The Central Bank of Nigeria has set new limits for banks and
other financial institutions on non-performing loans to reflect in
their books
The bank disclosed this in its exposure draft on prudential
guidelines to microfinance banks, Deposit Money Banks, Mortgage
refinance companies, finance companies, and Development Finance
Companies.
For the Mortgage Refinance Corporation, it stated, “The maximum
ratio of non-performing loans to total gross loans for 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 stated that the MFBs 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.
For DMBs, 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.”
On financial soundness indicators and financial ratios, the CBN
stated that banks were required as part of their risk management
framework, to institute a process for computing financial ratios
and financial soundness indicators for checking financial health of
each institution.
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.”
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