Experts Comment on CBOS’ Directions to the Banks to Collect Non-performing Loans

Sudanhorizon – Hala Hamza

The General Directorate for Banking Supervision at the Central Bank of Sudan has issued a directive to banks to intensify follow-up measures for the collection of non-performing financing.

A circular issued by the central bank obliges banks to immediately activate all procedures that ensure the recovery of outstanding debts. This includes activating collection departments, follow-up committees, and intensifying all related measures.

The central bank also granted banks the green light to take legal action and liquidate or seize collateral in order to avoid the negative impact of banking default on the financial positions of banks and their ability to perform their role in financial intermediation, particularly during the ongoing war.

Banks were further instructed to submit monthly reports detailing the measures taken in this regard and the quantitative impact on their non-performing financing portfolios. The bank also indicated its intention to evaluate the performance of executive management and boards of directors, as well as their various committees, based on the results of debt recovery efforts and the overall handling of defaulted financing.

A senior executive at one of the major banks in Khartoum, who preferred to remain anonymous, told Sudanhorizon that the objective of the directive is to safeguard the rights of the banking sector and regulate the handling of debts and provisions. However, he noted that implementing the directive under current circumstances should be guided by subsequent circulars related to war losses, deadline extensions, and restructuring measures.

He added that microfinance institutions should not rely solely on intensified collections, as this could weaken customers’ confidence in the banking system and directly affect microfinance companies, which have been severely impacted by the war. Instead, he suggested adopting gradual solutions such as rescheduling debts, restructuring financing portfolios, phased settlements, forming provisions, and reaching practical agreements with creditor banks that balance institutional sustainability with the protection of banks’ rights.

The executive also called for microfinance institutions not to be treated in the same manner as commercial banks in the strict application of the circular, given their specific nature as non-bank financial institutions with developmental objectives, warning that such treatment could negatively affect the sector.

For his part, former banker and institutional development consultant Nu’man Youssef Mohammed described the directive from the Central Bank of Sudan to banks and microfinance institutions to intensify debt collection and liquidate collateral as a logical step in principle, since banks cannot continue their operations without recovering their funds. However, he questioned the feasibility of collecting debts under the current economic conditions.

Youssef said the war “did not merely leave behind payment defaults; it created an entirely different economic reality.” He also criticized insurance companies operating under the Islamic cooperative insurance (takaful) system for refusing to compensate insured clients on the grounds that insurance policies do not cover war risks, leaving those affected caught between banks and insurance companies. He called for clear rulings from Sharia supervisory boards on how to deal with debts that defaulted due to force majeure.

He also explained that banks face another serious challenge: the loss of mortgage records and guarantee checks in branches that were burned or looted. “Even if banks want to pursue legal action, they may find themselves facing cases that are difficult to prove or enforce,” he said. The likely outcome of forced liquidation of assets in a stagnant market, he added, would be what economists call a “fire sale,” where property and productive assets collapse further in value—meaning that not only customers but also banks would suffer losses.

According to Youssef, banking system stability cannot be achieved by pressuring clients who have lost everything. Instead, it requires enabling them to return to production. He emphasized that banks do not survive solely on debt collection but on the circulation of economic activity that generates both financing and repayment.

He argued that the most realistic solution is to shift the perspective on the crisis away from immediate collection. He proposed adopting a package of exceptional measures, including restructuring debts for those affected by the war, granting sufficient grace periods to allow them to restore their activities, and considering the creation of a national fund to purchase non-performing loans from banks, which would help clean up bank balance sheets and allow financing to be reinjected into the economy.

Youssef also stressed the need for religious authorities to issue clear rulings on debts disrupted by force majeure and urged takaful insurance companies to reconsider their positions in line with the spirit of mutual solidarity upon which the system is based. He noted that no banking system can rise upon the ruins of its customers and that banks and clients are not adversaries but partners in a single economic cycle. If the goal is rebuilding the economy after the war, he said, the real starting point is not stricter collections but restoring economic life to those who have lost the ability to repay.

On the same issue, Muslim Abdullah, director of Al-Tomooh Microfinance Company, told Sudanhorizon that the circular is procedurally sound because banking finance and the sector itself require general reviews to end unjustified delays in financing and the repayment of defaulted debts, which are already losing value, particularly since they represent depositors’ funds.

Abdullah expected that the directives would produce positive results in the targeted sectors. However, he noted that the microfinance sector is exceptional, as most transactions between it and banks are conducted under restricted mudaraba arrangements in which banks’ funds are invested, reducing legal consequences for these institutions except in cases involving misuse of bank funds.

He did not rule out the possibility that the central bank may issue another circular exempting some categories and microfinance institutions from the directives. He concluded that the only real solution to the problem of institutional and small-producer defaults is to provide renewed financing and restructure debts to reduce default rates and revive their economic activity.

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