CBN Blocks Loan Defaulters From Accessing New Credit

The Central Bank of Nigeria, CBN, has directed commercial banks in the country to stop giving loans to customers owing huge loans, as part of the apex bank’s efforts to protect depositors’ funds. The directive was contained in a circular issued by the Yemi-Cardodo-led apex bank.

Individuals and companies owing banks huge sums of money are regarded as ‘large ticker obligator’ by the CBN, and according to checks, loans owed by these obilagors run into several billions on naira, some of which have been classified as bad debts by some banks because the debtors have simply refused to pay.

CBN defines large ticket obligors as borrowers whose exposures are defined under Clause 3.2 (d) of the prudential guidelines for deposit money banks in Nigeria 2010, or a customer with a combined exposure across banks, as shown in the credit risk management system (CRMS), and/or as shown in the reports of a licensed private credit bureau, “that exceed the Single Obligor Limit (SOL), which materially affect a bank’s Capital Adequacy Ratio (CAR) or otherwise pose a systemic risk to the financial system”.

The magazine understands that the huge debts have added to the stress level of some commercial banks and is raising concern in the CBN.

Signs that some banks are deeply stressed came after recent directive by the Cardoso- led CBN to the banks to self test, to determine their stress level.

“What CBN discovered was really worrying to say the least,’ a source in CBN said on Friday, adding that the situation “pushed’ the CBN to take the latest step.

The development also comes as commercial banks in the country race to meet the March 31 Capitalisation deadline. Majority of the banks, the CBN said, have already met the capitalisation requirements.

According to the circular issued by the CBN, individual or business entity that have been granted huge credit facilities and have refused to pay up should no longer enjoy new loan facility, saying their action posed serious risk to the nation’s financial system.

Apart from denying them fresh loans, the apex banks said such ‘obligators’ should also be dined other facilities such as performance bonds, or advance payment guarantees and letter of credit, among others.

“In furtherance of its mandate to promote a sound financial system, protect depositors, and enhance prudential compliance within the banking sector, the Central Bank of Nigeria (CBN) hereby directs all banks to restrict non-performing large ticket obligors, whose activities pose systemic risk to the financial system, from accessing specified banking services,” the CBN said.

Adding “Any large-ticket obligor with a non-performing facility recorded in the CRMS and/or any licensed private credit bureau shall not be granted additional credit facilities. For the purpose of this restriction, credit facilities include loans and other forms of direct credit.

“In addition, such obligors shall not be granted banking facilities or contingent liabilities such as bankers’ confirmations, letters of credit, performance bonds, or advance payment guarantees.

Judging from the huge debts owed banks by some corporate entities and individuals, not a few analysts in the sector have demanded that the names of loans defaulters be publish regularly by the CBN  to shame them.