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Forensic accountants, lawyers fault CBN decision on loan defaulters

Barely 24 hours after accountants and lawyers disagreed with the Central Bank of Nigeria, the apex bank, in collaboration with the bankers committee, announced that…

Barely 24 hours after accountants and lawyers disagreed with the Central Bank of Nigeria, the apex bank, in collaboration with the bankers committee, announced that it has approved the inclusion of a clause that mandates borrowers to agree that their loan balances would be offset from their bank balances across the industry.

Briefing journalists at the end of the 345th Bankers Committee Meeting in Lagos, the Deputy Governor, Financial System Stability (2020), Aishah Ahmad, said the new clause to be included in offer letters henceforth would require the provision of the Bank Verification Number (BVN), Tax Identification Number (TIN) and signing the clause that allows for a bank wide set off of loan balances.

The deputy governor said the Credit Protection  clause in addition to the recent directive to banks to achieve 60 percent loan to deposit ratio by September 30th is expected to spur lending by adding additional N1 trillion to the credit balance sheet of the banks.

Ahmad said: “In taking loans, you agree to repay the loan, should you default, the total amount of deposit you have across the industry will be applied towards repaying the loans.” This she said will enable banks to lend with more confidence.

“We came up with this because we do not want LDR directive to raise Non Performing Loans (NPLs) in the industry,” she added.

Reacting to the announcement, Matthew Ogagavworia,  a chartered accountant with interest in forensic accounting, assurance, tax and management consultancy said, “You cannot abridge the power of the court by merely introducing an amendment or a clause, unless the bankers committee will go ahead to push for a legislation for the power of adjudication.

Ogagavworia, who is also a chartered stockbroker with considerable experience in securities trading, valuation, equity research and portfolio management, posited that a more detailed approach should be pursued

He said: “It is a good idea, but there should be a fine balance. Because you cannot be a big man in bank “A” and a chronic debtor in bank “B”, as a forensic accountant and I have acted in both sides of the divide.

“Before now, when you borrow, there has always been a right of set off within the bank but with this announcement, a legal process has to be set for the central bank to midwife, because the bankers committee cannot constitute itself into a court of law. The only body that can issue penalty and interest is the court. So I see that playing out with the people that may be affected.”

He referred to the case of March 2018, when the Court of Appeal upheld the ruling of the Federal High Court (the trial court) and decided that the National Oil Spill Detection and Response Agency (NOSDRA) acted beyond its statutory powers when it imposed a fine on Mobil Producing Nigeria Unlimited (ExxonMobil).

NOSDRA (the appellant) had instituted the action against ExxonMobil (the respondent) claiming the sum of N10,000,000 as penalty for the alleged infringement of the National Oil Spill Detection and Response Agency Act 2006 (NOSDRA Act), and the regulations made thereunder.

NOSDRA argued that levying a fine on ExxonMobil was done under Section 6(2) and (3) of the NOSDRA Act.

ExxonMobil on its part argued that the judicial arm of government has the exclusive powers of imposing fines and penalties, and queried if NOSDRA, being a non-judicial entity, could impose a fine or penalty on ExxonMobil.

After considering the parties’ submissions, the Court of Appeal dismissed the appeal and affirmed the ruling of the trial court. Relevant portions of the decision are set out below:

“On the facts and circumstances of this case, I am of the firm, but humble view that the imposition of penalties by the appellant was ultra vires its powers, especially where no platform was established to observe the principles of natural justice.

Penalties or fines are imposed as punishment for an offence or violation of the law. The power as well as competence to come to that finding belong to the courts, and the appellant is not clothed with the power to properly exercise that function in view of the law creating the appellant (NOSDRA). There is, therefore, a lacuna in that law establishing the appellant.”

Ogagavworia therefore argued that under the 1999 Constitution, only judicial bodies can impose fines or penalties and NOSDRA, not being a judicial body, cannot impose fines or penalties.

Liborous Anegbette-Oshoma, a Constitutional Lawyer and Head Attorney at Liborous Oshoma Chambers said: “The problem is that we most times don’t think through the politics. If there is a debit balance in a loan account and that balance is a subject of dispute, then it will give leverage to the bank to behave recklessly.

“When you introduce a clause like that without caveat or limitation, it gives room for more dispute because it gives undue advantage to the bank to determine interest and collect by fiat.”

He said the pronouncement should be properly thought through. “I think the introduction of the credit bureau is a fantastic idea. They should make sure that debtors are cleared by the bureau before they access credit in the first place.”

According to Oshoma: “It is almost impossible for the Economic and Financial Crimes Commission (EFCC) to take a kobo from an account because it is like garnishment of an account with court order

On his part, the Executive Director of Centre for Social Justice, Barrister Eze Onyekwere said: “Banks have always been known for overcharging customers account. The bankers committee should simply do the right thing; go to court.”

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