CBN Amendment to Global Standing Instructions (Individual) Guidelines | Denton
On July 13, 2020, the Central Bank of Nigeria (the “CBN”) issued the Operating Guidelines on the Global Standing Instruction – Individuals (the “GSI Guidelines”) which became effective on August 1, 2020. The GSI guidelines aim to reduce non-performing loans (“PNP”) in the banking sector, facilitating a better loan repayment culture and monitoring defaults across the Nigerian banking sector.
Overview of GSI guidelines
The Global Standing Instruction (“GSI”) is a mandate authorizing the collection of debts due on any deposit account held by a defaulting borrower with banks other than the creditor bank. It is an arrangement that creates a contractual mandate from an individual borrower, in favor of a creditor bank to apply monies held to the borrower’s credit in a third party financial institution or e-wallet to offset the debts of the borrower.
The GSI Guidelines define the roles and responsibilities of the borrower, creditor bank, Participating Financial Institution (“PFI“), the Nigerian Interbank Settlement System (the “NIBSS”) and the CBN to make the debt collection process transparent through the GSI.
According to GSI guidelines, before a borrower can access a loan from a financial institution in Nigeria, they must ensure that all of the individual’s bank accounts (i.e. savings, current, domiciliary or joint accounts) are linked to the borrower’s account. Bank verification number.
The GSI guidelines also require the borrower to execute a GSI mandate with clear terms and conditions in hard or digital copy in favor of the creditor bank.
When a customer is in default of loan repayment or accrued interest and has no funds in their account(s) domiciled with the creditor’s bank, GSI guidelines give NIBSS the authority to debit the outstanding amount from the borrower’s bank accounts in other banks domiciled in Nigeria.
The GSI guidelines also penalize creditor banks and PFIs for mistakenly implementing the GSI.
Changes to GSI Guidelines
On January 19, 2022, the CBN by a Circular entitled: Subject: Global Standing Instruction (GSI) – Individuals (the “GSI Circular”) amended the GSl guidelines to enable the continued and unrestricted collection of loans by depository banks and financial institutions in Nigeria.
The initiative was designed primarily to address recurring cases of willful defaults in the industry, to identify and create a watchlist of stubborn defaulters, and to improve loan recovery from all eligible and funded accounts/portfolios. of the sector.
The purpose of the GSI Circular is to change the frequency of collection attempts through the GSI platform from a specified number to continuous and unrestricted for the duration of the loan and/or until the loan is paid in full.
This initiative is a step in the right direction as it offers an opportunity to reduce the decline in the total number of non-performing loans in the Nigerian financial system and fundamentally address the recurring instances of voluntary default in the financial sector. This in turn could bring more stability to the Nigerian banking system.
A copy of the GSI Circular can be downloaded here.