The Central Bank of Nigeria (CBN) has concluded plans to introduce new credit guidelines for the banks and their customers. The guidelines will enable the banks minimise their credit risks. The CBN said the proposed guidelines came from a review of the existing guidelines issued since 2010. Under the new rules, non-resident customers of Deposit Money Banks and other financial institutions, who enrolled on the Bank Verification Number (BVN) platform but stayed outside Nigeria for over 180 days in the preceding year, would not be eligible to access bank loans. The guidelines would take effect from January 1, 2020 if approved by the CBN.
We welcome the new credit policy and enjoin the banks and their customers to comply. Since the issuance of the extant guidelines nine years ago, some changes had taken place in the banking industry. These included those necessitated by the crisis in the foreign exchange (FX) market, liquidity challenges, rising non-performing loans, poor corporate governance and others.
It is, therefore, timely that the CBN is addressing the issue of lending and management of credit risk. Often, inattention to loan policies, generous loan terms and lack of clear standards, disregard of banks’ policies, lack of understanding of borrowers’ cash needs, out-of-market lending, among other risks, have led to bank failures.
Additionally, the fact that the individual customer has always been an important player in the business of banking, and his deposits form a large source of Banks’ CEOs funds, makes it very necessary to periodically review the prudential guidelines in line with present circumstances in the domestic and external markets.
For these reasons, we believe that the new credit guidelines that require that banks should “not lend to corporate entities without Tax Identification Number (TIN) and individuals without Bank Verification Number (BVN) that are not resident in Nigeria,” is commendable.
This will make the banks management to exercise effective control over the consumer credit-granting process. We agree with one of the provisions in the new guidelines that “banks that have existing exposure to such entities are required to wind down such exposures within 24 months from the effective date of these guidelines.”
It is good that the new credit guidelines came on the heels of the apex bank’s earlier directive to money deposit banks on disclosure and transparency in dealing with their customers as stipulated in the Consumer Protection Framework (CPF). With the new guidelines in place, our banking system will not be left behind in the global economy that is already providing customers with relevant, clear and transparent information. We urge the banks and all the stakeholders to ensure that the new guidelines will be of immense benefit in their transaction with their customers. We hope that the new policy will enable the banks curb the rising bad loans in the sector.
We strongly believe that if the new rules are faithfully implemented, they will strengthen the banking sector and also restore the seeming waning public confidence in the sector. There is hope that the new guidelines will make financial transactions, including consumer lending, less cumbersome. For the success of the new policy, there is need to effectively apply sanctions on erring banks and individuals. The CBN must ensure that the stipulated penalties for any infraction, which include the deduction of the amount of such exposure from the lender’s capital from the capital adequacy ratio, are strictly enforced.
With about four months to the commencement of the new credit guidelines, we urge the banks and other financial institutions affected by the policy, including corporate entities and individuals, to ensure a seamless implementation of the policy.
Undoubtedly, effective control of the lending function is vital to the profitability of the banks. At the same time, it is perhaps the most complex activity in banking. This is likely to be the reason the CBN is ensuring that all the stakeholders are fully abreast of the new credit guidelines. Therefore, all hands must be on deck for the policy to succeed.