Home Business & Economy Non Performing Loans: CBN tightens the noose on bank borrowers

Non Performing Loans: CBN tightens the noose on bank borrowers

Non Performing Loans: CBN tightens the noose on bank borrowers

…Says LDR directive ‘ll free N1trn for loans


To further trigger growth in the nation’s economy, the Central Bank of Nigeria (CBN) Monday unveiled new initiatives towards reducing the level of Non Performing Loans (NPL) in the nation’s banking industry. CBN said that the move was to stimulate growth in the nation’s economy.

CBN Deputy Governor, Financial System Stability, Mrs. Aishah Ahmad, who disclosed this at the 346th Bankers’ Committee meeting in Lagos said the committee has come up with a clause which will enable banks in the country include in the offer letter of customers that, their assets in other banks will be deployed in servicing their loans in case of failure to pay back loans obtained from any other bank

She said, “At the last Monetary Policy Committee meeting, we were concerned over the level of credit in the industry. We need to give out more loans to revitalize the economy, stimulate demand and serve the SMEs sector. I am not unaware of the reasons why credit has not been growing. Part of that was the appetite of banks to lend, especially where you have customers that have willfully refused to repay their loans.

According to her, the CBN policy mandating banks to lend 60 per cent of their deposits by September 30, still stands.

“At the time we made this pronouncement, the industry Loan to Deposit Ratio (LDR) was around 57 per cent. In our view, if all the banks that are required to meet this threshold do, we will see growth of about N1 trillion. But there are factors that have made it difficult for banks to lend,” she said.

She said the new clause on asset seizure is like ‘credit risk protection’ and will be in all offer letters going forward. “Basically, it will contain the Bank Verification Number (BVN) details of customers, and the Tax identification Number (TIN) and more. It will be a commitment or covenant by the customer that in taking the loan, he also agree and promise to repay the loan. And the customer will also agree that in case of default in repaying the loan, the total amount of assets or deposits across the banking industry will be applied towards repaying the loan,” the Deputy Governor said.

According to Ahmad, banks had a clause in their loan plan, that a customer signs, indicating that all deposits in the bank will be applied in repaying the loan adding that the new clause is simply extending it across the industry.

“We think that there are very many honest Nigerians that are willing to take loans, and repay their loans. But those who have refused to pay back their loans are affecting the chances of more people having access to loans. I am very optimistic that the policy will enable the banks lend more, and make all Nigerians have access to loans, especially SMEs,” she said.

Speaking further, she said some of the reasons why there is not enough credit is that risk aversion on the part of the banks. “And how do you address that risk aversion? It is by ensuring that banks have a framework on which they can rely upon to ensure that when they give money to customers, the money will come back. We know what it took us to bring Non-Performing Loans (NPLs) in the industry down to current status. We know what it took use to bring down NPLs from double digits to single digit of 9.36 per cent. We do not want the pronouncement saying banks should give 60 per cent of their deposits to raise the NPLs level again,” she states.

CBN Director, Banking Supervision, Abdullahi Ahmad, said there is need for banks to lend more. He reiterated that all new loans coming on board, must have a BVN, and the new clause whereby the borrower will have to sign an agreement, if for any reason, there is a default on that particular loan, the bank will set off any deposit that the obligor will have in the industry.

Also speaking, Managing Director, Guaranty Trust Bank Plc, Segun Agbaje, said the whole idea behind the new clause of loans is to stimulate the economy through improved lending. “Banks are now giving salary advance loans to customers. It is pure consumer credit.

But after some people take a loan, they will abandon the account, and start doing business in another bank. The salaries will go to the new bank. What the CBN is saying is that if you do such a thing, they will pool the money in the other bank and use it to service your obligations,” he stated.

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