More Loans For Nigerian Businesses By October But Getting Any Just Got Harder
For businesses desiring to raise funds in Nigeria, October 2019 is the best time to begin to do so as more banks would be rushing after them. Recall that the Central Bank of Nigeria is now making it mandatory for money deposit bank in Nigeria to maintain loan to deposit ratio of 60% effective September 30, 2019.
However, that is going to come with a heavy burden.
From now on, once you are taking out any loans from any Nigerian bank, you are at same time permitting the bank to withdraw your deposits from other banks you may have accounts in, in order to repay the loan in the event of your failure to pay back the loan on time.
“If you don’t pay the loans you collected from a bank, we will use your deposits in other banks to service your loans,” MD of Nigeria’s largest bank by market cap Guaranty Trust Bank, Segun Agbaje said.
This formed part of a resolution at the 345th Bankers Committee meeting held in Lagos recently. (Bankers Committee in Nigeria is a committee of top officers of banks Nigeria)
At the meeting, the bankers decided that bank borrowers would be made to sign an agreement that if there was a default, the bank would have a right to access the borrowers other accounts.
The bankers also decided that vital information should be demanded from bank borrowers such as Bank Verification Number, Tax Identification Number among other documents.
As A First Step Towards Enforcing This New Resolution, CBN Has Barred Financial Institutions In Nigeria From Giving Loans To Individuals Or Entities Without Nigeria’s Bank Verification Number or Tax Identification Number
This was contained in its latest exposure draft on the review of the Prudential Guidelines, PG, for commercial, merchant and non-interest banks.
Section 3.23 of the reviewed guidelines states that:
“On lending to customers, banks shall not lend to corporate entities without TIN and individuals without BVN or individuals with BVN that are not resident in Nigeria. Banks that have existing exposure to such entities are required to wind down such exposures within 24 months from the effective date of these Guidelines.’’
“A bank that lends to any corporate entity without TIN and individuals without BVN or non-resident individuals with BVN from the effective date of these guidelines or a bank that fails to fully wind down its existing exposures to such entities by the date allowed above is in contravention of this regulation.
What Startups And Businesses Should Watch Out For
Next time signing loan agreements with any banks or financial institutions in Nigeria, startups or individuals should watch out for a clause in the loan agreement that permits the lender to use their deposits in other banks to service their loans. This is because currently, no law permits banks in Nigeria to breach the duty of confidence and good faith they owe their customers. However, expect argument as to whether this new move by the CBN is an extension of the powers of the Central Bank of Nigeria under Nigeria ’s Central Bank Act. In the meantime, the bankers Committee has decided that bank borrowers would be made to sign an agreement that if there was a default, the bank would have a right to access the borrowers other accounts. Hence, banks would be looking to rely on this clause in defence of any of their action.Therefore, it is advisable to consider the terms of loan instruments before appending signatures.
The Implication of The September 30 Timeline
From September 30, 2019 it is expected that Nigerian money deposit banks are going to loosen up money to Nigerians. For businesses desiring to raise funds, this is the best time to laugh as more banks would be rushing after them.
This is the first time the Central Bank of Nigeria is weighing in on minimum lending ratio. Previously, there Nigeria had no rule on minimum loan-to-deposit ratios.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.