Central Bank of Nigeria (CBN), has said that banks’ credit policy must now be duly approved by their directors. CBN Director of Banking Supervision, Samuel Oni, said banks are now required to be guided by the regulations and ensure strict adherence. "We forward herewith, the final copy of the approved prudential guidelines for deposit money banks in Nigeria.
According to him, the policy covers loan administration, disbursement, and appropriate monitoring mechanism and should be reviewed at least every three years. By this, 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 per cent of the bank’s shareholders fund unimpaired by losses.
"Both on and off balance sheet exposure by a bank to all tiers of government and their agencies will not at any time exceed 10 per cent of the total credit portfolio. The CBN defines a large exposure as any credit to a customer or a group of related borrowers that is at least 10 per cent of a bank’s shareholders fund unimpaired by losses. Aggregate large exposures in any bank should not exceed eight times the shareholders fund unimpaired by losses," he said.
He explained that the operators are to put in place effective internal policies, systems and controls to identify, measure, monitor, and control their credit risk concentrations." A bank’s framework for managing credit risk concentrations should be clearly documented and includes a definition of the credit risk concentrations relevant to the bank and how these concentrations and their corresponding limits are calculated. Limits should be defined in relation to a bank’s capital, total assets or, where adequate measures exist, its overall risk level," Oni explained.
He noted that the new risk management rule requires a bank’s management to conduct periodic stress tests (on a quarterly) of its major credit risk concentrations and review the results of those tests to identify and respond to potential changes in market conditions that could adversely impact the bank’s performance, adding that the CBN, therefore, requires banks to put in place policies on credit Portfolio Plan as part of their credit risk management which are to be approved by their respective boards.
He observed that Banks will, henceforth, review their credit portfolio plan quarterly to ensure that the credit plan is still reflective of current market circumstances. In the event of Material Adverse Changes affecting the macro-economic environment or particular sectors, industries or regions, appropriate review and mitigation strategies should be performed.
Oni said the CBN would assess the extent of a bank’s credit risk concentrations, how they are managed, and the extent to which the bank considers them as part of subjective factors in making specific provisions. Non-compliance with a bank’s established policies on credit concentration and monitoring shall form a basis for Supervisory actions which may include additional loan loss provisions.
On insider borrowings, banks are now expected to fully disclose director, insider and significant shareholder credit exposure banks in their financial statements and returns prescribed by the CBN.
The Banks and Other Financial Institutions Act (BOFIA) defines the term "director" to include director’s wife, husband, father, mother, brother, sister, son, daughter and their spouses. Banks will, henceforth, ensure that their credit policies specifically address lending to directors as part of related parties or insiders lending policies. Insider-related credits also include transactions involving shareholders, employees, directors and their related interests.
