Banks are bracing for the effects of a likely forfeiture of funds in accounts without the Bank Verification Number ( BVN ).
Should the government enforce the court order on such accounts, the banks will recall loans from customers; and lay-off staff.
Speaking yesterday on the development, former Registrar/Chief Executive, Chartered Institute of Bankers of Nigeria (CIBN), Uju Ogubunka, said a massive loan recall would help the lenders keep their liquidity ratio within regulatory threshold.
Liquidity ratios are based on various portions of a bank’s current assets and liabilities taken from its balance sheet. A bank with a low coverage rate should raise a red flag for investors and customers as it may be a sign that it will have difficulty meeting its short-term financial obligations, and consequently in running its day-to-day operations.
The Central Bank of Nigeria’s (CBN’s) Economic Report obtained by The Nation showed that aggregate credit (net) to the economy stood at N27.47 trillion in the first quarter of 2017. The report also indicated that banks loaned N22.27 trillion to the private sector within same period. However, it is not yet established the percentage of the loans that may be recalled by the lenders.
Justice Dimgba Igwe of the Federal High Court, ruling on an ex parte application filed by the Federal Government through the Office of the Attorney-General of the Federation on October 21, granted the temporary forfeiture of funds in accounts not linked to BVN within two weeks unless the owners justify their ownership of such accounts. The deadline for compliance ended last Friday.
Ogubunka, who is now the President, Bank Customers Association of Nigeria (BCAN) said many banks have ‘core deposits or savings’ which are usually kept with them for long time and used for long-term financing because the owners of the funds might have abandoned them. He said the new policy will likely affect such funds and shake liquidity positions of banks that rely on such funds to finance long-term projects.
He disclosed that one of the risks banks suffer is regulatory, but the current challenge facing the lenders is legal risks and there are likelihood that some banks may recall credits given out to customers to boost liquidity position.
He added that such remains an option because of the shortness of time, which makes it difficult for the affected lenders to go for fresh capital immediately.
When asked if such practice will not be breach of the loan contract, Ogubunka said: “It will not be breach of contract. There is always a caveat in every loan offer which stipulates that the bank may recall the credit or change conditions of the loan. So, any bank that recalls loans under this circumstance is covered by law because such lender needs to stay in business”.
He also said that job losses remain imminent because the level of deposit to be lost by the affected banks seems huge, and lenders may want to minimize their cost of operation by laying off some of their staff.
“There will so many implications but we pray no bank goes under. We may see some banks with porous liquidity as the Federal Government begins to implement the court order. But government has to be cautious in implementing this policy because it has huge implications for the banks, customers and economy,” he said.
He said enough time was not given to bank customer to comply with the directive given that the BVN was not originally meant to be used to confiscate customers’ money but to protect their accounts. “Some people may have taken the BVN policy for granted, but the reality now is that if you don’t have BVN, you may lose the money in your account to the Federal Government,” he said.
Findings showed that it would be very difficult to put a figure to the 46 million accounts not linked to BVN but the first generation banks are believed to have the largest number of dormant accounts, although that has not been established. These banks have the largest number of dormant accounts because of how long they have been in the business.
The CBN through the Banker’ Committee and in collaboration with all banks in Nigeria on February 14, 2014, launched a $50 million centralised biometric identification system for the banking industry tagged Bank Verification Number (BVN). The BVN gives a unique identity that can be verified across the Nigerian Banking Industry (not peculiar to one bank) while bank customers are protected from unauthorised access.
The Federal Government secured an interim forfeiture order from Federal High Court which would now allow it to freeze the accounts of bank customers in Nigeria who have no Bank Verification Number, BVN.
The order obtained before Justice Dimgba gave the Federal Government the nod to instruct the banks to disclose any investments made with these funds and to freeze any outward movement from these accounts.
The court order mandates the CBN to appoint an examiner to look into the books of any commercial bank that fails to comply. The banks are expected to provide the names of accounts without BVN, account numbers, outstanding balances, domiciliary accounts without BVN, branch/locations where these accounts are domiciled.