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CBN limits bank MDs, boards’ loan approval

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By Omoh Gabriel, Business Editor
LAGOS—IT is now mandatory for the nation’s banks to disclose in their reports the credit approval limits of boards, board credit committees, management credit committees, managing directors, group heads, corporate and retail banking.

The new arrangement, to be followed strictly by banks, is that credit approval by the boards is from N101 million and above while Board Credit Committees are now limited to grant approval of between N51m and N100m.

Also, Management Credit Committees are limited to credit approval ranging from N26 million to N50m; managing directors from N11m – N25m while group head, corporate and retail banking are left at approval levels of N5m to N10m. According to the Central Bank of Nigeria, CBN, “Approval limits are to be set  by the Board of Directors and reviewed from time to time as the circumstances of the group demand.

”Exposure to credit risk is also to be managed by banks through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate.”

Some other specific control and mitigation measures outlined by CBN include the policy measure that all loan facilities granted by any of the banks should have been secured against mortgages over residential properties; charges over business assets such as premises, inventory and accounts receivable; charges over financial instruments such as debt securities and equities.

The banks are to, henceforth, structure the levels of credit risk they undertake by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers (single obligor limits), and to geographical and industry segments. Such risks are to be monitored on a revolving basis and subject to an annual or more frequent review, when considered necessary.

Boards to approve loans quarterly

Limits on the level of credit risk by product, industry sector and by country are to be approved quarterly by the Board of Directors. The exposure to any one borrower including banks and brokers is further restricted by sub-limits covering on-and-off-balance sheet exposures, and daily delivery risk limits in relation to trading items such as forward foreign exchange contracts. Actual exposures against limits are monitored daily.

According to Mr. Samuel Oni, Director, Banking Supervision, in a circular, entitled, “Minimum Information to be disclosed in financial statements for the year ended December 31,2009, “these new measures are to enhance transparency and ensure standardisation in financial reporting by banks and discount houses.

CBN has developed guidelines on the minimum information to be disclosed by banks and discount houses in annual financial statements. Banks and discount houses are, therefore, required to adopt the new reporting format and ensure that published annual financial statements contain this information at the minimum, with immediate effect.”

Also to be contained in the new minimum requirement of published accounts of banks is the inclusion that “the bank was incorporated in Nigeria under the Companies and Allied Matters Act, 1990, as a private limited liability company on May 28, 1998. ”It was granted licence on November 15, 2001 to carry on the business of commercial banking and commenced business on January 1, 2002. The bank was converted into a public limited liability company on April 1, 2002.

The bank’s shares were listed on June 25, 2002, on the floor of the Nigerian Stock Exchange. The principal activity of the bank is the provision of banking and other financial services to corporate and individual customers. Such services include granting of loans and advances, corporate finance and money market activities. Its major subsidiaries carry on capital market, insurance and trusteeship businesses.”

Banks to disclose subsidiaries

Banks are also being required of banks to disclose the their subsidiaries, their identities, etc., as well as the corporate governance in place in line with CBN’s Code of Corporate Governance as minimum disclosure.

It is also now required that all “Unrealised gains on transactions between the bank and its associates are eliminated to the extent of the bank’s interest in the associates. Unrealised losses are also to be eliminated unless the transaction provides evidence of an impairment of the asset transferred.”

Outstanding claims

”Banks are to reflect in their report that claims paid represent all payments made during the year, whether arising from events during that or earlier years. Outstanding claims should represent the estimated ultimate cost of settling all claims arising from incidents occurring prior to the balance sheet date, but not settled at that date.”

Outstanding claims are to be computed on the basis of the best information available at the time the records for the year are closed, and include provisions for claims incurred but not reported (“IBNR”). Provisions for unexpired risks are the estimated amounts required over and above provisions for unearned premiums to meet future claims and related expenses on businesses in force at the end of the accounting period.

The apex bank directive also required that interest receivables, from customers, where not debited to customers and material should be included in reported credit (if material and identifiable) while Interest received in advance (e.g. discount on Bills) from customers where already debited to customers but not yet earned, should be deducted from report credit (if material and identifiable).

The directive stated that cash collateral against advances, if material and identifiable, should be disclosed separately.

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