Monday, 11th December 2023

CBN vacates PND restrictions, but arbitrariness must end

By Bayo Akintunde
14 August 2023   |   3:40 am
On Wednesday, July 27 2023, the Central Bank of Nigeria (CBN) finally lifted ‘Post No Debit’ (PND) restrictions on 440 accounts of corporates and individuals in the banking system.

CBN headquarters, Abuja

On Wednesday, July 27 2023, the Central Bank of Nigeria (CBN) finally lifted ‘Post No Debit’ (PND) restrictions on 440 accounts of corporates and individuals in the banking system.

The PND restriction was a signature sanction imposed on companies and individuals who acted against the CBN’s bidding but not necessarily the laws of the land. The requirement that a court order was needed for the restrictions did not pose a setback as the CBN repeatedly scaled this hurdle with ease. Over time, there was a clear pattern in the administration of the PND restrictions that made it obvious that the restrictions were issued in collusion with particular judges in the Nigerian Judicial System.

PND restrictions gained prominence in the past eight years under suspended CBN Governor, Godwin Emefiele, on whose watch the notoriety of PND abuse grew. Within the CBN, the Economic Intelligence Unit was mainly responsible for generating and issuing PND orders. There are reports that the PND was used to serve the personal and political interests of highly placed people who sought to inflict damage on their adversaries through the banking system. It was also used for extortion as there are claims that affected individuals and companies had to pay bribes to have PND restrictions relaxed.

The then Economic and Financial Crimes Commission (EFCC) in 2019, Ibrahim Magu, brought to the attention of the public the abuse and corruption surrounding the use of PND in the banking system.

In an earlier article titled, “Unveiling the CBN’s Abuse of PND in the Banking System” and published in June 2023, I documented these practices and called for the easing of such restrictions. The CBN, since the suspension of Emefiele, has been reversing the damaging policies it introduced and staunchly defended since 2015 based on its desire to restore confidence in the Nigerian economy. The lifting of PND on accounts is another welcome development.

However, with a leadership crisis at the CBN, given the suspension of Emefiele, what has informed this policy change is unclear. Is the CBN reforming itself from within based on the current leadership which is in acting capacity? Or is this another change driven by the Presidency, like the FX reforms?

Whatever it is, the lifting of PND restrictions is a timely intervention for the affected economies and individuals given the current challenging economic environment. With rising inflation and the massive exchange rate depreciation, running a business in Nigeria has become difficult. The recent fuel subsidy removal has massively devalued the salaries of workers who are now yearning for better salaries. While the PND does not stop inflows into accounts, it prevents spending. The easing of the PND restriction therefore means a new lease of life as the affected individuals and institutions can now access funds to better support their operations and stakeholders. The economy should also receive a boost in the form of better output, spending and employment. Domiciliary accounts with restrictions that have now been lifted could potentially support better FX liquidity, no matter how little.

These benefits make obvious the damage inflicted on businesses and individuals who were victims. The majority of the PND restrictions were implemented during the COVID-19 pandemic which imposed a great deal of economic pain, from which businesses had hardly recovered. It is not far-fetched to argue that affected companies would have defaulted on obligations, suffered reputational damage, missed opportunities, halted expansion plans, and become less competitive.

It is impossible to quantify the impact of these damages and there is a strong chance that many of the affected companies might never recover. The fact that the economy was in a recession for most of 2020 when the PND restrictions were ramped up further demonstrates how absurd the use of this instrument was.

The economy was, also in 2020, suffering from a foreign currency supply crunch, which made it difficult for companies to source FX for genuine needs to sustain operations. The majority of the companies which had PND restrictions on their accounts operated in this segment or were blamed for the dysfunction that had marked the FX market, symbolised in the widening premium between the official and parallel FX markets. This led the Manufacturing Association of Nigeria (MAN) and the Lagos Chamber of Commerce and Industry (LCCI) to raise concerns on how PND restrictions could cripple and shutdown local businesses, and even lead to the exit of foreign businesses from Nigeria.

The sudden removal of restrictions on these accounts now suggests that they were implemented for flimsy reasons in the first place. Without prosecution and against initial court orders, the PND restrictions were administered indefinitely on the basis of money laundering concerns. These allegations remained unaddressed when the lifting of PND restrictions was announced.

In an obvious case of injustice that has cost the victims so much, who pays for the damages the affected companies and individuals had to bear? There is precedence from Nigerian courts that the abuse of the PND should lead to a compensation for the affected customer.

In the case of Blaid Construction vs Access Bank, the bank was instructed to pay damages for failing to lift the PND, which was instructed by the EFCC and ICPC, on the company’s accounts past the expiry period. Would the burden in the case of the 440 accounts shift to the CBN, an institution with sweeping powers which can compel such actions from a bank, or would the banks be responsible?

This question would only be answered by the courts, if the affected companies and individuals summon courage to demand damages from the banks and the CBN. This is unlikely given the vindictiveness they might face later on. However, there should be consequences without retaliation for abuse in the banking system.

This brings to focus the need for institutional reforms at the level of the CBN. There is hardly any evidence that the recent changes in monetary policy and financial regulation is supported by a clean up of the abusive and unaccountable systems in place.

What we have seen is that the changes at the CBN have been led by the presidency, from which it should ordinarily be independent. Can we trust the presidency to reform the CBN? The CBN has vacated PND restrictions but there is no evidence that its misuse has ended or that it would not make a comeback.

Until we have this assurance, there will be no meaningful progress in curbing abuse in the banking system.

Akintunde is a Lagos-based financial analyst