Legality and practicability of the guidelines on GSI: the Central Bank Of Nigeria got it right
The Central Bank of Nigeria (CBN) approved the implementation of the guidelines on Global Standing Instruction (GSI) to ensure practical debt recovery machinery through the use of which outstanding loans can be legally recovered from defaulters who have refused to offset the debt advanced to them by the crediting banks, long after they have become overdue.
It has its objectives as the facilitation of an improved credit repayment culture, the reduction of Non-Performing Loans (NPLs) in the banking industry and watch-listing consistent loan defaulters. The guidelines make clear provisions requiring the borrower to execute a GSI mandate at the point of obtaining the loan authorizing the bank to recover the sum advanced, by deducting from all the accounts (including Joint Accounts) standing to the credit of the borrower to which the latter’s Bank Verification Number (BVN) is linked, to the satisfaction of the debt owed.
On its part, the creditor bank is not to deduct from any of the borrower’s accounts, penal charges accruing from non-repayment of the loan as and when due, only the exact principal loan sum and accrued interest are to be recovered as contained in the guidelines. Also, the Participating Financial Institution (PFI) is proscribed from shielding the accounts of the defaulter.
This arrangement creates a strong systematic synergy between CBN as the regulatory agency for all banking transactions in Nigeria, the Creditor Bank which financial interest is at stake, the PFI and Nigerian Inter-Bank Settlement System (NIBSS) the windows via which the monetary status of the borrower (mostly private sector entities) can be traced for the smooth reclamation of the loan.
The GSI has been commended, in many quarters, as innovative and essential at this point.
THE POWERS OF CBN TO ISSUE GUIDELINES
The dual laws establishing and conferring unfettered regulatory powers on the CBN are the Central Bank of Nigeria Act (CBN Act) and the Banks and Other Financial Institutions Act (BOFIA), the combined provisions of which allows CBN as the banker’s bank to make regulations (including releasing of guidelines) and do such other things ancillary and necessary to the promotion of good banking services and policies and the constant galvanization of the nation’s economy.
Also, CBN has the power to issue guidelines to regulate the activities of Banks in Nigeria. The powers conferred on the CBN by its enabling statutes give it the powers to issue guidelines such as the guidelines on GSI. It is pursuant to and in a concerted exercise of this statutory assignment that the regulator bank deemed it timely and expedient to wheel out the guidelines on GSI. It cannot even be remotely averred that the CBN acted outside the scope of its powers and functions, as this has not been restricted by the enabling Act, when it made allowance for the carrying out of incidental functions by the Bank to augment the discharge of its duties. The relevant provisions of enabling statutes are:
Section 32 (1) of the CBN Act provides:
“The Bank may, subject as is expressly provided in this Act generally conduct business as a bank, and do all such things as are incidental to or consequential upon the exercise of its power or the discharge of its duties under this Act.” (Underlined is for emphasis)
Section 33 (1) (a) & (b) of the CBN Act provides:
“(1) In addition to any of its powers under this Act, the Bank may –
- require persons and institutions having access thereto at all reasonable times, to supply, in such forms as the Bank may from time to time direct, information relating to or touching or concerning matters affecting the economy of Nigeria; and
- issue guidelines to any person and any institutions under its supervision.” (Underlined is for emphasis)
Section 42 (1) (b) & (c) of the CBN Act provides:
“(1) The Bank shall wherever necessary, seek the co-operation of and co-operate with other banks in Nigeria to –
- ensure high standards of conduct and management throughout the banking system; and
- further such policies not inconsistent with this Act as shall in the opinion of the Bank be in the national interest.’’ (Underlined is for emphasis)
Section 45 (6) of the CBN Act provides:
“The Bank shall have power to prohibit any bank which fails to comply with any directive issued under this section, from extending new loans and advances and from undertaking new investments, until the bank complies with the directive to the satisfaction of the Bank; and may, in addition, levy fine as appropriate under the provisions of section 13 (5) of the Banks and Other Financial Institutions Act.’’
Section 61 (6) of the BOFIA Act provides:
(1) The Bank shall have power to
- supervise and regulate the activities of other financial institutions and specialised banks. (Underlined is for emphasis)
A Cursory look at the above provisions shows the powers of the CBN to issue guidelines such as the GSI and while creating these guidelines, it has not gone ultra vires of the powers given to it by the enabling Acts.
It is important to state that, the execution of the GSI Mandate is one of the requirements that must be fulfilled by an account holder seeking to obtain loan from Borrower Banks. The GSI Mandate operates only when a Customer is in breach of the Loan contractual obligation. It is only at this point that the CBN, as the regulator, steps in, with its fundamental purpose, that is, to promote a sound financial system in Nigeria. This is of course bearing in mind the utilitarian principle of making laws or issuing directives that are for the good of all as opposed to the benefits of a single party.
THE CBN AND ADJUDICATIONS
One of the views from certain quarters about these guidelines on GSI is that it usurps the power of Court especially as regards disputes. This view is far from the correct position, as same is misconceived as the guidelines on GSI recognize the power of Court and do not in any way interfere with the powers of Court. The guidelines on GSI recognize restrictions placed on accounts by the Court and excludes such from the GSI Trigger. We strongly maintain that the amount of loan and interest left unpaid cannot be in contest, since it is regulated by the Loan Contract. The only part that could be in dispute is the penal fees for default in repaying the loan which has been expressly excluded by the Guidelines on GSI.
In addition, there are penalties in place for the wrong use or trigger of the GSI. Moreover, there is no provision in the GSI Guidelines excluding any aggrieved party from seeking redress in a Court of Law.
The entire provisions that run through the pages of the guidelines has not in any remote way ousted or usurped the jurisdiction of the Courts to determine grievances that borrowers may raise from its application. In fact, it has further enthroned same. This position of ours has been re-emphasized in the case of THE MISCELLANEOUS OFFENCES TRIBUNAL & ANOR V. OKOROAFOR & ANOR (2001) LPELR – 3190 (SC) Pp. 62-63, Paras. D-D Per Karibi-Whyte, JSC stated that:
“An ouster clause may be absolute whereby there is a total exclusion of the exercise of jurisdiction, or a limited ouster, where the exercise of jurisdiction is excluded only in certain situations. In considering the ouster provision the words used must be carefully construed to determine the effect intended. Hence where the words connote an ouster only in certain situations, the jurisdiction of the superior court is only excluded on the fulfillment of those conditions. Superior courts of record guard the exercise of their constitutional jurisdiction zealously with jealousy. Hence whereas they may tolerate the exclusion or restriction by statute of a personal right of access to the courts the language expressing such exclusion or restriction will be carefully watched by the courts, and will not be extended beyond its least onerous meaning. Only clear and unambiguous words will be allowed to have such effect”
See also; Sode v. A.-G., Federation (1986) 2 NWLR (Pt.24) 568 at p.577; Nwosu V. Imo State Environmental Sanitation Authority (1990) 2 NWLR (pt.135) 688; Fawehinmi V. Abacha (1996) 9 NWLR (Pt.475) 710.
Thus, since it is abundantly clear that there is nothing from the provisions of the guidelines having the implication of absolute or limited exclusion of the exercise of jurisdiction by the Courts over an executed GSI mandate, the guidelines cannot therefore be said to oust or exclude the adjudicatory powers of Courts.
The general legal relationship of bank and customer is contractual which requires the borrower to execute documents and offer security to the bank before utilizing the credit facility. Consequently, the parties are bound by the terms and conditions of the documents. It is in fair consideration of this that clause 3.2 of the Guidelines on GSI provides a waiver clause that ensures that the borrower waives his right that allows the creditor to act on his account(s) even in other banks, without seeking and obtaining his consent before any debit can be posted to his account.
The GSI is an agreement which recognizes that waiver clause and it serves as sufficient consent to waive the implied confidentiality obligation that other participating Banks owe to their customers (borrower). In order words, the consent of the borrower as expressed by signing the terms and conditions for the credit facility negates any provision of any contractual legal relations.
Upon executing the GSI Mandate Agreement with NIBSS, Participating Financial Institutions become necessary party to the GSI general agreement with the borrowers. Subsequently, the voluntary consent of a borrower to the terms and conditions of the agreement waives his rights of confidentiality with other participating financial institutions.
For all objective intents and valid purposes, the CBN guidelines do not in any conceivable way seek to regulate simple contracts and/or obligations binding the concerned banks and its customers, what it merely undertakes to achieve is to ensure the regulator bank’s effective collaboration with all other banks in Nigeria with the aim of making policies in the nation’s interest, as contained in Section 42 of the CBN Act and in further exercise of the powers conferred on it by Section 1 of BOFIA.
Besides, contractual obligations only take effect once the acts to which the parties have agreed begin to occur and, in this case, such obligations will arise the moment the loan is advanced to the customer by the crediting bank. Conversely, the execution of the mandate by the borrower as specified in the guidelines takes place even before the loan is given, it is a condition precedent to the grant of the facility to which the borrower has an unhindered option of walking away from. At that point, neither the prospective creditor (the bank) nor the would-be debtor (the borrower) is under any obligation of sorts, in fact, no contract has been entered by the parties. The mandate simply operates as a guarantee assuring the bank of the preservation of its pecuniary interest on the one hand and according the borrower knowledge of what is at stake should it be in default, and does not extend into the territories of the bank-customer contractual relationship itself.
To support this position, the decision in the case of DANGOTE GEN. TEXTILE PRODUCTS LTD & ORS V. HASCON ASSOCIATES NIG. LTD. & ANOR (2013) LPELR-20665 (SC), where the Court made recourse to the basic elements of a contract in establishing the existence or otherwise of a contractual obligation, is instructive. It held:
“The law relating to contractual obligation is only binding when there are offer, acceptance as well as consideration without which no valid contract can exist.” Per OGUNBIYI, J.S.C.
JOINT ACCOUNT ISSUES
The core plank of the guidelines on GSI is to improve credit repayment culture, and the creditor banks are required by Clause 3.2.2 (a) of the guidelines on GSI to properly educate borrowers about the GSI mandate, its implications and to enshrine same in their loan application process. In all cases where an eligible account holder (borrower) is a signatory to a joint account, the creditor bank is required to educate all the signatories to the joint account on the implications before the consent of the borrower is sought and obtained. Suffice therefore, to say that the GSI seeks to protect the rights of the non-defaulting party of a joint account by first educating the party before executing the agreement on the implications.
Even though Clause 2.0 of the GSI Operational Guideline expressly specified the eligible account types, which clearly excludes corporate accounts save joint accounts, it is however unclear as to what happens when a borrower is a signatory to a corporate account which he is either a director or not. Two options seem practicable:
- Where the borrower has control over the corporate interests of the corporation and can convince the corporation and the signatories to agree to the terms and conditions of the GSI agreement. In which case, it is feasible.
- Where the borrower is merely appointed as a signatory to a structured corporation, which the borrower does not have control over. How then can the veil of incorporation be lifted? It would seem that the creditor bank would be handicapped in such circumstances.
In addition, banks by their very corporate nature have juristic personalities, they are an artificial creations of the law and before its eyes, they are legal entities capable of not only suing but equally being sued against in a Court of competent authority. A customer/borrower who wishes to challenge the receipt of the loan facility or who admits it but disputes the amount of the sum in the account upon which the GSI has been triggered, is not barred from ventilating such grievances in Court, besides the guidelines provide in Clause 3.2.1 that the content of the mandate must have been fully understood by the defaulter before execution.
b) Ensure that the terms and conditions of the mandate are clearly understood before execution”
More so, the law is firmly settled that the self-evident axiom that one who consents to injury cannot be heard to complain of it thereafter. This principle has found expression in the latin maxim, volenti non fit injuria. See the case of AFRAB AFRAB CHEM. LTD v. OWODUENYI (2014) LPELR-23613 (CA) at page 35, para. C wherein WAMBAI, JCA held that:
“He must obtain a finding that of fact that the plaintiff voluntarily and freely with full knowledge of the risk he ran, impliedly agreed to incur it, both knowledge and consent are necessary and there cannot be consent before knowledge.” See also; WEMA BANK v. DE-UNITED HARDWARE LTD & ANOR (2018) LPELR-44547(CA)
It is a transactional practice that a counterpart of the executed mandate will be at the borrower’s disposal which can be tendered before the Court to argue and support its case. Where the borrower seeks to deny the knowledge of same, the law is settled that documents are inadmissible against the party who did not execute them and therefore, the bank cannot seek to enforce it against the borrower who is in denial. Where, however, the party’s contention is as to the amount sought to be recovered, the mandate will have equally captured same on its face and nothing stops the claimant from tendering in evidence the copy in its custody (which shall disclose the exact loan sum) to prove its case.
With these windows available to the begrudged borrower, it cannot be remotely averred or inferred that the guidelines will oust or usurp the Court’s powers of adjudication over such likely occurrence. This is even made more palpable by Clause 6.1 of the guidelines which provide for the sanction of a fine of N500,000.00 per incident in the event that the creditor bank wrongly ignites the GSI mandate on a non-owing or non-defaulting party’s account.
For the above wordings of the document to be given effect against the defaulting creditor bank, recourse must have been made to the Courts who would in the exercise of their powers blow life into it and the prescribed fine will then be paid.
The CBN is not autocratic, it made these guidelines in approval of the bankers’ committee, so it is safe to say that every commercial bank operating in the country welcomed the idea of the guidelines of CSI.
Non-performing loans have adverse effect on the economy of the country and loan debtors are craftily refusing to service their loan account and thereby leaving it unfunded while transacting in huge sums in the other banks. Like the introduction of BVN, the GSI mandate is a step in the right direction.
The objective of the GSI guidelines is to facilitate an improved credit repayment culture which is fair to all parties also in Clause 3.2.2. the creditor bank has a responsibility to ensure the borrower is educated about the GSI mandate and its implications and enshrine same in the loan application process.
The efforts of Central Bank of Nigeria is highly commendable for promoting a sound financial system in Nigeria and enhancement of the loan recovery across the banking sector through the Operational Guidelines on Global Standing Instruction (GSI).
The provisions of these guidelines are such that loan recovery for banks will be done seamlessly without going through so much stress as before. However, with every effort brought by the CBN through these guidelines, some persons seem to take some of the provisions of the guidelines as being ultra vires of the powers of CBN.
On the issue of BOFIA not delegating powers to the CBN to regulate contracts and/or contractual obligations between a bank and its customer. It is important to state that CBN has powers as the regulator of financial institutions in Nigeria under the CBN Establishment Act (CBN Act) and the Bank and Other Financial Institutions Act, Cap. B3, Laws of the Federation of Nigeria, 2004 (BOFIA), to regulate how banks carry out banking transactions.
The negative effect of credit risk and non-performing loans on the banking sector and the Nigerian economy in general cannot be over-emphasized. High level credit risk and non-performing loans reduces financial performance of Commercial banks and adversely impacts the economy. It often results in lost principal, lost interest, disruption to cash flows, increased collection cost and even bank failures.
The role of Commercial banks in the economy cannot be overemphasized and failure of the banks negatively impacts the economy. It is against this backdrop that the CBN has decided to create the GSI guidelines by virtue of its regulatory powers derived from extant laws.
The aim of the GSI guidelines is to protect the interest of the banks and mitigate the negative effect of credit risk and non-performing loans. The guidelines create and support an environment where Commercial banks in Nigeria can practice strong risk management.
It is expedient for the CBN to step in and protect lenders (the banks) from defaulting borrowers and those who borrow in bad faith. Protecting the Commercial banks is protecting the economy and that we must do together.
As if to give weight to the above provision of the Act affirming the submission that the bank did not step outside the boundaries of its powers in this instance, but indeed acted well within it, the Supreme Court’s decision in the case of AMASIKE v. THE REGISTRAR GENERAL, CAC & ANOR. (2010) LPELR-456 (SC) P. 106, Paras. B-D, wherein the court held that:
“A public body or authority vested with statutory powers must act within the law and take care not to exceed or abuse its powers. It must keep within the limits of the authority given to it. It must act in good faith and reasonably. Where a person or public body or authority claims to have acted pursuant to a power granted by a statute, such person, body or authority must justify the act, if challenged, by showing that the statute applied in the circumstances and that he or it was empowered to act under it”. (Underlined is ours for emphasis).
Therefore, without doubt the guidelines on GSI are in line with the obligations of the CBN as a government agency to carry out its statutory duty to ensure monetary and price stability in promotion of a sound financial system in Nigeria. See; ANAMBRA STATE ENVIRONMENTAL SANITATION AUTHORITY & ANOR v. RAYMOND EKWENEM (2009) LPELR-482(SC), where the Apex Court held that a government agency set up for a particular purpose must carry out its statutory duties.
CBN is categorized as a banker’s bank and as such, one of its prerequisites is to oversee the activities of the banks for effective running. Therefore, regulating contractual obligations of the banks is one of its duties as opposed to neglecting it.
Also, on the issue of joint accounts, it is safe to say if loans can be recovered from all bank accounts linked to a defaulters BVN, a joint account owned by a defaulter should not be an exception. This provision is only to ensure due recovery of loans and as such the guidelines set by CBN are quite practicable and efficient.
Muyiwa Atoyebi, SAN is the Managing Partner at O. M. ATOYEBI, SAN & PARTNERS (OMAPLEX LAW FIRM)