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Monetary/Trade policy: Banks to declare executives’ compensation

By Omoh Gabriel, Business Editor
The Central Bank of Nigeria, CBN, has introduced additional disclosure which banks must make in their reports to monetary authorities, shareholders, customers and the general public.

CBN building

Banks operating in Nigeria are now mandated to disclose the salary and allowances of their executives. This implies that the pay package of banks’ Managing Directors and Executive Directors will now be made public in their reports. Also, banks are to disclose their risk management, capital structure/adequacy and regulatory sanction imposed on them for breach of banking regulations.

The CBN, in its 2010/2011 Monetary and Trade Policy, said that banks “are required to publish the additional disclosure statements so as to strengthen the incentives for banks to maintain sound banking practices and assist depositors and other investors to make well informed decisions on where to invest their money.”

The policy document, which was signed by the CBN Governor, Sanusi Lamido Sanusai, said “The current disclosures are inadequate to address the contemporary challenges of a complex and dynamic banking industry.

“Thus, in order to enhance transparency in the Nigerian banking system and in light of contemporary experiences in the global and Nigerian financial systems, the following additional disclosures shall form part of banks’ regulatory and financial reporting: risk management, capital structure/adequacy, executive compensation, regulatory sanctions and penalties, disclosure of related companies/persons engaged as service providers/suppliers to a bank, disclosure on insider related credits, disclosure on board of directors’ performance, disclosure on concentration of assets, liabilities and off-balance sheet engagements by sector, geography, and product, disclosure on loan quality, disclosure on lending/borrowing to/from subsidiaries and associates, disclosure on credit collaterals, disclosure on fraud and forgeries, disclosure on banks’ contingency planning framework, disclosure on loans and advances/funding or credit lines from institutions outside Nigeria, balance sheet and profit and loss account of banks’ subsidiaries/affiliates.”

According to the policy document, “In order to ensure public confidence in the banking system, the bank shall develop a set of policies, actions and processes necessary for the prevention, management and containment of banking systemic distress and crises.

A guideline to aid banks develop their contingency plans and establish thresholds for supervisory intervention incorporating appropriate action plans is being worked out Foreign nationals eligible for pension remittances

According to the 2010/2011 policy, “The retirement benefits of foreign nationals who contributed to the pension scheme are eligible for remittance subject to the following documentation requirements; duly completed form ‘A’ – resident permit and/or expatriate quota – retirement savings account statement – National Pension Commission’s (Pencom) approval.”

It further said “Premium remittances on oil and gas and special risks which are handled by foreign broker/insurer can now be undertaken in the foreign exchange market.

The documentation requirements include duly completed form ‘A’ – demand note/debit note from foreign broker/insurer – Letter of attestation from the National Insurance Commission (NAICOM).”

“Authorised dealers are allowed to sell autonomous funds to Bureaux de Change operators subject to compliance with the Anti-Money Laundering Act 2004 and disclosure of the sources of such funds to the CBN.”

In the 2010/2011 policy, daily returns shall be rendered to the CBN by both the Authorised Dealers and the BDC. While banks that engage in importation of foreign exchange (cash) will, henceforth, render monthly returns of such transactions to the CBN.

It also directed that “for disposal of export proceeds, the instruction of the account holder shall be sufficient for own use of the funds. However, where the fund is to be transferred to third parties, the purpose for transfer should be provided by the account holder.”

Travellers entering and/or leaving Nigeria are required to declare any amount above N20,000.00

The policy also said that “travellers entering and/or leaving Nigeria are required to declare any amount above N20,000.00 (twenty thousand naira only) in their possession at the time of arrival or departure from the country and in accordance with the provisions of Public Procurement Act 2007 and subject to the provision of a performance bond and or bank guarantee by the suppliers’ bank overseas, down payments in respect of imports into Nigeria shall not exceed 15 per cent of the free on board (FOB) value of the transaction.”

CBN to continue cross border supervision The CBN policy guide for 2010/2011 said that the CBN “shall continue with consolidated, cross-border supervision in 2010/2011, stating that the current global banking crisis has underscored the importance of complementing the current micro-prudential approach to regulation and supervision with the macro-prudential perspective.

“The latter, which assesses the strength and weaknesses of the financial system in terms of its overall soundness, will help regulators have a holistic view of the banking system.

A key component of the macro-prudential analysis is stress testing which gauges the potential impact of adverse shocks on banks if macro conditions are weak.

“As an important risk management tool, stress testing helps to identify adverse unexpected outcomes related to a variety of risks and provides an indication of how such risks might be handled by facilitating the development of risk mitigating or contingency plans across a range of stress conditions.

Accordingly, the bank shall ensure the use of macro-prudential regulation and stress testing in assessing the health of banks in 2010/2011.
Remittances for licences

According to the CBN “Remittances for licences (trademarks, patents, know-how, etc.) or Other Industrial Property Rights shall range between 0.5 to 5.0 per cent of net sales value or profit before tax where net sales is not available.
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Trademarks fee shall not be allowed in respect of any agreement where the trademarks owner has over 75 per cent of the equity in the local company. |

“Companies with several product lines should separate the net sales of each product line in their audited accounts so as to pay royalty for specific product(s) covered by the industrial property rights and not on the entire/total sales of the company.”

The policy said that “Technical services fees shall no longer be tied to net sales. Services such as training, installation and maintenance, etc. shall henceforth be settled on per diem rate or man-hour, man-day or man-month basis while fees for Research and Development and improvement shall attract up to 1 per cent of net sales.

Management services fees shall range from 2.0 to 5.0 per cent of the company’s profit before tax. Management fees in respect of products where no profit is anticipated during the early years shall range from 1 to 2.0 per cent of net sales during the first three to five years only.

Annual Technical Support (ATS) fees payable to Information Technology (IT) licensor shall be between 15.0 per cent and 23.0 per cent of the license fee
The CBN also said that “Annual Technical Support (ATS) fees payable to Information Technology (IT) licensor shall be between 15.0 per cent and 23.0 per cent of the license fee (the local component of which must be paid in Naira) and shall not last for more than 3 years. In addition, indigenous local vendors must be involved in all ATS for Software Agreements and the local vendors’ fee shall not be less than 40.0 per cent of the ATS fees.

In case of Hotel Services, a basic fee or lump sum not exceeding 3.0 per cent of the net sales plus incentive fees not exceeding 8.0 per cent of Gross Operating Profit (GOP) shall be applicable. Other payments which are internationally acceptable within the applicable hotel chains may be allowed.

It said that remitable consultancy fees shall be a maximum of 5.0 per cent of project cost and limited to projects of very high technology content for which indigenous expertise is not available. Service Agreement for high technology joint ventures shall continue to include a schedule for training of Nigerian personnel for eventual take-over.

In addition, Nigerian professionals shall be involved in the project implementation from inception.

Credit classification
The practice whereby some licensed banks merely renew, reschedule or roll-over non-performing credit facilities without taking into consideration the repayment capacity of the borrower is objectionable and unacceptable.

“Consequently, before a credit facility already classified as “non-performing” can be reclassified as “performing”, the borrower must effect cash payment such that outstanding unpaid interest does not exceed 90 days.

Non-performing credit facilities should be classified into three categories namely, sub-standard, doubtful or lost on the basis of the criteria specified below: (a) Sub-standard-

The following objective and subjective criteria should be used to identify sub-standard credit facilities: (i) Objective criteria: facilities as defined in 2.2(b) on which unpaid principal and/or interest remain outstanding for more than 90 days but less than 180 days.

“Subjective criteria: credit facilities which display well defined weaknesses which could affect the ability of borrowers to repay – such as inadequate cash flow to service, under-capitalization or insufficient working capital, absence of adequate financial information or collateral documentation, irregular payment of principal and/or interest, and inactive accounts where withdrawals exceed repayments or where repayments can hardly cover interest charges. (b) Doubtful- The following objective and subjective criteria should be used to identify doubtful credit facilities: (i) Objective criteria:

facilities on which unpaid principal and/or interest remain outstanding for at least 180 days but less than 360 days and are not secured by legal title to leased assets or perfected realizable collateral in the process of collection or realization.

“Subjective criteria: facilities which, in addition to the weakness associated with sub-standard credit facilities, reflect that full repayment of the debt is not certain or that realizable collateral values will be insufficient to cover bank’s exposure. (c) Lost Credit facilities-

The following objective and subjective criteria should be used to identify lost credit facilities: (i) Objective criteria: facilities on which unpaid principal and/or interest remain outstanding for 360 days or more and are not secured by legal title to leased assets or perfected realizable collateral in the course of collection or realization.”


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