UPDATE: Do you know that you can now get easy bank loans courtesy of CBN?
By Anayo M. Nwosu
Do you know that the Central Bank of Nigeria has ordered all the banks in Nigeria to lend not less than 60% of their deposits to Nigerians and Nigerian companies in their books? CBN says that any bank that defaults shall pay hurting fines.
Before now, following of the fear of losing depositors’ funds to bad loans caused by inability or refusal of bank borrowers to repay loans, banks preferred investing in government’s instruments like treasury bills and bonds. They only lent to individuals or entities that showed promise or history of repayments.
CBN is of the opinion that the only way for the economy to grow is for banks to lend to its customers and not to invest their deposits in government securities or instruments. In fact, CBN says it would no longer pay any interest above a minimum deposit limit banks have with CBN.
Recall that banks also lodge or deposit their excess cash with the CBN as customers do in banks.
WHO CAN BORROW FROM THE BANK?
Anybody who has a proven stream of income evidenced in the bank account statement could be considered for borrowing.
Bank will calculate how much is left after your monthly expenses are deducted. It is the free cash that will service the bank loan. Hence, you can now buy those household items like Fridge, TV etc. Car loans to individuals will now become easily available.
Individuals also can now have easier access to loans to build or complete residential or commercial houses as long as their historical cashflow can prove capacity to service the loan.
Those customers involved in small-scale manufacturing or businesses can now access more than before, small loans of between ₦500,000 and ₦10m or more.
But before you ask your banker for loan, search your conscience very well to know if you can repay the loan.
Before you blame your bank for not lending to you, please pause and ponder on the following:
1. What would the bank do if the borrower refuses to pay or dies after collecting the loan which is part of depositors’ funds?
2. What measures can the banks take to replace the borrowed funds given to a loan defaulter when a deposit customer comes to withdraw his or her deposit?
3. What can the bank collect from the borrower that will make him/her do whatever it would take to repay?
So you can now see why you must drop something of value before the bank lends you deposits’ money? Therefore, you don’t have anything to pledge or have someone who could pledge on your behalf don’t bother asking for loan. You won’t get it.
But if you are a salaried employee, your salary could be used as security for the loan. Also, a mortgage being financed could be used as a collateral when the borrower makes equity contribution that would make the amount borrowed far less than the value of the property being financed.
WHAT HAPPENS IF YOU REFUSE TO PAY?
Have you heard of BVN or Bank Verification Number? It’s like a finger print. Once you are assigned that number, you bear it for life. No two bank customers have the same BVN.
Your bank loan is attached to your BVN and if you borrow from one bank and refuse to pay, the lending bank can through a new technology which is linked to BVN recover its loan from monies in your accounts in other banks. Reporting you to Credit Bureaux is no longer enough.
Do you know that banks are forbidden to lend a dime to any customer that had borrowed before in any bank and refused or forgot to pay? It is easy to find out as all banks must send the details and status of every loans they create to Credit Bureaux.
The registers maintained at the Credit Bureaux and the BVN have become powerful tools to force you to repay your loans.
With time, list of loan defaulters would be made available to foreign embassies in Nigeria for visa denial for chronic loan defaulters.
I am happy for Nigerian bank customers as their day has come.
Our banks would be forced to soil their hands by playing the customary roles of collecting deposits and lending some of it to needy customers at profit.
Gone is the era when Nigerian banks would be posting huge profits and be bragging that they have low loan loss provisioning (also known as a loss resulting from unrepaid loans advanced customers) just because they learnt large volume of money to big companies and used the balance to invest in profitable government securities.
With the new CBN directives, the profits of Nigerian banks shall henceforth reflect the reality of Nigeria’s business environment. That’s when businesses suffer, the banks suffer.
Therefore, when your hitherto proud bank now starts winking at you like an unmarried 43 year old beauty queen desirous of getting married, just know that the CBN has reformatted their brain. They need you to survive because they must lend to you to stay afloat.
We all know that manufacturing companies under the weight of generating electricity for themselves, bad roads that militate against distribution of finished goods, banditry on the road and diminished income of Nigerian consumers of finished goods, are groaning and making loses causing the banks to slow down on lending to them. The CBN and the Bank of Industry have been carrying the burden of directly or indirectly lending to key sectors of the economy at sub 10% per annum interest rate.
Banks are private businesses that buy deposits and sell same at a margin. If the loans are unpaid, CBN demands that those lad loans are deducted from their profit and ultimately from bank’s capital. Once a bank’s capital is diminished to an intolerable level, the bank owners are sacked and CBN and AMCON will take over the banks.
Hence banks are wiser now as they no longer do those patriotic lending in power and infrastructure that would help the economy grow because doing so is akin to a very fertile secondary school girl in an exam class having sex with her boyfriend during her ovulation without condom. If she gets pregnant, she will be expelled and her future truncated while the boyfriend which is like a bank customer would move to the “Next Level”.
Being that a buttock stung by an insidious insect defensively develops a brain of its own, many banks would be looking at a large pool of small borrowers like the vulcanizer who wants to change his equipment, the tailor who needs additional sewing machine, okada or taxi operators who need to acquire new vehicles, the cooperatives in the petty trade and the hoteliers who build short lets for 1-2 hours for couples in a hurry. This class of borrowers don’t usually default and if they do, the volume is manageable unlike when a big borrower in Power, Infrastructure or Manufacturing fails to pay.
I can see an opportunity for smart insurance companies. They can partner with banks to underwrite retail loans. This will make banks lend more. The insurance companies can also engage recovery agents to recover unpaid bad loans obligations which they have acquired by underwriting bank loans.
It is noteworthy that the biggest losers are those depositors who live on income from high interest rates on Fixed Deposit in banks. Since the CBN has closed the door for investments to the banks, the banks will no longer pay high rates on deposits. The rates may crash to the neighbourhood of 5% or below. But the economy will gain.
All banks will have to re-evaluate their recruitment and manpower strategies as there would now be a higher demand for employees with skills to structure loans and emotional intelligence to manage borrowing relationships.
Trust the big banks, they would started invest heavily in Retail Banking technology for the automation of small lending using foreign criteria and indices. Not in Nigeria that keeps little or no records of its citizens. The defining criteria for Nigerians are different as we are created differently. This is arguable though. Technology shall work more in faster disbursements but a great deal of human interventions will still be required.
Therefore, every banker reading this article should retool. The era of promotions based on high deposit volumes is going. All round banking skills would now be considered as the basis of job retention and progression.
Why not meet your bank manager today and see if the CBN directives have been trickled down to his/her level? If he or she feigns ignorance, don’t worry yourself if you are creditworthy, the manager will come looking for you.
DISCLAIMER : Opinion articles are solely the responsibility of the author and does not necessarily reflect the views of the publishers of ElombahNews!
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