Effective August 1, banks will be able to debit the accounts of loan holders in other banks to settle defaults, to enhance loan recovery across the banking sector.
This is according to global standing instruction (GSI) guidelines published by the Central Bank of Nigeria (CBN) on Monday.
The CBN said the GSI, which was developed in collaboration with stakeholders, should be the last resort used by a bank to settle loan defaults.
The apex bank said the directive would apply to eligible loans granted from August 28, 2019.
According to the guidelines, the account types that the standing instruction can be applied to include individual and joint savings accounts, current accounts, domiciliary accounts, investment/deposit accounts (naira and foreign currency), and electronic wallets.
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.