CBN bureaucracy delays disbursement of N500bn real sector fund


Jul 26, 2010 By Babajide Komolafe


Like similar schemes before it, the N500 billion real sector fund has fallen victim of     internal bureaucracy of the Central Bank of Nigeria (CBN). Investigation revealed that two months after the release of the operational guidelines, banks are yet to disburse money or grant any loan to the real sector under the Fund as the CBN is yet to release money to the Bank of Industry (BOI), which is the managing agent of the Fund.


“Banks have made applications to the BOI awaiting disbursement”, said Mr.Aigboje Aig-Imoukhuede, Managing Director/Chief Executive Access Bank and Chairman, Bankers’ Committee Sub-Com. on Economic Development. He spoke at the 19th  Delegates  conference/Annual general meeting of the Financial Markets Dealers Association of Nigeria (FMDA).


When contacted, Spokesperson for BOI, Mr. Waheed Olagunju said the banks are right that the Bank of Industry has not disbursed money to the agent banks for onward lending to the beneficiary industries, “We have applied to CBN. So any moment from now, we expect CBN to credit BOI’s account for onward transmission to Commercial Banks”, he said through SMS. However, the CBN  did not respond to enquiries on why it  has not released money to BOI as expected.


Although BOI is the managing agent, the CBN is to provide the fund for on-lending to banks and then to manufacturers. The operational guidelines of the scheme states, “Within receipt of funds from the CBN, BOI shall require each bank, to pledge securities with face value of not less than 100 per cent of its specified refinanced amount to BOI through the Discount office of the CBN”


The N500 billion real sector intervention fund was established by the CBN at its Monetary Policy Committee Meeting of March. Though originally intended for power sector projects, it was also extended  to banks for refinancing / restructuring existing portfolios to manufacturers and airline operators.


According to the MPC, the CBN is to provide N500 billion facility for investment in debentures issued by the Bank of Industry (BOI) in accordance with Section 31 of the CBN Act 2007, for investment in emergency power projects dedicated to industrial clusters. The funds are to be channeled through the Bank of Industry for on-lending to the Deposit Money Banks (DMBs)  at a maximum interest rate of 1.0 per cent for disbursement of loans with a tenor of 10 – 15 years at concessionary interest rate of not more than 7.0 per cent. The Committee also approved in principle the extension of this facility to DMBs for the purpose of refinancing/ restructuring existing portfolios to manufacturers.”


According to the apex bank, “In the first instance, the sum of N300 billion will be applied to power projects and N200 billion to the refinancing/restructuring of banks’ existing loan portfolios to Nigerian SME/Manufacturing Sector.”As a follow-up,  the apex bank in April released the guidelines for the  N200 billion refinancing/restructuring scheme. Under the mechanism for Refinancing/Restructuring for the Fund  The guidelines stated,“ Bank of Industry (BOI) will send out notice to all DMBs/DFIs for submission of refinancing/restructuring requests; Banks should submit requests in the prescribed format within 14days of the notice from BOI; Each request must be accompanied by the following documents: a. Request from the customer seeking for such refinancing and/or restructuring b. Latest financials of the obligor (management accounts will be acceptable in lieu of updated accounts c. Copies of duly executed offer documents between the bank and the loan obligor evidencing existence of a facility. d. 6 months account statements showing the current exposure e. An abridged business plan or feasibility study of the underlying project for which the facility was initially approved.


The plan must include the projects cash flow projections detailing the repayment schedule. f. Certificate of Incorporation evidencing the incorporation of the Company with the Corporate Affairs Commission. g.A letter of commitment indicating that the requesting bank shall on or before 31st December 2010, book new loans to the manufacturing / SME sectors in an amount not less than50% of the amount accessed under the Fund;  All applications for refinancing/restructuring facilities can be made directly or by way of syndication, club arrangement or any other means involving two (2) or more banks on the books of a bank; Within 7days of the receipt of the banks’ requests, BOI shall inform the banks of the status of their application and also advice each bank of the amount of its facility that shall be refinanced / restructured under the Fund;


An on-lending agreement shall be signed between BOI and each bank at this time; Within receipt of funds from the CBN, BOI shall require each bank, to pledge securities with face value of not less than 100 per cent of its specified refinanced amount to BOI through the Discount office of the CBN.


Eligible securities shall include the following: a. Nigerian Treasury Bills b. FGN Bonds c. Other Bonds Backed by the guarantee of the Federal Government d. Any other securities acceptable to the CBN; BOI shall within 24hours of receipt of the pledge (vide a pledge writer duly acknowledged by the discount office), credit each bank with the amount allocated to them – and not exceeding the face value of government instruments pledged;  The recipient banks are expected to apply the funds by restructuring and/or refinancing the stated accounts in line with the terms and conditions of their requests (especially as it relates to tenor and interest rates) within 48hours of receipt of funds from BOI;


In the event a bank fails to meet its obligations, the BOI shall give 30days notice of its intention to liquidate the securities.  As a result of pledging of securities for this fund, the following prudential treatment shall be accorded throughout the tenor of the loan. a. The amount disbursed shall be treated as a Term Loan. b. The Term Loan shall not form part of the bank’s deposit liabilities for the purpose of liquidity and cash reserve ratio computations. c. The Term Loan shall not be liable for NDIC premium charges. d. The securities pledged shall continue to count as part of the bank’s liquid assets for the purpose of Liquidity Ratio Computation.”


In a paper titled, “Achieving Sustainable Economic Development: The Role of the Financial Market Dealers Association (FMDA) “,  Aig-Imoukhuede spoke on efforts of the Bankers Committee to activate the N300 billion  for investment in power projects. “The Bankers’ Committee has since met with the Governments of Lagos, Delta, Rivers, Kaduna & Ogun States as well as the Minister of Power and Director-General, Infrastructural Concessioning and Regulatory Commission (ICRC).


The Bankers’ Committee follow up on these sessions by sending Investment Banking and  Project Finance experts to work closely with the State governments and  agree on actions required to make the projects bankable. Funding options being considered include infrastructure bonds & project finance arrangements via pooled, bilateral and  multilateral funding interventions. There are also a myriad of other ongoing actions which will be communicated to the public in due course,” he said.





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