By Omoh Gabriel
CBN yesterday said that the figure in its circular to banks on minimum information disclosure in which limits for credit approvals by the board, board credit committee, managing director and others were stated was merely hypothetical. Reacting to Vanguard front page story of Monday the CBN siad ‚ÄúThe figures in the circular are therefore merely hypothetical figures that do not in anyway represent credit approval limits set by the CBN‚Äù.
Vanguard report had stated ‚ÄúIt is now mandatory for banks operating in the country to disclose in their report the credit approval limits of the board, board credit committee, management credit committee, managing Director, Group Heads, Corporate and retail banking. The new arrangement to be followed strictly by banks is that credit approval by the Board is from N 101 million and above; Board Credit Committee are now limited to grant approval of between N 51 million ‚Äì N 100 million, Management Credit Committee are limited to credit approval ranging from N 26 million ‚Äì N 50 million, Managing Director from N 11 million ‚Äì N 25 million while Group Head, Corporate, Retail are left at approval levels of N 5 million – N 10 million‚Äù.
According to the CBN ‚ÄúApproval 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.
‚ÄúSome other specific control and mitigation measures are outlined by the 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.
‚ÄúThe banks are to henceforth structures 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‚Äù.
In a statement signed by the CBN Head Corporate Communication Mohamed Abdullahi the apex bank said ‚ÄúIn the same vein, the February 1, 2010 Vanguard publication, quoting from page 64 of a Circular issued by the CBN dated January 18, 2010, titled “Minimum Information to be disclosed in Financial Statements for the Year Ended December 31, 2009”, claimed that the CBN had set credit approval limits for banks.
‚ÄúThe CBN wishes to inform the general public that this position is untrue as the Circular only provides guidance on the minimum disclosures by banks and discount houses in their annual accounts to enhance transparency and ensure standardisation in financial reporting in annual financial statements. The figures in the circular are therefore merely hypothetical figures that do not in anyway represent credit approval limits set by the CBN.
‚ÄúFor the avoidance of doubt, the primary responsibility for managing banks and discount houses rests with the Boards and Managements of those institutions, a position that the CBN recognizes and respects. The CBN has not and will not impose approval limits for banks and discount houses as those are matters of discretion for the Boards and Management of those institutions‚Äù.
The CBN statement further said ‚ÄúThe attention of the Central Bank of Nigeria has been drawn to two publications, the first in the Vanguard Newspaper of January 28, 2010 titled: CBN to ensure 5 per cent Equity Holding in Banks-Sanusi and a second on the front page of the Vanguard Newspaper of February 1, 2010, titled: CBN limits bank MDs, boards’ loan approval.
‚ÄúIn the first article of January 28, 2010, the Deputy Governor, Financial System Stability, Dr. Kingsley Moghalu, was alleged to have said that “as part of the on going reforms in the banking sector, and in our drive to ensure sanity in the nation’s financial system, we will soon be undertaking a review of the structure of the banks, and it is very likely that we are going to ensure that no one holds more than five per cent stake in any bank in Nigeria”.
‚ÄúThe above report is a misrepresentation of the Deputy Governor’s comments at a recent breakfast meeting of the Nigeria-South African Chamber of Commerce. For the avoidance of doubt, sections 5.1.3 of the Code of Corporate Governance for Banks in Nigeria issued by the CBN in March 2006 requires shareholders who wish to own more than 10 per cent equity shares in any Nigerian bank to obtain the prior written approval of the Central Bank.
‚ÄúThe CBN does not intend to limit the percentage of shareholding of investors in Nigerian banks as this will not only negate the provisions of the Banks and Other Financial Institutions Act, 1991 as amended but also the Nigerian Enterprises Promotion Act which encourages unfettered participation of both local and foreign investors in all Nigerian enterprises, including the banking sector‚Äù.