CBN Extends Implementation of Prudential Guidelines


By Emele Onu, 07.09.2010


The Central Bank of Nigeria (CBN) has extended by two months the implantation date for the new Prudential Guidelines for Banks.The guidelines which were first issued in May, this year was re-issued yesterday and the effective date for implementation moved from May 1 to July 1, 2010.


A circular signed by CBN’s Director of Banking Supervision, Mr Samuel Oni, addressed to all deposit money banks referenced: BSD/DIR/GEN/NPG/02/126 and dated July 8, 2010, stated that banks are 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. The document which details new prudential guidelines and loan loss provisioning requirements takes effect from July 1, 2010. Banks are required to be guided by the guidelines and ensure strict adherence. The document supersedes the one earlier issued dated May 5,2010,” CBN said.


The guideline, which compares with the former document addresses various aspects of banks’ operations, such as risk management, corporate governance, know your customer (KYC), anti-money laundering, counter financing of terrorism, loan loss provisioning, peculiarities of different loan types and financing different sectors of the economy, among others.


The CBN stated that the guidelines became necessary to correct the extremely fragile financial system that was tipped into crisis by the global financial meltdown and which manifested in macro-economic instability, major failures in corporate governance, lack of investor and consumer sophistication, inadequate disclosure and transparency, uneven supervision and enforcement and critical gaps in prudential guidelines.


The guideline among its numerous provisions, directed banks to prepare comprehensive credit policy duly approved by their Board of Directors, and that the policy should among others cover loan administration, disbursement and appropriate monitoring mechanism and should be reviewed at least every three years.


It also highlighted already known directives to banks such as that which stipulated that external auditors in a given bank shall hold office for a maximum period of ten years from date of appointment after which the audit firm shall not be reappointed in the bank until after a period of another 10 years.


The total outstanding exposure by a bank to any single person or a group of related borrowers is fixed at a maximum of 20 per cent of the bank’s shareholders’ fund unimpaired by losses while aggregate large exposures in any bank should not exceed eight times the Shareholders’ fund unimpaired by losses. Of a bank shall not exceed 20 per cent of total loan portfolio net of provision of the bank and including off balance sheet engagement, adding that any excess over 20 per cent prescribed limit without the CBN approval shall be subject to full provision and should be part of general provisions on a quarterly basis. The guideline further stipulated that the “Specialized loans” exposure.


On bankers’ acceptances and commercial papers, the guideline specified that the issuance and treatment of BAs and CPs shall be in line with the CBN’s “Guidelines on the issuance and treatment of Bankers Acceptances and Commercial Papers” issued on November 18, 2009 or as may be advised by the CBN from time to time.


Credit bureaus before granting any facility to their customers just as all banks should provide evidence that a search has been conducted on the borrower in the CBN’s Credit Risk Management System (CRMS) database. It directed that all banks must obtain credit report from at least two.


Addressing margin lending, the guidelines stipulated that all banks involved in margin lending shall comply with the guidelines issued by the CBN and the Securities and Exchange Commission (SEC) on Margin Lending for banks, brokerage firms, asset managers and other financial institutions.





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