The Central Bank of Nigeria (CBN) has given deposit money banks 24 months from the effective date of the new prudential guideline (January 1, 2020) to wind down exposures to corporates without Tax Identification Number (TIN) and individuals without Bank Verification Number (BVN) or individuals with BVN that are not resident in Nigeria.
The CBN on Friday issued a revised prudential guidelines as part efforts towards enhancing the quality of deposit money banks’ assets.
According the guideline a bank that lends to any corporate entity without a TIN and individuals without BVN or non-resident individuals with a BVN from the effective date of the guidelines or a bank that fails to fully wind down its existing exposures to such entities by the stated date is in contravention of the regulation.
The prudential guideline stated that in addition to any other sanctions that the CBN may impose, the amount of such exposure shall be deducted from the bank’s capital in computing capital adequacy ratio.
The total value of credit allocated to the private sector by the banks stood at N15.21trillion as at first quarter (Q1) 2019. Oil & Gas and Manufacturing sectors got credit allocation of N3.49 trillion and N2.23 trillion to record the highest credit allocation as at the Q12019, according the National Bureau of Statistics (NBS).
Under limit on exposure to a single obligor/ connected lending, the CBN said the total outstanding exposure by a bank to any single person or a group of related borrowers shall not at any point in time exceeds 20 percent of the bank’s shareholders fund unimpaired by losses.
“50 percent of a bank’s off-balance-sheet engagements shall be applied in determining the bank’s statutory limit to a single obligor as per 3.2(a) above.”
The prudential guideline stated that the total outstanding exposure (on and off-balance sheet) by a bank to all tiers of government and their agencies shall not at any point in time exceed 10 percent of the total credit portfolio.
A large exposure is any credit to a customer or a group of related borrowers that is at least 10 percent of a bank’s shareholders fund unimpaired by losses.
Banks are expected to review their credit portfolio continuously (at least once in a quarter) with a view to recognising deterioration in credit quality. Such reviews shall classify banks’ credit exposures based on the perceived risks of default. In order to facilitate comparability of banks’ classification of their credit portfolios, the assessment of risk of default shall be based on criteria which shall include, but are not limited to, cash flow performance of the asset financed/collateral and the borrower’s repayment capacity on the basis of current financial condition.
Hope Moses-Ashike
