CBN Orders Banks To Stop Debtors From Accessing Credit Facilities

THE Central Bank of Nigeria (CBN) has directed commercial banks to block loan defaulters, specifically large-ticket obligors- an individual or company that owes a very large amount of money to a bank- from accessing fresh credit facilities.
The CBN, in a recent circular to banks, came almost one week after it urged financial institutions to undergo stress test, and could not be ascertained if the two directives were connected or what may have triggered the latter, which the apex bank said furthers its mandate to protect Nigeria’s financial system.
According to the circular: “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.
“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.”
It further charged financial institutions to obtain additional realisable collateral from such obligors to adequately secure existing exposures.
Large ticket obligors are borrowers whose exposures are as defined under Clause 3.2 (d) of the prudential guidelines for deposit money banks in Nigeria 2010, or a customer with a combined exposure across banks, as shown in the credit risk management system (CRMS), and/or as shown in the reports of 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 said.
The CBN explained that it will monitor compliance with the directive to ensure consistent implementation across the banking industry, warning that noncompliance would attract appropriate regulatory sanctions, in line with the provisions of the Banks and Other Financial Institutions Act (BOFIA) 2020.
Recall that Nigerian banks are undergoing a recapitalisation programme slated to end by March 31, and so far, about 30 banks have reportedly met the minimum capital requirements announced in March 2024.