On July 27th 2023, the Central Bank of Nigeria (CBN), directed deposit money banks (DMBs) to vacate the Post-No-Debit restriction placed on 440 individual and corporate account holders.
This order, which came on the heels of the suspension of the former CBN Governor, Godwin Emefiele, is seen by many stakeholders as a sign of a new dawn in the operations of the apex bank. They contend that the apex bank had been using the PND restrictions unlawfully against citizens, a situation they say is not healthy for the Nigerian economy which is struggling for survival.
PND is a restriction on an account which stops an account holder from carrying out debit card transactions, money transfer out of the account, and check transactions. When an account is placed on Post No Debit, it means that funds can flow into the account, but there can be no withdrawals.
The rationale behind implementing “Post No Debit” can vary, and it is often introduced as a protective measure by banks and financial institutions in response to potential risks associated with the account or account holder. Common reasons for its implementation include suspected fraudulent activities, irregularities in transactions, account disputes, court orders, or concerns over the account’s solvency.
It is a global phenomenon to freeze any account that is suspected to be used for illegal inflow or outflows or if an account holder is a debtor who fails to pay their debts as when due, a creditor may obtain a court order to stop the debtor from making a further withdrawal from their account balance.
However, in the case of the companies mentioned above, there is a suspicion that there could be some other reasons for the restrictions, including political.
In 2020, without a court order, some companies in the non-financial sector had a PND placed on their accounts for sourcing FX from non-official sources or the black market. Some exporters were also victims for the failure to repatriate foreign currency proceeds.
In the case of the exporters, it was unreasonable to repatriate their dollar earnings to be sold at the exchange rate of N461/$ in the I&E FX window which was 62 percent lower than what could be obtained in the parallel market at N750/$. This means the CBN is telling these exporters to lose 62 percent of their revenues in naira terms.
Realising its mistake, the CBN introduced a scheme that now compensated exporters N25/$ for every dollar they repatriated.
The consequences of these sudden and unlawful sanctions on the accounts of individuals and businesses are devastating. Many struggle to go about their everyday business and to meet obligations. Some companies could not pay salaries to staff and settle invoices to suppliers as and when due. Experts say this kind of action harms the entire economy by destroying commerce and employment.
Professor Godwin Oyedokun, of Lead City University, Ibadan, in an interview said it was an economic suicide to have placed such restrictions on those accounts at the time it was done knowing the fragile nature of the Nigerian economy.
He said it is possible many of the companies whose accounts were placed on PND have closed shop as they could not meet their obligations.
According to him, “I am glad that some reforms are already taking place at the Central Bank of Nigeria at least to bring it to the point where it will respect the laws of the land. How can you place PND on an account for two years, three years, when the law says not more than 90 days?”
He said it is a good thing that the restrictions have been lifted, adding that the monies saved in the accounts those many months will now form part of money supply to the economy that will stimulate more economic activities for economic growth.
He also advised the victims of the restriction to demand for interest on their money as it has turned out that the restriction was not because of any wrong doing.
An economist who wants to be anonymous because of where he works, said the lifting of the PND restrictions is a timely intervention for the affected companies 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,” he said. “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.”
Gilbert is a financial analyst based in Abuja