Thread by @yinkanubi

At the banker's committee meeting on Aug 26th 2019, a decision was taken....or rather an instruction was handed down. It is called the "CBN Right of Set-up" and it allows the CBN to utilize the deposit of a customer in another bank to off-set a defaulting obligation.

A THREAD!

The instructions contained three undertakings that basically says "in the event of default, the bank shall have the right to report the delinquent loan to the CBN and request them to direct all banks to set-off the indebtedness from any money in your credit in any bank account".

It goes further to have the customer undertake to waive any right of confidentiality arising under common law or statue and irrevocably agree that the customer will not argue before any court of law or any body acting in any judicial or quasi-judicial capacity.

Hmmmmm

It didn't stop there. It also instructed that with effect from Aug 26th, all offer letters must contain documentation for the provision of the BVN and TIN of directors of the company. While for personal guarantees, the BVN of the guarantor should equally be provided.

The implication is simple. If a bank should for whatsoever reason declare a default of a loan or that your loan is delinquent, they can request the CBN to invoke the utilization of your deposit in any other bank in repayment of that obligation.

I'm quite concerned about many aspects of these guidelines & I'll try to explain why. Yes I understand the intention - To enhance the credit risk management culture especially in the age of AMCON debtors. But I'm also concerned that in doing so, we might be enshrining illegality.

Let's be honest, the "Right of Set-Off" is not new. It has been in place since the CRMS system was instituted. If you opened an account or borrowed from a bank in the last 5 years, you would have signed off on docs authorizing the bank to offset loan from credit within the bank.

That to me seem fair & understandable. What you would not have done is to sign away your right to argue your case before any court of law. Some banks even go the extra mile of asking customers to indemnify them and the CBN from losses that may be incurred in exercising this right

Effectively this means that should a company take a loan from Bank A to implement Project A and 2 years down the line takes another loan from Bank B to implement Project B, if Bank A declares a default, the CBN can ask Bank B to offset the loan and it can't be argued in court.

Yes this is entirely possible. Because the CBN did not make any distinction whether the "Credit" deposit in the other bank came as a result of a loan granted by the other bank or even capital market funding like a CP or bond. It just simply says "Money Standing to your Credit".

I'm beginning to see a trend among agencies of govt to (through the back door) gain legal access into confidential information of individual and corporate entities. Whether it's coming by way of TIN on account holders or by asking them to waive their rights to confidentiality.

The right to privacy of a Nigerian is guaranteed by Section 37 of the 1999 Constitution. Even the bank customers "Bill of Rights" affirm the right to freedom from disclosure of your account details by banks as well as intrusion into your account by third party. The question is...

...does consenting to disclosure based on a CBN guideline negate my right to privacy as guaranteed by the constitution? And does my consent to this disclosure exclude me from challenging the decision of a bank or the CBN to declare a default or request a set-off?

I leave these questions for legal experts to ponder and answer. For now, most corporates will have no choice but to sign these new clauses otherwise their credit lines will be withdrawn by banks. The Year 2020 will be interesting on several fronts.

Merry Xmas and Happy New Year

Correct *Right of set-off (not set-up)