Key Takeaways from the CBN GSI Guidelines and the Case for a New Approach

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Wednesday, July 15, 2020 02:42 PM / by Proshare Research / Header Image Credit: CBN & EcoGraphics


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The Central Bank of Nigeria (CBN), this week, issued the Global Standing Instruction (GSI) for the various eligible individual accounts such as Savings, Current and domiciliary accounts. Accounts also included in the GSI are joint accounts, investment/deposit accounts and electronic wallets. The GSI which will be managed by the Nigeria Inter-Bank Settlement System (NIBSS) is expected to kick-off on August 1, 2020.

 

As stated by the CBN, the GSI shall serve as a last resort by a creditor bank, without recourse to the borrower, to recover past-due obligations (Principal and Accrued Interest only, excluding any Penal Charges) from a defaulting Borrower through a direct set-off from deposits/investments held in the Borrower's qualifying bank accounts with participating financial institutions.

 

The GSI is expected to achieve three (3) main objectives and they are;

1. Facilitate an improved credit repayment culture;

2. Reduce Non-Performing Loans (NPLs) in the banking industry; and

3. Watch-listing consistent loan defaulters

 

While the initiative by the CBN appears a step in the right direction, it is important to note that there remain areas of concern which the guideline/GSI is yet to address.

 

Furthermore, the objectives of the GSI aligns with the new approach articulated in the NPLs & Bad Debtors -The Case for A New Industry Approach Report published by DebtorsAfrica in May 2020.

 

The new approach, as stated in page 181 of the DebtorsAfrica report argued the case for the creation of a digital register which would, 'embed a customer's borrowing journey into a digital framework that can be reviewed by lending institutions'

 

The digital register replaces the old perishable "name" and "shame" approach earlier tried and differs from the functions of Credit Bureaux.

 

While the GSI guideline states that the CBN shall ensure uninterrupted availability of the Credit Risk Management System (CRMS) platform and connectivity to Nigeria Inter-Bank Settlement System (NIBSS) platform, it remains silent on the roles of credit bureaux.

 

Also, of concern is the issue of the GSI being limited to individual accounts. According to a recent FBNQuest Capital Research report, individual and consumer-related loans account for just a fraction (10%) of the sector's entire loan portfolio. The report noted that to achieve meaningful impact, the GSI should be extended to loans in the corporate segment of a bank's risk asset portfolio which accounts for more than 65% of the sector's total average loans outstanding (see chart 1 below).

 

The FBNQuest report, however, accepted that there may be complications in the implementation of the GSI if extended to the corporate loans segment of banks risk asset portfolios.

 

Chart 1: Individual Loans as a Percentage of Total Loan Portfolio

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Sources: Banks disclosure,  FBNQuest Research, *Stanbic IBTC include loans in personal and business banking

 

Download Here - Operational Guidelines on Global Standard Instruction (GSI)

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Download Here - Executive Summary: NPLs & Bank Debtors - The Case for a New Industry Approach   


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Download Here -  NPLs & Bad Debtors: - The Case for a New Industry Approach Debtors Africa, May 13, 2020 


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Related Links - Download PDFs

1.      Operational Guidelines on Global Standard Instruction (GSI) - CBN, Jul 15, 2020

2.      Executive Summary: NPLs & Bank Debtors - The Case for a New Industry Approach - May 14, 2020

3.     (PDF) NPLs & Bad Debtors: - The Case for a New Industry Approach - Debtors Africa, May 13, 2020

4.     AMCON and Financial Services Debt Burden in Nigeria - Aug 17, 2018

5.     (PDF) - Coronanomics and the Nigerian Economy - Jun 06, 2020 

 

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Related to NPLs and Recovery

1.      Bank NPLs (25) - The Customer's Options in a New Debt Order

2.     Bank NPLs (24) - Handling Bad, Delinquent and Recalcitrant Debtors via DiMR

3.     Bank NPLs (23) - The Case for a New Approach

4.     Bank NPLs (22) - Benchmarking Best Practice and International Debtors List

5.     Bank NPLs (21) - The Role and Place of Credit Bureaus and Rating Agencies in Recovery Efforts

6.     Bank NPLs (20) - A New Cottage Industry Emerges - Debt Factors and Loan Purchase Firms

7.     Bank NPLs (19) - Issues Around Nigerian Bank Debtors List

8.     Bank NPLs (18) - Understanding The Impact Of IFRS 9 On Selected Nigerian Banks

9.     Bank NPLs (17) - IFRS and Accounting Standards

10.  Bank NPLs (16) - The Place of Arbitration, Resolution or Debt Management

11.   Bank NPLs (15) - AMCON and Its Role in Debt Recovery

12.  Bank NPLs (14) - Regulatory Guidance, Conduct and Enablers

13.  Bank NPLs (13) - Impact on Growth of the Credit Market

14.  Bank NPLs (12) - Impact of NPLs on Income Trends

15.  Bank NPLs (11) - Technical Analysis on Banks' NPLs - LDR

16.  Bank NPLs (10) - Technical Analysis on Banks' NPLs - Leverage Ratio

17.  Bank NPLs (9) - Technical Analysis on Banks' NPLs - Liquidity Ratio

18.  Bank NPLs (8) - Technical Analysis on Banks' NPLs - NPL Ratio

19.  Bank NPLs (7) - Technical Analysis on Banks' NPLs - Profitability

20. Debtors Africa: AMCON; Chike-Obi's Alternative View

21.  Bank NPLs (6) - Technical Analysis on Banks' NPLs - Gross Earnings

22. Bank NPLs (5) - How Banks Fared In 2018; Holding Up Against IFRS9 Tropical Winds

23. Bank NPLs (4) - A Short History of Recovery Efforts - A Time Series Analysis

24. Bank NPLs (3) - The State of NPLs

25. Bank NPLs (2) - The Banking Industry and Its NPL Position

26. Bank NPLs (DR 1) - The Case for a New Industry Approach

 

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Related News

1.      CBN Issues Operational Guidelines on GSI to Facilitate Improved Credit Repayment Culture

2.     CBN Orders Seizure of Loan Defaulters Funds Across Banks

3.      Debtors Africa: AMCON; Chike-Obi's Alternative View

4.     Debtors Africa Launches Searchable Digital Database of Recalcitrant and Delinquent Debtors

5.     Sovereign Defaults Set to Hit Record in 2020

6.     AMCON's Recoveries from Debtors Rise to N1.1tn

7.     Structured Finance's Forbearance Challenges Go Beyond Liquidity

8.     Suspension of Debt Payments to Multilateral Development Banks a Risk to Ratings

9.     The Final Destiny of the Trillions - Determining Deserving Beneficiaries of Bailouts

10.  Sovereign Debt Relief Momentum is Accelerating

11.   CBN To Reduce Loans in AMCON

12.  Unlawful Account Freeze: EFCC and Banks Cannot Take Laws into Their Hands

13.  CBN Right of Set-Off - A Case of Regulatory Over-Reach?

14.  Henceforth, Loan Defaults Will Be Settled with Deposits From Other Banks 

 

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