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 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.”