The Bankers Committee introduced a lending condition that empowers banks to seize and use bank deposit of debtors in any bank for loan repayment.
Deputy Governor, Financial Sector Surveillance, CBN, Mrs. Aisha Ahmad disclosed this at a press conference after the Bankers Committee meeting held in Lagos.
She spoke alongside, Chief Executive Officer, Access Bank, Mr. Herbert Wigwe, Chief Executive Officer, GTBank, Mr. Segun Agbaje, Chief Executive Officer, Unity Bank, Mrs. Tomi Somefun, and the Director, Banking Supervision, Alhaji Abdullahi Ahmed. Ahmed explained that the measure was to minimise the incidence of bad loans as banks seek to comply with the Loan-to-Deposit ratio of 60 percent directive of the CBN.
She also disclosed that full compliance with the LDR directive will lead to creation of N1 trillion new loans in the banking industry.
She said: “Now we are not unaware of some of the challenges or the reasons why credit have not been growing. Part of that was the appetite of banks to lend especially when you have customers that wilfully refuse to repay their loans.
And so, in this respect, we have come up with a new clause that will be included in the offer letters that will be granted going forward. “Before I speak about the items in that clause, I think it is important to also remind us of the pronouncement we made to banks that by end of September 30th this year, we should have grown the loan deposit ratio (LDR) to 60 percent to those that were below.
As at the time we made this pronouncement the industry was at around 57 percent. In our view, if all the banks that are required to meet this requirement actually make it we will see a growth of about a trillion added to their credit balances.
“In addition to that pronouncement, we are looking at what are the challenges or factors that are affecting banks’ ability or willingness to lend? This is going to be more or less a credit protection clause that will be in all offer letters going forward.
Basically, it will contain the Biometric Verification Number (BVN) details of customers and the Tax Identification Number (TIN) of the customers and more or less, it will be a commitment or covenant by the customers that by taking a loan, you agree and promise to repay the loan and that you also agree that should you default on the loan that the total amount of asset or the total amount of deposits you have across the banking industry would be applied towards repaying the loan.
“Now this is not uncommon because banks already have something, we call Rights of Set-off within a bank. That is if you take a loan, the bank usually has a clause in the letter that allows it to repay your loan from all the assets you have in the bank and so this is just extending it across the industry.
“We think that there are very honest Nigerians out there that are willing to take loans and repay their loans; however, the few that wilfully not pay are usually affecting others to have access to this credit. And we are very optimistic that this will enable the banks to lend more with more confidence, enable more Nigerians to get access to credit, particularly those in the Small and Medium Enterprises (SMEs) retail sector.
Speaking further, Director, Banking Supervision Department, CBN, Alhaji Abdullahi Ahmed explained that the new condition applies to new loans and it is limited to the assets of debtors within the banking industry
He disclosed that that to complement this initiative, the Bankers Committee will develop a credit scoring system which will enable people with good credit history to easily access loans “If your score is high, you will be able to access credit easily. That is the whole idea.
So thereabout, you are going to have a good credit scoring rate or position to be able to access credit. If you are not clean, you won’t be able to access loan.
“The credit scoring is not going to take away anything from the credit bureaux even if it is going to help them, it is not going to take away anything from their responsibilities,” he explained.