- GSI guidelines take off August 1
The Central Bank of Nigeria on Tuesday moved a step ahead of bank loan defaulters, with a new guideline that allows seizing of their funds in other accounts.
According to the Asset Management Corporation of Nigeria, 105 debtors were responsible for about N4.5tn debt affecting the financial health of the Nigeria banking industry.
The apex bank’s operational guidelines for Global Standing Instruction allows financial institutions to access debtors’ funds in other banks with effect from August 1, 2020.
The GSI, which is a mandate authorising recovery of past due obligations from any and all deposit accounts maintained by a defaulter, is limited to debt recovery and individual accounts.
Although it can be used for recovery of repayment amount, the GSI cannot be used to recover any additional fees, charges or penal rate for default.
According to a circular issued by the CBN Director, Financial Policy and Regulation Department, Kevin Amugo, the GSI is targeted at facilitating an improved credit repayment system, reducing non-performing loans in the banking system and watch-list 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.
Accordingly, it issued the guideline to regulate the operations of the GSI, which will be implemented with effect from August 1, to enhance loan recovery in the banking sector.
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 Bank Verification Number, Credit Risk Management System number, the full repayment amount, the loan duration and the repayment account.
The GSI is being maintained by Nigeria Inter-Bank Settlement System, 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 honour all transactions from NIBSS with a valid GSI Mandate code. GSI transactions can be triggered upon default on repayment, seven days after scheduled repayment date or before application of penal rates.
