By Emeka Anaeto, Business Editor and Elizabeth Adegbesan
The Nigeria’s banking industry, last week, entered a major phase in its credit market with the activation of the Central Bank of Nigeria’s Global Standing Instruction (GSI) programme.
The GSI guidelines give banks the power to debit loan and accrued interest due from bank accounts of loan defaulters across the Nigerian banking system.
The Nigerian Interbank Settlement System, NIBSS, will manage the entire operations of the GSI on behalf of banks using customers Bank Verification Numbers (BVN).
Vanguard MoneyDigest, in a chat with an official of the CBN’s banking supervision department, learned that estimated N1.5trillion outstanding loans may come under hammer before end of this year if the borrowers remained recalcitrant.
Also, banks officials who spoke in confidence said they will start to draw the attention of their borrowing customers whose due dates are within three months to the consciousness of the GSI policy while all new borrowers would be required to sign the necessary agreements based on the policy.
Following the emergence of Coronavirus (COVID-19) pandemic, industry analysts believed that the banking industry would see about 50 percent rise in bad loans this year. As at end 2019 total bad loans stood at about N1.05 trillion.
Although welcomed, some bank customers and experts doubt the effectiveness of the GIS in checkmating the menace of recalcitrant and fraudulent borrowers.
What bank stakeholders have said concerning implementation
It is not a big issue for women borrowers –Founder, LAPO Microfinance Bank
Mr. Godwin Ehigiamusoe, Founder, LAPO MfB, has been involved in micro-lending for over two decades and LAPO’s customer base is largely women.
He, therefore, stated: “When we talk about the GSI policy and effect on borrowers especially women, I decided to put it side by side with men.
“It is not really a big issue for women for a number of reasons. We do know that women access to credit especially in the formal sector where this policy will make great impact is not portrayed.
“So in the microfinance banking segment where the women access credit, I do not see this policy having huge impact.”
Borrowers will keep cash at home — President, Association of Micro Entrepreneurs of Nigeria (AMEN), Comrade Prince Ichie, stated: ‘‘Concerning the CBN GSI, it is good in some points. One, it will strengthen the trust some banks have in their borrowing customers.
“Most times people go to one bank to borrow money and defaults in repayment. They move to another bank to borrow and default again, and continue going round the banks to do same thing.
“That is why most banks hold back in giving loans. Before they give loans, they will want to make the process so rigid for entrepreneurs or other genuine borrowers.
“If GSI is implemented, it will check irresponsible and unethical borrowers and it will also give banks the confidence to give out loans knowing that if the person defaults they have access to the person’s accounts in other banks to recover their money.
“And as it is, I don’t know how it will work because of litigation. Some companies may likely take their banks to court because some banks, many people refused to pay their loans in some banks because of some characters or hidden agenda that some banks developed.
‘‘When you are going for a loan, some banks don’t give you details of some hidden charges or terms, but when the borrower starts paying and discovers hidden charges with interest rates becoming high on daily basis he abandons the bank and moves to another.
‘‘In a situation whereby it is a joint account of three or more persons and maybe one of them borrowed the money and when the bank wants to deduct the loan they withdraw it from the joint account and by doing so other joint account holders are forced to pay for the loan they did not take.
‘‘With some of these drawbacks some bank customers will seek other alternatives like not keeping their money in their banks or holding their cash in third party bank accounts.
“So it is a two way thing. It is good in some extent and it is also not so good in other circumstances.
“As an entrepreneur, it will bring back sanity and reduce non performing loans in the banking system and also bring back the trust of banks for the borrowers.”
Bad debtors may operate outside banking system — President Bank Customer Association of Nigeria (BCAN), Uju Ogbunbunka:
“It is unfortunate that some persons borrow money from banks and default payment. This is worse when some of the borrowers have enough money in some other banks to liquidate the amount borrowed, yet they refuse or neglect to repay loans. This is unhelpful to the banking system and the entire economy.
‘‘There must be answer for this type of challenge if banks must continue to play the lending service role otherwise, the economy may grind to a halt as the banking industry becomes riddled with huge bad or unrecoverable debts.
“Thank God the CBN has noticed that some of the debtors in one bank have money in other banks. The CBN has a responsibility to resolve the challenge. It has come up with the GSI which can make positive contribution in the matter, that is, if the strategy is operated without abuse.
“The unrepentant bad debtors will now know that there is no hiding place. There will no longer be long stories. One either pays or irrevocable instruction will be applied on any of one’s bank accounts in another bank to repay an outstanding past due debt.
“But one possible fallout of the strategy may be that, debtors who have no intention to repay will resort to operating ‘below the line’ ie outside the banking system.
“If that happens, the banking industry will also suffer for it. If the debtors operate outside banks, the GSI they signed/executed will be ineffective.
‘‘There is, therefore, the need for CBN and the banks to think beyond the GSI for enduring solution. And it can be found.”
No implications on honest individuals— Okechukwu Uzor, business man, said,
“I see no implications of the GSI Policy on honest individuals or companies. It is a welcome relief for banking institutions and honest individuals that want to access loans from banks.
“And most of all, banks are also held accountable for wrongfully activating GSI on accounts not defaulting. In fact, this shows that CBN and the banking industry has grown up and matured as it is in other countries of the world.
“I as an individual that does business with banks do welcome this move by CBN.”
It will bring back banks’ trust for borrowers — Kuforiji Sunday, a bank employee:
“The GSI Policy is a welcomed development. It is sad that most people take loans from banks and other financial institutions and ignore repaying the loans.
“This has resulted in degrading banks’ trust in borrowers, hence banks’ demand for high collaterals and developing rigid loan procedures for borrowers.
“The GSI Policy will limit increased loan defaults and give room for banks to trust customers and lend more.”