No More Easy Money: UBA, Zenith, Others Update Guidelines for Lending to States, Others

No More Easy Money: UBA, Zenith, Others Update Guidelines for Lending to States, Others

  • FG has issued a guideline on lending requirements for banks operating in Nigeria
  • It new guideline is expected to position Nigerian banks against possible risk
  • The FG also gave other recommendations to the CBN on how to strengthen banking in Nigeria

Legit.ng journalist Zainab Iwayemi has over 3-year-experience covering the Economy, Technology, and Capital Market

The Federal Government, through the Fiscal Responsibility Commission (FRC), has issued a template and guidelines on requirements that banks must meet before lending to state governments.

UBA, Zenith, Others to update guideline to lending state, others
FG plans to curb indiscriminate borrowing by state governments. Photo Credit: @ Daily Trust
Source: UGC

This is part of its effort to curb indiscriminate borrowing by state governments.

The new template is expected to help mitigate possible risks by ensuring banks have all the information they need before making a lending decision.

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Similarly, the development will ensure that banks comply with all the requirements before lending money to the state.

This is against previous acts that usually involve banks lending money to states without fully understanding the risks involved.

More from FRC

FRC also demanded that the Central Bank of Nigeria (CBN) should issue new guidelines to banks on how to lend to states, according to The Guardian report.

It stated that the guideline will provide more detail on the requirements that banks must meet like the proof of compliance with the Fiscal Responsibility Act.

Expressing shock at the current borrowing patterns of state government in the country, the commission noted that the new development aims to protect the banks and states from financial problems.

Barri Charles Abana, the commission’s head of directorate of legal, investigation and enforcement stated that “most banks in the country lure state governments into securing loans that eventually add up to the nation’s total debt stock.”

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Other recommendations by the FRC

  • The commission suggests reducing the overhead capital and the cost of governance to make more resources available for developmental capital.
  • The commission also recommended more public assets be slated for privatization while public infrastructure projects are also considered for the public-private partnership model.
  • The FRC suggested a moratorium on new debts, especially foreign debts, except in exceptional circumstances.
  • It wants the government to set a debt ceiling in line with the Fiscal Responsibility Act (FRA) and to consider state-contingent debt instruments (SCDIs) where repayment obligations are tied to the capacity to repay.
  • The FRC wants the government to restructure debts to ensure a longer period of amortization and to stop borrowing for recurrent expenditure and dilatory capital expenditure.

Earlier, Legit.ng reported that the CBN released new guidelines for banks looking to upgrade or re-categorise their licences.

No more limit: CBN makes changes on Access, GTB, UBA, Zenith, other banks' savings accounts

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Legit.ng earlier reported how the CBN's decision to remove the limits placed on the Standing Deposit Facility (SDF) helped banks.

Commercial banks were not permitted to deposit more than N2 billion with the CBN daily before the latest ruling by the apex bank.

The SDF functions similarly to a central bank savings account for banks. Extra cash from banks can be deposited there, and interest is paid by the central bank.

Source: Legit.ng

Authors:
Zainab Iwayemi avatar

Zainab Iwayemi (Business Editor) Zainab Iwayemi is a business journalist with over 5 years experience reporting activities in the stock market, tech, insurance, banking, and oil and gas sectors. She holds a Bachelor of Science (B.sc) degree in Sociology from the University of Ilorin, Kwara State. Before Legit.ng, she worked as a financial analyst at Nairametrics where she was rewarded for outstanding performance. She can be reached via zainab.iwayemi@corp.legit.ng

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