielded’ eligible account, an amount that would not be considered as part of any subsequent GSI Trigger amount, whether successful or not.
A PFI that fails to grant the GSI permission to perform an Account Status Enquiry Check/Request shall be liable to a fine of N100,000 per initial incident and each subsequent repeat request/instruction, regardless of the GSI Trigger amount.
A PFI that fails to grant the GSI permission to debit an eligible account shall be liable to pay a fine of N100,000 per initial incident and each subsequent repeat request/instruction, regardless of the GSI Trigger amount.
Besides, the erring PFI shall pay a fine equivalent to the balance in the account shielded from the GSI’s Debit Request, regardless of the GSI Trigger amount.
Where debits to a defaulter’s loan or credit accounts are unsuccessful due to a reduction in an amount previously blocked by the GSI, the PFI shall pay the equivalent of the blocked amount to the creditor bank, in addition to a fine of N100,000 per incident, regardless of the GSI Trigger Amount.
Where a customer’s account is debited in error due to a PFI wrongly tagging an account in NIBSS’ ICAD with the wrong unique identifier, the PFI primary responsibility shall be to immediately notify the creditor bank of the error, quoting relevant customer and GSI details, before promptly refunding the wrongly debited amount with the same amount of the GSI Debit.
There will be no additional charges accruing in same account, although the PFI will bear any other liabilities that may follow thereon, in addition to a fine equivalent to the amount erroneously debited to the wrong account.
Where the arbitrator rules against the creditor bank for a disputed GSI Transaction, the creditor bank shall pay an additional fine of N10 million or 10 per cent of the disputed sum, whichever is greater, in addition to the fines for any erroneous or otherwise disputed transaction.
Where a creditor bank includes penal charges in the GSI Trigger amount, in the event of a successful GSI Trigger, regardless of the amount recovered, the erring creditor bank shall refund the full penal charge amount to the borrower along with interest calculated using the penal rate from date of GSI trigger to refund date.
In event of both a successful and unsuccessful GSI trigger, the erring creditor bank shall pay a fine of N100,000 or equivalent of the penal charge amount, whichever is greater.
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