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.

USSD CHARGES: BANKS & TELCOS' BACK AND FORTH AND NCC'S DIRECTIVE

On Sunday, 19^th of October 2019, MTN sent a message to its subscribers informing them that from the 21^st of October, it would start charging the sum of N4 per every 20 seconds spent using the Unstructured Supplementary Services Data (USSD) platform. MTN concluded the message by directing its subscribers who wanted to know more about the charge to contact their bankers.

The following Tuesday, the Body of Bank CEOs published an advertorial in several newspapers denying that they asked MTN to charge any fee and that it was within the purview of telcos to decide whether to charge and what to charge for USSD transactions. It would seem going by the advertorial of the Body of Bank CEOs (BOBCEOs), other MNOs (Mobile Network Operators) namely Airtel, Globacom and 9Mobile had been secretly charging some fees (not sure how much) for a while without alerting the subscribers to it. So, I guess when some of us complain that our phone credits sometimes disappear without us making calls, we now have a reasonable idea where the credit has been going.

What is also apparent is the fact that the issue of who should (continue to) bear the burden of the customers’ use of the USSD platform has been on for quite a while. For instance, the NCC (Nigerian Communications Commission) on 23^rd of July this year, signed a Pricing Plan for the USSD platform and the Plan which came into effect on 1^st September 2019, recommended the price of N1.63K per USSD session and determined a session to be 20 seconds. The Plan also capped the price per USSD session at N4.89K.

What is however quite instructive is the fact that in Paragraph 27 of the Plan, the NCC stated that the motivation for the commissioning of a study to determine the right price for the USSD access was the allegation of excessive charges by financial institutions against telecommunications operators. In paragraphs 28, 29, 32 and 37 of the Pricing Plan, NCC mentioned repeatedly the complaints of the MNOs about the arbitrary and high charges of the Digital Financial Services Providers (DFIs) really, namely Banks and proposed engagements with the CBN towards a possible revenue sharing model which will not defeat the financial inclusion goal of the Federal Government.

What the NCC’s Pricing Plan, the BOBCEOs’ advertorial (which many have called a denial of MTN’s claim that the new cost emanates from the banks but which I see more as an admission of the claims sought to be denied) and the (leaked) memo to ALTON, tell me are the following:

§  Customers’ use of the USSD platform had always attracted charges

§  The USSD charges were previously borne by the Banks and other Financial institutions

§  At some point, the Banks complained about excessive charges by the Telecommunications companies (telcos) for their customers’ access to the USSD platform,

§  The telcos/MNOs believe the Banks are making too much money from USSD transactions and their arbitrary charges are defeating the financial inclusion goal of the Federal government,

§  The Banks told the MNOs/Telcos to commence operation of end-user billing much like they bill for calls and SMSs for USSD transactions.

§  The Telcos/MNOs complained about being placed in a disadvantaged position with regards to remuneration for USSD transactions to NCC and NCC commissioned a study on appropriate pricing for USSD transactions, hence the Pricing Plan signed in July 2019.

§  The Pricing Plan which came into effect on 1^st September 2019 determined a USSD session to be 20 seconds and put the price between N1.63k and maximum of N4.89k.

§  NCC mulled the idea of engaging CBN on a revenue sharing model which will be affordable to the customers and further financial inclusion.

§  Other Telcos apart from MTN seem to have commenced the implementation of the end-user billing proposed by the Banks without the subscribers’ knowledge (if Bullet No 2 of the BOBCEOs’ advertorial is believed).

While it is not clear whether NCC actually engaged the Banks and the CBN as proposed in their Pricing Plan, it is however obvious from the above that the feigned ignorance of the CBN, the Banks and the Ministry of Communications and Digital Economy are just that; feigned.

In the Nigerian government’s usual gra-gra style, the Ministry of Communication has ordered a halt to the charging of fees by the Telcos for USSD transactions. The questions to be answered then are:

·       who pays for USSD transactions during this period?

·       Who is supposed to pay? What exactly is the N50 charged by Banks for electronic funds transfer for?

·       Were the Banks previously paying for the USSD transactions out of the N50?

·       Do the CBN and the Banks truly believe that additional charge raised by the telcos for USSD transactions will promote financial inclusion and help the cashless policy?  

In the revised Guidelines to Charges By Banks and Other Financial Institutions, Section 10.2 allows the Banks to charge N50 for transfer of funds below and above N10,000. Section 10.12 however allows for cost recovery where USSD transactions are concerned. The questions again are: who is entitled to recover the cost of the transaction? And from whom?

There is obviously no doubt that since the infrastructure of the Telcos are used in carrying out USSD transactions, they are entitled to be paid for it. The Banks who were paying however also had valid point in complaining about being charged for failed or extended transaction time as a result of network issues of the Telcos. It is thus my firm belief that for this issue to be resolved in a way that will further financial inclusion, both the Banks and the Telcos must explore the revenue sharing model proposed by the Telcos. No additional financial burden should be placed on the customer if truly, the CBN is serious about financial inclusion and the cashless policy.