The Central Bank of Nigeria (CBN) has directed commercial banks across the country to prevent loan defaulters, particularly large-ticket obligors, from accessing further credit facilities.
A large ticket obligor refers to a borrower — either an individual or a company — with a very substantial loan exposure to a bank.
The directive was issued through a circular sent to banks.
The move comes nearly a week after the apex bank instructed financial institutions to conduct stress tests.
Although it is unclear whether the two directives are related or what specifically prompted the new instruction, the CBN said the action is part of its responsibility to safeguard the stability of Nigeria’s financial system.
“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,” the circular reads in part.
“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.”
The apex bank also instructed lenders to strengthen collateral backing for existing loans. Financial institutions were told to obtain additional realisable collateral from such obligors to sufficiently secure current exposures.
The CBN explained that large-ticket obligors include borrowers whose exposures fall within the definition under Clause 3.2 (d) of the prudential guidelines for deposit money banks in Nigeria 2010, or customers with combined exposure across several banks, as captured in the credit risk management system (CRMS) and/or records of licensed private credit bureaus, “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 further reads.
The regulator said it will closely monitor compliance to ensure uniform implementation across the banking sector.
The CBN also warned that any institution that fails to comply with the directive will face regulatory sanctions in accordance with the provisions of the Banks and Other Financial Institutions Act (BOFIA) 2020.
Nigerian banks are currently undergoing a recapitalisation exercise scheduled to conclude by March 31.
So far, about 30 banks have met the new minimum capital requirements announced in March 2024.
(THE CABLE)
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