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The Central Bank of Nigeria (CBN) has opened up more opportunities for the insurance industry in a new guideline which bars banks from compelling customers seeking loans to purchase the products of their insurance subsidiaries as a condition to granting credits.
Banks with insurance subsidiaries have always compelled those seeking credits to buy insurance or valuation service from their subsidiaries, a situation that has affected competition in the insurance sub-sector and encurage the growth of captive markets.
This is one of the highlights of Consumer Protection Guidelines on Responsible Business Conduct issued Tuesday by the apex bank.
In section 6.7 of the guidelines, sub-titled “Responsible Lending”, the CBN provides that ‘Financial Institutions shall not compel a consumer to buy a product or service, such as insurance or valuation service from a particular provider as a pre-condition for the grant of a credit facility’.
This new provision will help to assuage the fears of insurance operators who had seen banks with insurance subsidiaries as encroaching and counter productive.
Rotimi Fashola, Vice Chairman. Competent Insurance Brokers welcomes the provision which will further encourage competition in the insurance industry and further deepens brokers’ earning.
“It is a positive development which will encourage competition and discourage captive markets”.
The apex bank feels this could ensure consumers’ capability to repay credits, also orders banks to also comply with other requirements such as describe in credit risk assessment procedures, the type and circumstances for which a credit will be suitable, as well as clear lines of authority for approving the product.
Banks are also to assess the capability of customers to repay a credit in a sustainable manner taking into consideration the customers’ financial circumstances. while setting 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.
The apex bank also ordered that banks, as part of their regular monitoring of loan performance and upon early detection of signs of repayment difficulties, inform consumers of the importance of timely engagement with the Financial Institutions to discuss alternative repayment measures. and make reasonable efforts to offer an alternative repayment plan that is appropriate to the customer’s changed circumstances and financial situation.
In addition to what the apex bank regarded as responsible lending, banks are advised to obtain the credit history of consumers from the Credit Risk Management System, Credit Bureaux and other sources of credit reference to ascertain consumers’ outstanding debt obligations and repayment history before advancing credits.
While the banks are to ensure that guarantors read and understand the full nature of their commitment, potential implication of their decisions and the maximum amount they are guaranteeing, they are also to ensure that guarantors confirm in writing that they have either, sought and obtained independent professional advice before executing the guarantee; or understood their obligations under the guarantee and do not need to seek any independent advice before executing the guarantee.
Banks are also to obtain the consent of customers to provide periodic update to their guarantors on the loan performance to enable them to assess the likelihood of being called upon to discharge their commitments and also to Issue letter of discharge to customers within 5 business days after liquidation of their loans.
Where the loan is guaranteed, the CBN expected the banks to also notify the guarantor accordingly and also notify customers where their loan requests are declined and the reasons for the decline.
BADEJO ADEMUYIWA has 23 years experience as a Finance Writer, specialising in Insurance and Investigative Reporting.
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