Central Bank Slashes Clearing period for Upcountry Payment Instrument

The sustained effort of the Central Bank of Nigeria to reform and streamline the financial system just got another boost with the announcement by the apex bank that the clearing cycle for upcountry payment instruments has been shortened from six to four working days. Working in tandem with the Bankers Committee - an industry policy platform of bank chief executives and the central bank - the regulatory authority has continued to demonstrate an unflinching determination to nurture a strong, healthy and modern banking system that can support business development and boost economic growth. The current effort at accelerating transaction velocity in the system is further testimony of the desire to evolve an effective modern banking system

Though actual take-off is not until July 2, 2007, this move is expected to help the payment system by encouraging more acceptance of cheques by transacting parties. Under the new cycle, a bank customer who lodges an upcountry payment instrument (say, cheque) into his account, will be able to draw from the proceeds by the fourth day, inclusive of lodgment date. That is to say that an upcountry cheque lodged on Monday, unless returned by the morning clearing session of Thursday of same week, will be deemed paid by the paying bank. The customer can therefore draw on it by Thursday afternoon (after the morning clearing session). The cycle now is T + 3, that is, the date of lodgment plus 3 other working days and you can actually draw on that fourth day, by afternoon. Note of course that weekends or public holidays, when there are no clearing sessions, do not count.

Upcountry payment instruments are those drawn on a bank branch located in a different state from the state where the recipient/payee has his bank account. The payee's bank will have to collect the value from the upcountry bank-branch where the drawer's account is domiciled. A customer whose account is with First Bank, Ariaria, Aba who pays to his customer in Lagos with GTBank Ikeja has given him an upcountry cheque. This took six days to clear in the past, but with the new policy, its gets down to four days. For local payment instruments - drawn on banks within the same state - the clearing cycle remains 3 working days, that is, T + 2.

Coming on the heels of recent currency reforms and the earlier recapitalisation exercise that has left evident positive impact on the banking system, there is no doubt that significant changes are being progressively recorded. It's left to be seen if the less-than-satisfactory disposition of business people to the use of cheques and other payment instruments will show a noticeable improvement.