The Central Bank of Nigeria (CBN) yesterday warned that no deposit money bank (DMB) should without its prior approval grant facilities to potential borrowers that are in default of any existing facilities to the tune of N500 million and above.

The banking sector regulator also warned development banks and banks in liquidation not to grant facilities of N250 million and above to the same set of bank customers.

The central bank stated this in a letter signed by its Director of Banking Supervision, Mrs. Tokunbo Martins, a copy of which was posted on its website.

The letter addressed to all DMBs, development finance institutions (DFIs) and the Asset Management Corporation of Nigeria (AMCON) was titled: “Prohibition of Loan Defaulters from Further Access to Credit Facilities in the Nigerian Banking System.”

It stated that it took the decision because it was disturbed by the level of impunity with which some borrowers default on their loans in some institutions and yet are availed further credit facilities by other institutions under the same or sometimes different identity.

This, it pointed out could have the effect of triggering serial defaults and a build-up of non-performing loans which could negatively impact liquidity in the financial sector and ultimately hamper its stability.

Consequently, in order to proactively avert the menace of resurgence of non-performing loans and in furtherance of the CBN’s mandate of maintaining a safe and sound financial system, the regulator also stated that no institution shall, except with its prior written approval grant a facility to any potential borrower who has a delinquent facility of any amount whatsoever that had been taken over by AMCON.

All institutions shall ensure that all returns on credit facilities granted together with their performance status are rendered on the Credit Risk Management System (CRMS) and reported to two credit bureaux in line with our circulars dated September 10, 2013 and October 21, 2013 respectively.

“All institutions are also reminded that it is mandatory to perform credit checks on potential borrower on CRMS and from at least two credit bureaux in line with our circular dated April 30, 2010, as part of the credit appraisal process,” he added.

Continuing, it noted that the prohibition threshold may be reviewed from time to time with the aim of inculcating responsible and appropriate credit culture in borrowers.

The provision of this circular shall, in case of defaulting corporate obligors, also apply to their directors and/or related interests.

Any institution that contravenes the above directive shall be required to make immediate 150 per cent provision of the facility in addition to other existing regulatory sanctions that the CBN may apply.

Where an institution fails to report a facility or status to the CRMS or at least two credit bureaux as required, it shall be considered as concealment and misrepresentation of material fact and the institution shall be penalised in accordance with relevant provision of the Banks and Other Financial Institutions Act.

-culled from the vanguard