CBN orders banks to deny loan defaulters access to new credit

The Central Bank of Nigeria (CBN) has instructed commercial banks to block loan defaulters, particularly large-ticket borrowers, from accessing new credit facilities within the banking system.

A large-ticket obligor refers to an individual or company that owes a substantial amount of money to a financial institution.

The directive was contained in a circular issued to banks and seen by Vanguard on Friday.

The instruction comes less than a week after the apex bank asked financial institutions to conduct stress tests. The CBN said the step aligns with its responsibility to safeguard the country’s financial system.

“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 circular reads in part.

“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.”

As part of the directive, the CBN also asked banks to strengthen collateral coverage for existing exposures by obtaining additional realisable collateral from affected borrowers.

The regulator explained that large-ticket obligors are borrowers whose exposures are defined under Clause 3.2 (d) of the prudential guidelines for deposit money banks in Nigeria 2010. It also includes customers with combined exposures across banks recorded in the Credit Risk Management System (CRMS) or by 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”.

“This directive reinforces earlier measures, particularly the circular titled “Prohibition of Loan Defaulters from Further Access to Credit Facilities in the Banking System” issued on June 30, 2014 (Ref: BSD/DIR/GEN/LAB/07/015). This is to ensure consistency and effectiveness in curbing credit abuse by large-ticket obligors,” the circular further reads.

The CBN added that it will closely monitor compliance with the directive across banks to ensure uniform implementation within the industry.

The regulator warned that institutions that fail to comply with the directive will face sanctions in line with the provisions of the Banks and Other Financial Institutions Act (BOFIA) 2020.

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