CBN Global Standing Guidelines will encourage lending for developmental purposes — expert

Prof. Mike Obadan, an Economist says implementation of the operational guidelines on Global Standing Instruction (GSI) issued by the CBN will encourage commercial banks to lend money for developmental purposes.

Obadan, the Chairman of GoldMark Education Academy and a Non-Executive Director of the Central Bank of Nigeria (CBN) said this in an interview with the News Agency of Nigeria (NAN) in Benin on Monday.

He said implementation of the operational guidelines on GSI would reduce non-performing loans and boost confidence of the banking sector to give out loans to businesses that would grow the economy.

Obadan said the deposit money banks were currently accommodating a huge portfolio of non-performing loans with ratio higher than the International Prudential Guidelines of five per cent.

“The Non-performing loans were posing a threat to the existence of the banking system and commercial banks were finding it difficult to recover collateral/securities from debtors.

“The implication of this was that banks were becoming more reluctant to lend money to vital businesses, critical sectors in aid of growth and development of the economy.

“The situation was that banks will have funds and they will not be willing to lend money to companies and businesses because of loan defaulters.

“But they will be willing to invest that money in government short term securities like Treasury Bills and they are getting a high interest rate.

“The CBN saw this as an anomaly because banks exist primarily to lend money to the real sector of the economy to perform financial intermediary roles of getting money from surplus units in the economy and lending such money for developmental purposes,” he said.

He added that the implementation of the guidelines would also put borrowers on their toes to ensure that they invest borrowed money for the right purposes and yield incomes to pay back the loans.

NAN reports that the CBN had on July 13 issued a circular to all banks and other financial institutions tagged ‘Operational Guidelines on global standing instruction- individuals.’

The implementation of the Guidelines which is expected to take off from Aug. 1, will give banks the power to debit loan and accrued interest due from bank accounts of loan defaulters across the Nigerian banking system.