The Central Bank of Nigeria (CBN) has announced that loan defaulters will lose all their bank deposits according to a new clause introduced in the offer document. Thanks to the Bank Verification Number (BVN), bank customers, who take loans but default in paying back, will henceforth lose their assets across the industry.
This new stance by the CBN is aimed at increasing retail credit and curb the rising cases of non-repayment of such facilities
Rising from the recent 345th Bankers’ Committee Meeting in Lagos, the CBN deputy governor for Financial Systems Stability, Aishah Ahmad, said that the clause is to give banks the confidence to increase retail lending.
She said that the loan-to-deposit (LDR) ratio directive which is expected to add N1 trillion in credit to the economy will see banks giving out more loans to applicants.
Ahmad added that to ensure that the loans do not lead to an increase in non-performing loans (NPLs), customers would have to fill in their Bank Verification Number along with a consent to a clause that their deposits in other financial institutions, be used to settle their debt in the event of any default.
According to her, “part of the reason that there is no credit is because of risk aversion. We do not want LDR directive to raise NPLs.
“In taking loans, you agree to repay the loan and should you default, the total amount of deposit you have across the industry will be applied towards repaying the loans. This is to enable banks to lend with more confidence,” she said.
Also, CBN director, Banking Supervision Department, Ahmad Abdullahi, said that because of “the risk aversion in the industry and the need for the banks to increase their loan book to have an LDR of 60 per cent, a mechanism has been developed in the system whereby all new loans that are coming on board must have a BVN that will clearly identify them.
“Two, that there will be a clause whereby the borrower will have to sign an agreement that if for any reason there is a default of that particular loan, the bank has the right to set off with any deposit or any amount that the borrower will have in the industry,” he said.
Abdullahi disclosed that the Bankers’ Committee was also working with the credit scoring system in the industry “whereby all those that want to get a loan will have a credit score that will enable them to have easy access to credit. That is another thing that will help improve credit in the industry.”
