CBN warns banks against enforcing insurance cover on borrowers

In a bid to ensure that financial institutions comply with its specific requirements for loan disbursement, the Central Bank of Nigeria (CBN) has warned banks not to enforce insurance on borrowers.

The CBN has directed banks to stop mandating borrowers to patronise specific underwriting companies to buy insurance covers before they can access some loans.

The apex bank warned the banks in its Consumer Protection Guidelines on ‘Responsible Business Conduct’.

Why this matters: It is of common knowledge that banks direct their potential borrowers to take insurance covers to protect the loans they plan to obtain.

Nairametrics understands that the banks do this to avoid unforeseen circumstances that may hinder the borrower’s ability to repay their loans.

Due to circumstances like permanent disability, death, amongst other survival-threatening challenges one cannot predict, some banks have insurance firms as subsidiaries while others have close relationships with insurance firms.

The CBN is however concerned about cutting down bad loans. It is in this light that the apex bank put some requirements in place. The requirements were put in place to ensure that consumers’ capability to repay credits is efficiently assessed.

According to the Central Bank, the requirements were described in credit risk assessment procedures, the type and circumstances for which credit would be suitable, as well as clear lines of authority for approving the product.

The apex bank made known that the requirements also assessed the capability of customers to repay the credit in a sustainable manner, taking into consideration the customers’ financial circumstances.

It also set clear policies and procedures on consumer loans to ensure that customers who are unable to meet their repayment obligations due to ill health, unemployment or other disabilities are treated fairly and with due consideration.

As part of the banks’ regular monitoring of loan performance and upon early detection of signs of repayment difficulties, the CBN said they must inform consumers of the importance of timely engagement with the financial institutions to discuss alternative repayment measures.

It said they should make reasonable efforts to offer an alternative repayment plan that is appropriate to the customer’s changed circumstances and financial situation.

Meanwhile, the microfinance bank industry recorded a 5.2% decline in non-performing loans in 2018. While the industry struggled in terms of profitability as Profit Before Tax stagnated at N16.2 billion during the year, the bad loans dropped to N25 billion from N26.18 billion in 2017.

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