CBN Orders Banks to Take Action Against Loan Defaulters, Details Emerge
The Central Bank of Nigeria (CBN) has issued a directive to commercial banks across the country, instructing them to deny new credit facilities to borrowers who have defaulted on existing loans. This policy aims to strengthen the financial system by targeting individuals and companies with substantial outstanding debts, known as large-ticket obligors.
New Restrictions for Defaulting Borrowers
According to a circular sent to financial institutions, the CBN has mandated that banks block defaulters from accessing any new credit until they fully settle their existing loan obligations. The restriction applies to borrowers listed in the Credit Risk Management System or recorded with licensed private credit bureaus.
This measure covers not only loans but also other forms of direct credit from banks. Additionally, affected borrowers will be unable to access contingent banking services such as:
- Bankers' confirmations
- Letters of credit
- Performance bonds
- Advance payment guarantees
These services are commonly used by businesses in trade and contractual transactions, making the restriction particularly impactful for corporate borrowers.
Definition of Large-Ticket Obligors
The CBN clarified that large-ticket obligors are borrowers whose loan exposures, either individually or collectively across several banks, exceed the Single Obligor Limit. Such exposures could significantly affect a bank's Capital Adequacy Ratio or pose broader systemic risks to the financial system.
The policy aligns with Clause 3.2(d) of the 2010 Prudential Guidelines for Deposit Money Banks in Nigeria, reinforcing earlier lending rules introduced in June 2014.
Strengthening Collateral Requirements
To further manage risks, the central bank has directed banks to obtain additional realisable collateral from borrowers whose existing exposures remain unsettled. This measure aims to ensure that current loans are adequately secured and to reduce potential losses within the banking sector.
Enforcement and Compliance
The CBN emphasized that this updated instruction is designed to strengthen enforcement and ensure consistent application across all banks. The regulator will closely monitor compliance with the directive and warned that financial institutions failing to implement it may face sanctions under the Banks and Other Financial Institutions Act 2020.
This move comes as part of the CBN's broader efforts to maintain financial stability and reduce non-performing loans in Nigeria's banking system.
