The Central Bank of Nigeria has issued a new directive to financial institutions in the country, directing them to reduce their exposure to risk as regards lending to the public.
On Friday, August 23, 2019, the CBN gave this lending limit recommendation to microfinance banks, Deposit Money Banks, mortgage refinance companies, finance companies, and Development Finance Companies.
The CBN directed the microfinance banks to offer loan at 1% to individuals, while the maximum loan that should be offered to groups of borrowers like a cooperative shouldn’t exceed 5% of the microfinance banks’ shareholders’ fund.
“The maximum loan to any individual borrower shall not exceed 1% while a loan to group of borrowers, a cooperative or a corporate body shall not exceed 5% of the MFB’s shareholders’ fund unimpaired by losses or as may be prescribed by the CBN.”
The CBN added that the aggregate insider-related lending must not exceed 5% of an MFB’s shareholders’ fund unimpaired by losses.
Also, Deposit Money Banks have been instructed not to exceed 20% of the bank’s shareholders’ fund unimpaired by losses for individuals or single persons and group of related borrowers.
“50% of a bank’s off-balance sheet engagements shall be applied in determining the bank’s statutory limit to a single obligor.”
Government loan: The apex bank also ordered that the total outstanding exposure (on and off-balance sheet) by a bank to all tiers of government and their agencies must not exceed 10% of the total credit portfolio.
Recall that the CBN had previously reported that the Central Bank directed commercial banks operating in the country to lend out up to 60% of their customer deposits. CBN ordered all banks to maintain a minimum loan to deposit ratio of 60% by September 2019. The ratio will be reviewed quarterly.
The CBN also said that banks that fail to meet this requirement would risk seeing their cash reserve ratios increase to 50%. This means 50% of a bank’s deposit will be immediately sent to the CBN.