The Central Bank of Nigeria has begun a policy that seeks to expose serial bad debtors in the Nigerian banking system. The Global Standing Instruction (GSI) commenced on the 1st of August, 2020 is aimed at improving credit repayment; reduce non-performing loans and create a watch-list of chronic loan defaulters.
Introduced by the CBN by virtue of Section 2 (d) of the CBN Act, 2007, the policy as approved by the Bankers’ Committee in February this year, seeks to promote a sound financial system and enhance loan recovery in the banking sector.
What is the significance of the GSI to the banking and financial system? How will it be implemented? What will be the roles of the parties involved? Here is an explanation:
- A bank customer can no longer take a loan or credit from one bank, fail to repay, and continue to maintain accounts at other banks with credit balances that can offset the amount owed to the first bank. In essence, the policy empowers the bank owed to recover the full value of the loan or credit from the balances of the debtor at other banks without recourse to the defaulting customer.
- Accounts affected by the GSI policy include individual customers’ savings and current accounts, individual domiciliary account, Naira, and foreign currency-denominated investment or deposit accounts, and electronic wallets held by the customers.
Even if these accounts are held jointly, any money found in them as credit balances would be recovered, as long as they are linked to the affected customer’s BVN.
Under the GSI, apart from the CBN, which is responsible for ensuring uninterrupted availability of the Credit Risk Management System (CRMS) platform and connectivity to NIBSS platform, various parties involved in the process have different roles to play. The parties include the borrower, creditor bank, PFIs, and the Nigeria Inter-Bank Settlement System (NIBSS).
Apart from the responsibility of executing the GSI mandate in hard copy or digital form, the CBN said the borrower is also responsible for ensuring that the terms and conditions of the mandate are clearly understood before execution.
GSI mandate is an instruction (written or digital) executed by a customer or Account Holder in a PFI who has borrowed money or taken a loan or credit from a bank authorizing the creditor bank to recover an amount specified by the creditor from any or all accounts maintained by the Account Holder across all PFIs in the country.
Also, the borrower is responsible for ensuring that all qualifying accounts are linked to his/her name bank verification number (BVN). Where any of the borrower’s accounts is found not linked to his/her BVN, such BVN would be placed on watch-list by the relevant anti-graft agencies, including the Economic and Financial Crimes Commission (EFCC).
On it, the creditor bank, which is a participating financial institution (PFI) that granted a loan/credit to a borrower for which a GSI mandate was executed, is responsible for ensuring that detailed information the GSI policy and the mandate are included in their loan application process and borrowers properly educated about them and their implications before granting the loan or credit.
Each of the PFIs in the scheme shall conform to the minimum requirements, including being a financial institution duly licensed by the CBN; have adequate IT infrastructure to meet all the connectivity and protocol requirements at NIBSS and CBN; provide access to customers’ Nigeria Uniform Bank Account Number (NUBAN) accounts.
The bank will also review and validate the GSI mandate instrument prior to loan disbursement; indemnify the Nigeria Inter-Bank Settlement System (NIBSS) and other PFIs from all liabilities that may arise from inappropriate use of the GSI infrastructure.
Copies of the physical or digital versions of the executed GSI mandate are to be retained by the bank to be produced on demand; ensure the GSI trigger amount is only for the outstanding principal amount and accrued interest, excluding any penal charges.
In addition, the bank has the responsibility to ensure compliance with CBN’s prudential guidelines applicable to all classification of loans, while the Managing Director/CEO of each PFI would routinely update the Board of Directors on the GSI process as it relates to the frequency of use and amounts recovered or released as part of its risk management responsibilities.
For the PFIs, the CBN said they have the responsibility of executing the GSI mandate agreement with NIBSS; ensure all qualifying accounts are properly maintained and visible to NIBSS on the Banking Industry Customer Accounts Database (ICAD), or by any other service created or provisioned for this purpose.
The PFIs would also ensure that customer’s accounts in NIBSS’ ICAD are correctly tagged with the correct BVN linking the person; ensure and maintain connectivity to the Nigeria Central Switch, while ensuring all balance enquiries and debit advice received from NIBSS for GSI trigger is accepted and honored in accordance with the master agreement, including GSI recall instructions.
The GSI Trigger is an electronic instruction from a creditor bank to NIBSS and all PFIs connected to NIBSS Instant Payment (NIP) platform to initiate a GSI transaction against a defaulting borrower subject to the provisions of the CBN Prudential Guidelines to deduct the outstanding principal amount and accrued interest on a loan or credit in Line with the terms stated in an executed offer letter.
The MD/CEO of each PFI shall routinely provide updates to the Board of Directors on the GSI process as it relates to the frequency of use and amounts recovered or released.
The role of the NIBSS in the process is to execute the Master GSI agreement between PFIs; administer the back-end of the GSI services by utilizing NIP protocols where the creditor bank has initiated a balance enquiry, debit instructions on identified accounts and completes the GSI operations by instantly transferring the collated funds to the borrowers pre-designated repayment account in the creditor bank.
The NIBSS will also provide back-end related status report(s) to the CBN in a format and frequency, as may be required.
The agency is also to ensure that the availability of the ICAD database is uninterrupted for PFIs to update, while also rendering periodic reports as may be prescribed by the CBN, which is the regulatory agency responsible for uninterrupted availability of the Credit Risk Management System (CRMS) and connectivity to NIBSS platform.
Any creditor bank that activates a GSI mandate in error against any customer, apart from violating the CBN Prudential Guidelines shall be liable to a fine of N500,000 per incident, in addition to not getting the refund of all associated charges borne over the error.
Any PFI that wrongly places a CBN approved restriction on an eligible account to shield it from the GSI Trigger, resulting in the GSI being unable to either perform an account status check enquiry or debit the account shall be liable to a fine equivalent to the amount in the ‘restricted/shielded’ eligible account, an amount that would not be considered as part of any subsequent GSI Trigger amount, whether successful or not.
A PFI that fails to grant the GSI permission to perform an Account Status Enquiry Check/Request shall be liable to a fine of N100,000 per initial incident and each subsequent repeat request/instruction, regardless of the GSI Trigger amount.
A PFI that fails to grant the GSI permission to debit an eligible account shall be liable to pay a fine of N100,000 per initial incident and each subsequent repeat request/instruction, regardless of the GSI Trigger amount.
Besides, the erring PFI shall pay a fine equivalent to the balance in the account shielded from the GSI’s Debit Request, regardless of the GSI Trigger amount.
Where debits to a defaulter’s loan or credit accounts are unsuccessful due to a reduction in an amount previously blocked by the GSI, the PFI shall pay the equivalent of the blocked amount to the creditor bank, in addition to a fine of N100,000 per incident, regardless of the GSI Trigger Amount.
Where a customer’s account is debited in error due to a PFI wrongly tagging an account in NIBSS’ ICAD with the wrong unique identifier, the PFI primary responsibility shall be to immediately notify the creditor bank of the error, quoting relevant customer and GSI details, before promptly refunding the wrongly debited amount with the same amount of the GSI Debit.
There will be no additional charges accruing in same account, although the PFI will bear any other liabilities that may follow thereon, in addition to a fine equivalent to the amount erroneously debited to the wrong account.
Where the arbitrator rules against the creditor bank for a disputed GSI Transaction, the creditor bank shall pay an additional fine of N10 million or 10 per cent of the disputed sum, whichever is greater, in addition to the fines for any erroneous or otherwise disputed transaction.
Where a creditor bank includes penal charges in the GSI Trigger amount, in the event of a successful GSI Trigger, regardless of the amount recovered, the erring creditor bank shall refund the full penal charge amount to the borrower along with interest calculated using the penal rate from date of GSI trigger to refund date.
In event of both a successful and unsuccessful GSI trigger, the erring creditor bank shall pay a fine of N100,000 or equivalent of the penal charge amount, whichever is greater.