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Game Over: CBN Orders Seizure of Loan Defaulters' Funds Across Banks

As Global Standing Instruction guidelines take off 1st August, the Central Bank of Nigeria (CBN) earlier today, 14th July 2020, moved a step ahead of bank loan defaulters with a new guideline that allows the seizing of their funds in other accounts.

Ola Olaoluwa
Ola Olaoluwa

As Global Standing Instruction guidelines take off 1st August, the Central Bank of Nigeria (CBN) earlier today, 14th July 2020, moved a step ahead of bank loan defaulters with a new guideline that allows the seizing of loan defaulters' funds in other accounts.

According to the Asset Management Corporation of Nigeria (AMCON), 105 debtors were responsible for about Naira 4.5 trillion debt affecting the financial health of the Nigeria banking industry.

In line with the central bank's operational guidelines for Global Standing Instruction (GSI), this guideline allows financial institutions to access the funds of defaulting debtors that are deposited in other banks with effect from August 1, 2020.

CBN Director, Financial Policy and Regulation Department, Kevin Amugo stated in a circular that the GSI is targeted at facilitating an improved credit repayment system, reducing non-performing loans in the Nigerian banking system and watch-listing consistent loan defaulters.

The CBN in collaboration with stakeholders had last year developed the necessary protocols to facilitate a seamless implementation of the GSI process, including eligible loans granted from August 28, 2019.

The guideline states that the GSI shall serve as a last resort by a Creditor bank, without recourse to the Borrower, to recover past due obligations (Principal and Accrued Interest only, excluding any Penal Charges) from a defaulting Borrower through a direct set-off from deposits/investments held in the Borrower's qualifying bank accounts with participating financial institutions.

To set up the mandate, customers will fill in their BVN, Credit Risk Management System (CRMS) number, the full repayment amount, the loan duration and the repayment account. The GSI is being maintained by NIBSS which is the custodian of BVN and holds records of all bank accounts in the country.

Once a debtor defaults on a loan, the GSI is triggered with the creditor bank activating the mandate on GSI Module specifying the recovery amount. Once triggered, the available accounts for recovery are identified, available balances for the accounts are retrieved and funds from the accounts according to Recover Logic are recovered.

Participating financial institutions by the GSI mandate must honor all transactions from NIBSS with a valid GSI Mandate code. The GSI Transactions can be triggered upon default on repayment, seven days after scheduled repayment date or before application of penal rates.

Download Here - Operational Guidelines on Global Standard Instruction (GSI).

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Ola Olaoluwa

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