It will no longer be business as usual for recalcitrant borrowers that take loans from one bank and run to another bank to avoid repayment.
The Bankers’ Committee on Monday directed all borrowers to sign an asset seizure agreement with their banks.
The agreement empowers the lender to seize all deposits of the borrower across the industry, should he failed to repay the loan.
Breaking the news on Monday at the 346th Bankers’ Committee meeting in Lagos, Central Bank of Nigeria (CBN) Deputy Governor (Financial System Stability), Mrs. Aishah Ahmad, said the committee had come up with a clause that would enable banks include in the offer letter that customers’ assets across the industry would be deployed to loan servicing should they fail to payback.
She said: “At the last Monetary Policy Committee (MPC) meeting, we were concerned over the level of credit in the industry. We need to give out more loans to revitalise the economy, stimulate demand and serve the SMEs sector.
“I am not unaware of the reasons why credit has not been growing. Part of that was the appetite of banks to lend, especially where you have customers that have willfully refused to repay their loans.”
Mrs. Ahmad said the CBN policy, mandating banks to lend 60 per cent of their deposits by September 30, remains in force.
She said: “At the time we made this pronouncement, the industry loan to Deposit Ratio was around 57 per cent. In our view, if all the banks that are required to meet this threshold do, we will see growth of about N1 trillion. But there are factors that have made it difficult for banks to lend.”
The CBC official explained the new clause on asset seizure as a ‘credit risk protection’ that will be in all offer letters going forward.
“Basically”, she said, “it will contain the Bank Verification Number (BVN) details of customers, and the Tax identification Number (TIN) and more. It will be a commitment or covenant by the customer that in taking the loan, he also agrees and promises to repay the loan.
“And the customer will also agree that in case of default in repaying the loan, the total amount of assets or deposits across the banking industry will be applied towards repaying the loan.”
According to the CBN deputy governor, banks had a clause in their loan plan, indicating that all deposits in the bank would be applied in repaying the loan, adding that the new clause is simply extending it across the industry.
“We think that there are very many honest Nigerians that are willing to take loans, and repay their loans. But those who have refused to pay back their loans are affecting the chances of more people having access to loans. I am very optimistic that the policy will enable the banks lend more, and make all Nigerians have access to loans, especially SMEs,” she said.
Speaking further, she said that risk aversion on the part of the banks accounted for insufficient credit facilities.
Mrs. Ahmad said: “And how do you address that risk aversion? It is by ensuring that banks have a framework on which they can rely upon to ensure that when they give money to customers, the money will come back. We know what it took us to bring Non-Performing Loans (NPLs) in the industry down to current status. We know what it took use to bring down NPLs from double digits to single digit of 9.36 per cent. We do not want the pronouncement saying banks should give 60 per cent of their deposits to raise the NPLs level again.”
CBN Director, Banking Supervision Abdullahi Ahmad spoke of the need for banks to lend more, reiterating that all new loans coming on board, must have a BVN, and the new clause whereby the borrower will have to sign an agreement, in case of a default on that particular loan, the bank will set off any deposit that the obligor has in the industry.
Guaranty Trust Bank Plc Managing Director Segun Agbaje said the idea behind the new clause is to stimulate the economy through improved lending.
“Banks are now giving salary advance loans to customers. It is pure consumer credit. But after some people take loans, they will abandon the account, and start doing business in another bank. The salaries will go to the new bank. What the CBN is saying is that if you do such a thing, they will pool the money in the other bank and use it to service your obligations”, he stated.