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The Central Bank of Nigeria, CBN has revealed that money lending institutions will start auto-debiting bank accounts of chronic debtors.
A statement issued by the apex bank and the National Bureau of Statistics revealed that the move was to drastically reduce the growth of Non-Performing Loans in the industry.
In a recent statistic that was released, NPLs in the banks recorded a slight decline from N1.2tn at the end of the second quarter of 2020 to N1.1tn at the end of July 2021.
To avoid further negative effect on the financial institutions, the Deposit Money Banks resolved to recovering debts owed by chronic debtors from their accounts using auto debit system.
The CBN noted that there is an increase in the gross loans in the industry in the period, adding that the measures it introduced such as the Global Standing Instruction to reduce banking sector risks was helping to reduce the NPLs in the sector.
It explained further that the GSI which commenced on August 1, 2020, allows banks to recover the outstanding principal and interest upon default from any account maintained by the debtor across all financial institutions in Nigeria.
While noting that figures obtained from the NBS on banking sector for Q3 2020 showed gross loans in the lending industry positioned at N18.9tn, the total non-performing loans stood at N1.2tn.
The slight improvement according to the apex bank reflected the strengthening of risk management practices, the GSI policy and regulatory forbearance that had allowed banks to restructure credits impacted by the COVID-19 pandemic.
The latest figures from the CBN showed that while the gross loans rose to N22.2tn, the NPLs fell slightly to N1.1tn.
The CBN said in the latest Monetary Policy Committee report that it would not raise the lending rates in the sector.
“On loosening, the committee felt that this would lower retail interest rates and improve the ability of obligors to repay their obligations, with a complementary reduction in NPLs,” it said.
CBN added that for the banking industry, “Recent data also show that stability has been maintained and a smooth functioning of financial intermediation ensured.
“CBN staff report indicates that the banking sector’s non-performing loan ratio has fallen from 6.3 per cent in February to 6.0 per cent in March and further to 5.9 per cent in April.”
The MPC noted that the capital adequacy ratio and the liquidity ratio both remained above the prudential limits at 15.2 and 41.7 per cent, respectively at the end of July 2021.
The committee also welcomed the improvement in the NPL ratio at 5.4 per cent in July 2021, compared with 5.7 per cent in June while it urged the banks to sustain current efforts to bring the NPLs below the 5.0 per cent prudential benchmark.
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