Further to the circular on the operational guidelines of the Global Standing Instruction (GSI) released on 13th July, 2020, the Central Bank of Nigeria (CBN) has, in a circular titled: “Re: Global Standing Instruction (GSI) – Individuals,” dated January 19, 2022, now amended the GSI to allow for continuous and unrestricted loan recovery by Deposit Money Banks (DMBs) and financial institutions in the country.
The circular which was signed by CBN Director, Policy and Regulations Department, Chibuzo Efobi and addressed to all banks and other financial institutions, pointed out the amendment has altered the frequency of recovery attempts through the GSI platform from a specific number to continuous and unrestricted. The GSI policy is applicable to individual savings accounts, individual current accounts, individual domiciliary accounts, joint accounts, investment/deposit accounts (Naira and foreign currency) as well as electronic wallets.
The guideline on the GSI is aimed at facilitating an improved credit repayment culture and enhancing loan recovery and monitoring consistent loan defaulters, thereby reducing non-performing loans in Nigeria’s banking system. According to CBN Guidelines released on 13 July 2020, the GSI policy is “for implementation by all banks and other financial institutions” with a view to addressing the recurring instances of willful loan default in the industry with a view to identifying and watch-listing recalcitrant debtors, enhancing loan recovery from all eligible and funded accounts/wallets in the banking industry, improving credit repayment culture and reducing Non-Performing Loans (NPLs) in the Nigerian banking system. The GSI mandate may be used by these institutions to recover only due principal amount of the loan and accrued interests. It cannot be used to recover any additional charges or penal rate for default.
In sum, the GSI creates a contractual mandate from an individual borrower, in favour of a creditor bank to apply monies standing to the credit of the borrower in a third-party financial institution or electronic wallet to offset the debt obligations of the borrower. It stipulates the mechanics for implementation of the GSI and details the applicable penalty associated with the wrong implementation by creditor banks.
It should be noted that the GSI policy is only applicable to individuals, and not to corporate entities, although the Credit Risk Protection (CRP) clause initiated by the CBN and Bankers’ Committee in August, 2019 is still applicable to corporate bodies. In effect, the CRP authorizes banks, in every case of default in loan repayment, to request CBN to utilize the debtor’s deposits in other banks in repayment of the loan. Hence, the banks mandatorily include the CRP clause in all loan documentation.
The GSI is usually used as a last resort by banks to recover outstanding debts from customers who default on the loan obtained by them. Thus, where A borrows money from a bank and defaults in loan repayment, and the bank tries all it could to recover the loan from A to no avail, the GSI policy authorizes the bank to conduct checks on other banks to ascertain whether A has funds available in other bank accounts in which case the creditor bank is entitled to debit A’s accounts in other banks in satisfaction and repayment of the outstanding loan.
However, a creditor bank is saddled with certain responsibilities before it could take the benefit of the policy. Chief among these responsibilities is that the creditor bank must include the GSI mandate in loan processes and properly educate borrowers about the mandate and its implications. The creditor bank must also ensure that it has validated GSI mandate instruments before loans are advanced/disbursed and retain copies of executed GSI mandates. On the part of the borrower, he/she must ensure that all qualifying accounts are linked to his Bank Verification Number (BVN) as all accounts not linked to his BVN would be watch-listed when discovered. The borrower must also execute the GSI mandate either in hard copy or digital form and perfectly understand the terms and conditions of the mandate before execution.
Read the CBN’s circular CLICK HERE