NPLs: CBN empowers banks to fully recover debts

2022-02-01

Few days after Daily Sun raised the alarm over growing NPLs and the lenders’ frustration at recovering them, the Central Bank of Nigeria (CBN) has empowered the banks to take on the debtors until their credits are fully settled.

In a circularent sent to all banks and other financial institutions, dated January 19, 2022, but published on CBN website on Friday January 28, 2022, by Mr. Chibuzo Efobi, its Director, Financial Policy and Regulatory Department, the apex bank stated that it has amended the Global Standing Instruction’s (GSI) automated loan recovery mode from a specific number to continuous and unrestricted.

“In order words, the GSI automated loan recovery feature applicable to all loans in the industry shall remain perpetually in place throughout the life of the loan and/or until the loan is fully repaid,” says Efobi.

In our report, penultimate Monday, January 24, 2022, entitled “N1.3 trn NPLs, recovery hurdles hurt banks’ operations”, we state that non-performing loans (NPLs) in the banking sector has ballooned to N1.3 trillion as of last November, and the lenders are raising the red flag that the humongous debts are crippling their operations.

To cage predatory debtors, CBN had on July 13, 2020, introduced the GSI to, among other things, improve credit repayment culture and reduce non-performing loans in the banking sector. But, despite the laudable initiative, the NPL ratio jumped to 5.4 per cent at the end of July 2021, 40 basis points above the regulatory threshold of 5.0 per cent.

In the January 19, circular, Efobi states: “In furtherance of its mandate to promote financial system stability, the Central Bank of Nigeria (CBN) released the circular on the Operational Guidelines on the Global Standing Instruction (GSI – Individual ) dated July 13, 2020.

“The initiative was conceived to fundamentally address the recurring instances of wilful loan default in the industry: to identify and watchlist recalcitrant loan defaulters; enhance loan recovery from all eligible and funded accounts / wallets in the industry; improve credit repayment culture and reduce nonperforming loans in the Nigerian banking system.
“Consequently, please be informed that the frequency of recovery attempts via the GSI platform has been amended from a specific number to continuous and unrestricted.
“In order words, the GSI automated loan recovery feature, applicable to all loans in the industry, shall remain perpetually in place throughout the life of the loan and/or until the loan is fully repaid.”

The January 24 Daily Sun report read in part: As Non-Performing Loans (NPLs) in the banking sector ballooned to N1.3 trillion as of last November, the lenders are raising the red flag that the humongous debts are crippling their operations , putting them under the risk of regulatory forbearance or systemic failure as their recovery efforts are hampered by the inefficiency of the measures.

Lamenting this scenario sometimes ago, the Deputy Governor of the Central Bank of Nigeria (CBN) on Financial Sector Surveillance, Mrs. Aisha Ahmad, lamented that some bank customers do not like to repay their loans, blaming this for poor credit growth in the country

“Now we are not unaware of some of the challenges or the reasons why credit have not been growing. Part of that was the appetite of banks to lend especially when you have customers that wilfully refuse to repay their loans. Toeing this line, the Managing Director of Bank of Industry (BoI), Mr. Olukayode Pitan, recently said that the local entrepreneurs don’t have the habit of repaying loans, adding that its non-performing loan portfolio awarded to entrepreneurs ranges between 80 and 100 per cent.

The Special Adviser to Ekiti State Governor on Micro-credit and Enterprise Development Agency, Kayode Fasawe, also added his voice, saying“the attitude of the people on loan repayment has deprived the state of accessing further funds from CBN. This has been counterproductive to the economic development of the state.”

On the Ekiti state issue, the Director of Small and Medium Enterprise in the Ministry of Investment, Mr Ayo Ilesanmi, speaking in the same vein, said it was quite disheartening that loans beneficiaries in the state considered the money as free gift or their own share of the national cake.

And out of N1.23 trillion NPLs recorded by banks at the end of 2020, the National Bureau of Statistics (NBS) recently disclosed that the NPLs in the power sector stood at N33.22 billion. The CBN reported that the combined indebtedness of power firms to the banks stands at about N820 billion. While the unpaid UBA loans had led to the take-over of the Abuja Electricity Distribution Company (AEDC), Assets Management Corporation of Nigeria (AMCON) last Thursday said it took over Ibadan Electricity Distribution Company (IBEDC) Limited over its inability to clear its acquisition loan from Skye Bank, now Polaris Bank.

Meanwhile, analysis of the results of Union Bank of Nigeria Plc, Ecobank Transnational Incorporated (ETI) Nigeria Plc, Wema Bank Plc, FBN Holdings, Sterling Bank Plc and FCMB released to the Nigerian Exchange Limited (NGX) showed that, while some of the lenders have reduced their NPLs, others only recorded marginal increase.

 

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