CENTRAL CLEARING OPERATIONS

INTRODUCTION TO CLEARING

Clearing is one of the most important aspects of banking operations. It is a major means of transferring funds between banks, as instruments drawn on one gets value at the other without physical movement of cash. The Nigerian Clearing system is currently organized by the CBN/NIBSS (Nigeria Interbank Settlement System) and the banks participating in the operation are known as Settlement banks.

The high risk and sensitive nature of clearing demands that it be handled with great caution and diligence.  CBN has 28 Clearing zones in Nigeria and from time the apex bank specifies the clearing period for which a clearing cheque (instruments) will be get value.

 

OBJECTIVES OF CLEARING

• To ensure that the bank carries out its duties as a collecting/paying bank efficiently
• To ensure that the bank is not unduly exposed financially during the course of carrying out its functions
• Also ensures that the bank maximizes the use of funds available to it through clearing operations.

DEFINITION OF TERMS

Reference is made to certain terms that require initial definition; these are:

• Clearing –    The process of exchange and reconciliation of payment items and the calculation of net amounts due to or by members of the clearing system prior to settlement.

• Settlement – The process of acknowledging and extinguishing the obligations between members that arise from the exchange of payment items by members.

• Payment items – These are also referred to as clearing instruments. They are financial instruments which have been designated as being valid for clearing purposes; for now the following are the accepted clearing instruments;

o   Personal cheques of Banks’ customers

o   Bank Cheques

o   Dividend/Interest Warrants

o   Direct Debits

o   Debit/Credit notes

o   NEFT (NIBBS Electronic Funds Transfer)

o   Bankers payments

• Clearing Branches – in the context of this manual, these are Intercontinental Bank branches that represent the bank at the CBN clearinghouse. These branches may or may not clear for other Intercontinental Bank branches in the same locality

• Clearing House – A properly constituted venue, overseen by a Superintendent appointed by CBN, where physical exchange of clearing instruments and calculation of net amounts due to or by members take place.

• Clearing session – A period in which the process of exchange and reconciliation of payment items and the calculation of net amounts due to or by members of the clearing system is completed. In a nutshell it is a period in which a full clearing process is completed, we may have more than one clearing session in a day

• Clearing Sector (or clearing zone) – This is a clearly delineated zone/area for clearing purpose. All branches of all banks within that zone will exchange their instrument at the CBN designated clearing house within that zone

• Local clearing instrument – This is a cheque drawn on a branch of a bank located within the clearing sector in which it is presented for clearing. This category of cheques is deemed paid after 2 clearing days of presentment. For example a cheque presented for clearing in the clearing house on Monday will be deemed paid if not returned to the clearinghouse by Tuesday. Thus a customer who deposits a cheque on Friday can have access to his funds by Wednesday (called the value date)

• Inter state/Upcountry clearing instrument - This is a cheque drawn on a branch of a bank located outside the clearing sector in which it is presented for clearing. This category of cheques is also deemed paid after 2 clearing days of presentment. For example a cheque presented for clearing in the clearinghouse on Monday will be deemed paid if not returned to the clearing house by Tuesday. Thus A customer who most likely deposited the cheque on Friday can have access to his funds by the following Wednesday (called the value date).

Note: The clearing period for both local and upcountry instruments is now the same.

• Returned/Dishonoured instrument – These are cheques presented for clearing which are subsequently returned via clearing by the paying bank as not being good for value

• Settlement Bank – A clearing bank that handles settlement on behalf of non-settlement clearing banks. A non settlement clearing bank is required to appoint a settlement bank through which all financial claims/obligations arising from its clearing activities can be extinguished.

• Routing Number/Bank Sort Code – The second series of numbers on the pre-encoded field of the MICR line representing the bank and branch sort code.

• Outstation Cheques – Cheques being sent from one branch (despatch branch) for collection in another branch (destination branch) via courier or other approved routes. This applies where clearing cheques are received in an area where the paying bank is not represented at the zonal clearing house.

CLEARING TYPES

The following clearing types have been defined for the treatment of outward clearing cheques.     

• Normal 1^st Session:            This clearing type is for cheques being posted for presentment during the first clearing session of the next clearing day. The cheques will get value by BOD on the 4^th day (day of deposit inclusive) for both local and upcountry.

• Normal 2^nd Session:           This clearing type is for cheques being posted for presentment on the same day. This type applies more to zones in which 2 clearing sessions are held per day. The cheques will get value by the BOD of the 3^rd day for both local and upcountry.

• FI Cheques Session 1: Approval must be in place for this clearing type to be used for any customer (financial institution).For this clearing type, the bank gives value to the customer for cheques presented on the same day the bank gets value from CBN. The customer will get value by the BOD of the 3^rd day for both local and upcountry.

• FI Cheques Session 2: The second session variance of the above. Customer will get value by the BOD of the 2^nd day for both local and upcountry

INWARD CLEARING

§  All inward clearing cheques will be suitably recorded (e.g., photocopy) and reconciled.

§  Inward clearing cheques will be examined carefully prior to the returned cheque deadline as to date, crossing stamp, endorsement where applicable, amount in words and figures, and verification of signature. Stale-dated cheques as defined by local regulation or policies, and cheques with other irregularities will be referred to the manager for approval to pay or return.

REASONS FOR RETURNING CHEQUES WHICH HAVE BEEN ADOPTED BY ALL BANKS PARTICIPATING IN THE NIGERIA BANKER’S CLEARING HOUSE

1. Account Closed

2. Account Attached

3. Amount in words required –

4. Cheques drawn in foreign currency. Please present specially.

5. Cheque mutilated

6. Cheque incompletely drawn

7. Cheque irregularly drawn

8. Crossed to two banks

9. Date required

10. Drawers signature required

11. Drawer deceased

12. Drawers Attention Required

13. Drawers Confirmation Required

14. Effects Uncleared

15. Effects Uncleared-present again on

16. Endorsement Irregular

17. Endorsement Requires Bankers Confirmation.

18. Endorsement Requires Payees Confirmation

19. Material alteration (Dates/Figures/Words)

20. No Account (Account does not exist)

21. Stale

22. Payee's Attention Required

23. Payment Stopped

24. Post dated

25. Represent on...

26. Refer to Drawer

27. Banker's Crossing Stamp Required

28. Second/Further Signature(s) Required

29. Signature Unauthorised (Signature Unknown)

30. Signature Differs/Irregular

31. Words and figures differ

32. Wrong Delivery

33. Amount/Name of the Payee differs from that on Advice

34. Clearing house stamp required

35. Signature Incomplete

36. No Advice

  

COMMON REASONS FOR SENDING CAUTION NOTICES

1. Large amount involved
2. New account (Incomplete Documentation)
3. Irregular lodgment
4. Salary/Federation account
5. Suspected spurious instrument
6. Presented by third party (Bank or non-bank financial institution).
7. Kindly confirm.
8. Account inactive/dormant
9. Cheque amount at variance with the operation of the account