- Central Bank Caps Banks’ Exposure to Non-performing Loans
In a bid to put a lid on banks and other financial institutions’ exposure to non-performing loans, the Central Bank of Nigeria (CBN) has capped exposure to non-performing loans and issued new guidelines to microfinance banks, Deposit Money Banks, Mortgage refinance companies, finance companies, and Development Finance Companies.
The CBN, in its new exposure guidelines, stated, “The maximum ratio of non-performing loans to total gross loans for Mortgage Refinance Corporation (MRCs) shall not at any point in time exceed 10 per cent or such other level as may be prescribed by the CBN from time to time.”
It also stated that microfinance banks “must make provisions for credits such as general provision of two per cent of the outstanding balance of performing facilities or as may be advised by the CBN from time to time.”
While for deposit money banks, it stated, “The NPL limit banks are required to manage their credit risk effectively. To this end, all banks are to ensure that the level of NPLs in relation to gross loans does not exceed five per cent.”
Speaking on financial soundness and necessary financial ratios, the Central bank said financial institutions were required to develop metrics to assess their own financial health as part of risk management measures.
It stated, “Benchmarks shall be set and actual results computed and compared to the benchmarks at least on a quarterly basis.
“The report shall be presented to the board of directors or appropriate board committees for deliberation and remedial actions as considered necessary.”