CBN orders banks to block loan defaulters from new credit

The Central Bank of Nigeria (CBN) has directed commercial banks across the country to stop granting new credit facilities to customers with outstanding non-performing loans, particularly borrowers with large exposures.

The directive, contained in a circular issued to financial institutions, requires banks to deny such borrowers access to additional loans and other credit-related services within the banking system.

The CBN explained that the measure targets large-ticket obligors – individuals or corporate entities with substantial loan exposure that could pose risks to financial institutions.

Under the new instruction, any borrower with a non-performing facility recorded in the Credit Risk Management System (CRMS) or by a licensed private credit bureau is barred from obtaining further credit from banks. The restriction covers loans and other forms of direct credit.

Banks are also prohibited from granting these borrowers certain banking services that could expose lenders to further liabilities. These include bankers’ confirmations, letters of credit, performance bonds and advance payment guarantees.

The CBN said the move is part of its ongoing efforts to strengthen the resilience of the banking sector and ensure strict compliance with prudential guidelines.

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Financial institutions were also directed to review existing exposures to affected borrowers and secure them with additional realisable collateral where necessary.

The CBN noted that the directive applies to borrowers whose credit exposures fall within the limits outlined in the prudential guidelines for deposit money banks or those whose combined obligations across several banks exceed the Single Obligor Limit (SOL), potentially affecting a bank’s Capital Adequacy Ratio (CAR) or creating systemic risk.

The apex bank that the new directive reinforces an earlier policy introduced in June 2014 that prohibited loan defaulters from accessing further credit within the banking system.

The CBN warned that banks that fail to comply with the instruction will face regulatory penalties under the provisions of the Banks and Other Financial Institutions Act (BOFIA) 2020.

The Star