Senate debates bill to allow banks debit loan defaulters’ accounts through BVN

A new bill that will allow banks to deduct money from the accounts of loan defaulters has passed second reading at the Senate.

The bill seeks to allow the creditor bank to track the account(s) of loan defaulters through the Bank Verification Number (BVN) and recover past and due obligation without recourse to the borrower.

The legislation also seeks to watchlist frequent loan defaulters with a view to track and blacklist them, provide penalties for breaches and violations of obligations as well as enhance loan recovery across banking sectors in Nigeria.

The bill, sponsored by Niger senator, Muhammed Musa, passed second reading after a brief deliberation.

Leading the debate, Mr Musa said the essence of the bill is to establish a unified scheme for a sound financial system that will facilitate and improve credit repayment culture and also streamline loan recovery.

This, he said, is necessary because credit is seen as the bloodstream of the banking business and the situation of Nigeria today demands an injection of a healthy bank credit and recovery system that will effectively fasten the pace of the growth.

“However, every lending institution finds itself from time to time with loans of which the risk of loss is greater than anticipated. In every lending environment, there are two types of borrowers – the good and the bad.

“Lest we forget, before the deregulation of our banking system, the ability of our banks to recover loans has been the bedrock behind the collapse of many commercial banks.

“Most economies have experienced a high increased rate of unemployment as a result of such negligence of the credit system,” he explained.

“Today, the situation in Nigeria has become very serious and seemingly intractable and thereby frustrate our efforts as a nation towards private driven economy as well as economic diversification and growth,” he said.

The lawmaker also noted that there is a court judgment that gives banks the right to take back their money from defaulters from any of the banks where they have deposits.

While senators Isah Jibrin and Tolu Odebiyi supported the motion, Sam Egwu remained neutral, citing farmers who experience unforeseen disasters and end up defaulting.

The bill was referred to the Senate committee on banking, finance and other financial institutions for further legislative work. The committee is to report back in four weeks.

Currently, banks transfer their non-recoverable loans, classified as bad debts, to the Assets Management Company of Nigeria (AMCON) which buys the loans from the banks at a reduced rate and then tries to recover the loans from the debtors.

However, many financial experts have questioned the process saying it is susceptible to fraud by corrupt persons and businesses who can take advantage of the system to borrow funds they never intended to pay back.