CBN'S GLOBAL STANDING INSTRUCTION (GSI) AND LOAN RECOVERY IN NIGERIA

After the CBN in July 2019, directed Deposit Money Banks (DMBs) have a Loan to deposit ratio (LDR) of 60% or risk the CBN retaining an amount equivalent to 50% of the shortfall in the LDR, and even going a step further to, in the last quarter of 2019, raise the LDR to 65%, I got worried about the safety of depositors’ funds given the high rate of non-performing loans (NPLs) in the banking sector.

The CBN had over time, tried to put in place some safety measures against ballooning NPLs like the establishment of the Credit Risk Management System (CRMS) or Credit Bureau, given legal backing by Sections 28 & 52 of the CBN Act (as amended). The CRMS, now web-enabled, allow banks and other stakeholders to dial directly into the CRMS database for the purpose of rendering statutory returns or conducting status enquiries on borrowers. The CBN had also always consistently stressed to banks the importance of strengthening their risk management practices.

It can be argued that banks’ obligation under the CBN Act to update their credits on a monthly basis and to make status enquiry on any intending borrower to determine their eligibility or otherwise has made some difference to the quantum of NPLs in the industry. The CBN’s Financial Stability Report of 2018 reported an improvement in NPLs of Domestic Systematically Important Banks (D-SIBs), from 11.31% at end of June 2018 to 9.82% at end of December 2018. The D-SIBs, which were 7 in number in 2018 accounted for 63.80% of the industry total assets of N35.10Tn, 65.23% of the industry total deposit of N21.75Tn and 66% of the industry total loans of N15.34Tn.

While NPLs as at Q4 of 2018 stood at N1.792Tn equal to 11.67% of gross loans (N15,353,758,941,686.20), at end of December 2019, the percentage of NPLs had reduced to 6.03% of gross loans of N17.563Tn according to the Selected Banking Sector data released by the National Bureau of Statistics (NBS) in March 2020. 

Still in a bid to ensure borrowers pay what they owe financial institutions in the country and reduce NPLs, as recently as the 16^th of June 2020, the CRC Credit Bureau, one of the 3 licensed credit Bureaus in Nigeria, reportedly launched its data submission platform to allow lenders to provide real time credit information about borrowers.

The Asset Management Company of Nigeria (AMCON) had initially been created in 2010 by the AMCON Act of 2010 which was amended twice; in 2015 and 2019 in order to resolve the issue of NPLs in eligible financial institutions. How successful AMCON has been over the years is a subject of debate. According to the 2018 Financial Stability Report earlier mentioned, the carrying value of AMCON’s liabilities increased from N4.53Tn at end of June 2018 to N5.43Tn at end of December 2018 due to its investment of N895.45Bn in Polaris Bank. AMCON’s total recoveries from asset sales and credit repayments at end of December came to N759.058Bn. The 2019 amendments to the AMCON Act in fact contained several sections which allows AMCON to obtain ex-parte Orders of Court to put debtors’ accounts under surveillance, or to get access to devices which will reveal where a debtor keeps his/her funds: Section 6(1)(ua). A newly inserted Section 6(6) mandates AMCON to furnish governments Ministries, Agencies and departments (MDAs) with the name of recalcitrant debtors so as either to stop them from being given government contracts or to stop them from being paid if they had already been awarded contracts.

On Tuesday the 14^th of July 2020, the CBN released Guidelines on Global Standing Instructions (GSI) (Individuals) targeted at enhancing loan recovery in the banking sector. GSI will allow banks to debit debtors’ eligible accounts across different banks  A debtor who has an overdue loan with Bank A can thus with the aid of GSI, have his/her funded accounts in Banks B, C & D debited with amount equivalent to his/her indebtedness (principal sum and interest thereon) to Bank A.

Article 2.0. of the GSI Guidelines lists accounts which qualify for GSI to include domiciliary accounts, investment/deposit accounts and electronic wallets and joint accounts, apart from the traditional savings and current accounts that most people have. By Article 3.2.1., borrowers are to execute GSI mandates (for their banks or lenders) either in hard copy or digital form. All the borrowers’ accounts are also expected to be linked to his/her Bank Verification Number (BVN) and any of his/her account which qualifies for GSI found not to be so linked shall be watch-listed.

The mandate which would have been signed by a borrower before being given loan by a Participating Financial Institution (PFI) will enable a PFI to issue a GSI trigger which will in turn allow the borrower’s eligible accounts across PFIs to debit the borrower’s account(s) without recourse to the borrower.

While it was stated that the GSI is supposed to be used as a last resort to recover past due debts inclusive of the principal sum and interest but excluding any penal charge imposed by the PFI, it is my opinion that PFIs should still have been mandated to apply ex-parte to the Courts before the accounts are debited with the amounts owed by borrowers in order to avoid situations where the process is abused by PFIs.

The fact that joint accounts are also included in the list of GSI eligible accounts may also pose some problems and is likely to be challenged by persons (spouses, partners, siblings etc) who may, for one reason or another, be operating joint accounts with borrowers.

Having been a bit worried by the CBN’s 65% LDR policy as it concerns the safety of depositors’ funds, it is unlikely one will not support any policy that will improve loan recovery and protect depositors’ funds from high toxic or non-performing loans. My support for the GSI process in principle notwithstanding, I do not believe anything could be lost if a borrower’s account is frozen and then debited upon application and grant thereof by a court of Law. Much the same way the Courts have held that anti-corruption agencies like the EFCC and ICPC have no right to request banks to freeze a customer’s account without first obtaining a court order, so should the case be with the GSI process. The shift in a democratic dispensation towards making Laws and Regulations that give too much power to individuals or entities without first getting a go-ahead from the Court is a bit uncomfortable.

COVID-19 AND LESSONS TO BE LEARNED...(3)

WORK FROM HOME & VIRTUAL MEETINGS: I guess we are all familiar with the denouncement of office meetings by a sizable number of employees as a time waster and a hindrance to productivity at work. The social media is awash with memes on this. Beyond office meetings however, there are periodic meetings, seminars and conferences held by international organizations where participants have to fly in from different countries to attend. With this pandemic and the cancellation of flights plus the need for social (I prefer physical) distancing, we have seen the likes of International Monetary Fund (IMF), the UN Security Council, United Nations Human Rights Council and the G20 Health Ministers among others, holding virtual/online meetings which are no less productive than the ones which were in the past, held physically. Companies have also been holding shareholders’ meetings and AGMs online.  

Before the pandemic and the lockdown imposed to curb its spread shut most people in the world inside, employees in many organizations had been advocating to be allowed to work from home, and to be fair, some organizations had started trying it out on a limited basis to see whether productivity would remain the same or even see some improvements. According to Harvard Business Report, roughly about 5% of the workers in the US and Europe were working from home before the lockdown. With Covid-19 and the lockdown imposed in many countries in the world however, many companies have had no choice but to allow many of their staff to work from home and the number of workers who will be allowed to work from home will likely increase significantly post-Covid-19, whenever that is, since it appears Covid-19 will stick around for some time to come.

In cities where commuters spend hours in traffic to and from work each day, more companies might need to take more critical looks at the probable benefits of having their staff work more frequently from home.

The downsides of working from home in a country like Nigeria will of course revolve more around the mirage that stable supply of electricity really is in most areas, and good internet access that will be required for the work to be comfortably done. However, a balance can be found between health and loss of productive man hours that are daily experienced in traffic versus the facilities that will be required for work to be effectively done from home. Many are already saying work from home (WFH) is the future of work. Twitter in fact, recently announced that its employees can work from home on a permanent basis and not just till the end is seen of Covid-19. But while WFH waits to fully take off in the nearest future, there is no doubt that with the persistence of the pandemic, especially with some countries experiencing a second wave of infections upon the ease of lockdown, more employers will have to content themselves with the work being done (and hopefully not harass employees with messages in a bid to monitor the work being done) as opposed to insistence on the workers’ daily physical presence at work.

 

NIGERIAN  GOVERNMENT & ELECTRONIC GOVERNANCE: in the 5 days of partial lockdown in Lagos State before the Federal government imposed lockdown on Lagos, FCT and Ogun State, the Lagos State government had requested that members of the public refrain from going to the State Secretariat and any transaction needed to be done be carried out via telephone. The fact however is, precious few transactions with government offices can be carried out online. And over the phone, only the most basic of enquiries can mostly be made. I dare say, this is mostly true in other States of the federation as well as at the FCT.

Ensuring contact with members of the public has over the years and decades of Nigeria’s existence, mostly served the corrupt tendencies of government workers. If governments at all levels in the country should learn anything from this pandemic, definitely, one of the key lessons, and there are many, is the long overdue need, in the best interest of the government especially as regards revenue generation, to take as much of the governance as possible online. Phasing out physical interactions with government offices will not only substantially reduce corruption endemic in the civil service, the government will find its revenue generation greatly improved and expanded. This has become even more important with the pandemic drastically shrinking government’s income also from citizens’ inability to carry out normal business with the government. In the decision to put infrastructure in place for electronic governance, the government across all levels, have to put the economy and efficient service delivery at the forefront. Perhaps government would not be losing quite as much revenue as they presently are, if the government’s ease of doing business campaign had not been restricted almost, to only the Corporate Affairs Commission (CAC). While the measures quickly put in place by the National Agency for Food and Drug Administration (NAFDAC) during the pandemic, for entrepreneurs to apply online for registration of products with it is commendable, much more still need to be done by other government agencies and departments both at State and local government levels across all sectors of the economy as much as practicable to enable citizens transact business with them online. Perhaps government would not be losing so much revenue if some form of electronic governance had been in place. As things stand, governments will continue to lose revenue on a massive scale until the economy fully reopens.