PRUDENTIAL GUIDELINES FOR DEPOSIT MONEY BANKS IN …

CENTRAL BANK OF NIGERIA (CBN)

PRUDENTIAL GUIDELINES FOR DEPOSIT MONEY BANKS IN NIGERIA

EFFECTIVE: 1 MAY 2010

CONTENTS

1.0

Introduction

7

2.0

Definitions

9

3.0

Risk Management

12

3.1

Credit policy duly approved by board of directors

12

3.2

Limit on exposure to a single obligor/ connected lending

12

3.3

Limit on portfolio concentration

12

3.4

Limit on ¡°Specialized loans¡±

12

3.5

Limit on exposures to directors and significant shareholders

13

3.6

Disclosure of insider-related credits in financial statement

13

3.7

Limit on contingent liabilities

13

3.8

Bankers Acceptances and Commercial Papers

14

3.9

Minimum conditions for taking exposure

14

3.10

Minimum information on credit print-outs

14

3.11

Minimum contents of credit files

15

3.12

Linkage between financial indicators of the borrower and total exposure 15

from financial institutions

3.13

Margin lending

16

3.14

Payment of dividend

16

3.15

Limit of Investment in fixed assets

16

3.16

Revaluation of fixed assets

16

3.17

Non performing to total loan ratio

16

3.18

Foreign Exchange Risk - Net Open Position (NOP) Limit

17

3.19

Loans to deposits ratio

17

3.20

Liquidity ratios

17

3.21

Statutory reserve

18

3.22

Cash reserve ratio

18

2

3.23

Capital adequacy ratio

19

3.24

Credit rating of counter party/ obligor

21

3.25

Credit rating of banks

22

3.26

Reconciliation of inter-branch accounts and settlement of suspense 22

account entries:

3.27

Foreign borrowing for on-lending by Nigerian banks

22

3.28

Misreporting

22

3.29

Transitional Provisions

22

4.0

Corporate Governance

23

4.1

Tenure of Non Executive Directors

23

4.2

Tenure of External Auditors

23

4.3

Disclosure of Executive Directors¡¯ compensations, bonuses, profit sharing 24

arrangements and share option

5.0

Know Your Customer and Anti-money laundering

5.1

Know your customer

5.2

Anti-money laundering measures

5.3

Record retention

5.4

Correspondent banking

5.5

Suspicious transactions

26

6.0

Project Financing

27

6.1

Policy duly approved by Board of Directors

27

6.2

Credit appraisal of projects

27

6.3

Assessment of projects

27

6.4

Monitoring of project

29

6.5

Maximum duration of loan

29

6.6

Moratorium

29

7.0

Object finance, Real estate and Commercial Real Estate

30

7.1

Policy duly approved by Board of Directors

30

7.2

Purpose of loan

30

25

25

25

25

25

3

7.3

Monitoring of real estate market

30

7.4

Duration of loan

30

8.0

Small and Medium Enterprises Financing

31

8.1

Policy duly approved by Board of Directors

31

8.2

Source, capacity of repayment and cash flow based lending

31

8.3

Personal Guarantee

31

8.4

Leverage ratio for SME financing

31

9.0

Agriculture Financing

32

9.1

Policy duly approved by Board of Directors

32

9.2

Repayment capacity of the borrower

32

9.3

Natural Calamities

32

9.4

Insurance of Agriculture produce

32

9.5

Proper utilization of loans

32

9.6

Valuation of Security

32

9.7

Cash flow based facilities

32

10.0

Microfinance loans

33

11.0

Retail financing

34

11.1

Minimum conditions for retail financing

34

11.2

Limit on exposure against total retail financing:

36

12.0

Regulations for Auto Financing

37

12.1

Vehicles for personal use

37

12.2

Tenure of auto loans

37

12.3

Down Payment

37

12.4

Hypothecation of vehicles

37

12.5

Insurance of vehicle

37

12.6

Default

37

12.7

Repayment Schedule

37

12.8

Financing for used cars

38

4

12.9

Authorized auto dealers

38

13.0

Regulations for Credit Cards

39

13.1

Delivering the credit cards

39

13.2

Monthly statement of account

39

13.3

Stolen Cards

39

13.4

Payments

39

13.5

Penalty against late payments

40

13.6

Maximum card limit

40

14.0

Regulations for Housing Finance

41

14.1

Limit on housing finance

41

14.2

Tenor of loans

41

14.3

Mortgage Registration

41

14.4

Valuation of Property

41

14.5

Monitoring of real estate market

41

14.6

Floating rate products

41

15.0

Loan Loss Provisioning

42

15.1

Credit portfolio classification system for facilities other than ¡°Specialized 42

loans¡±

15.2

Provision for non-performing facilities other than ¡°Specialized loans¡± as 44

defined by the guidelines

15.3

Provision for non-performing facilities under ¡°Specialized loans¡±

45

15.4

General Provisions

45

15.5

Adapting Prudential Guidelines to IFRS

45

15.6

Credit portfolio disclosure requirement

45

15.7

Disclosure requirement for ¡°Specialized loans¡±

46

15.8

Interest accrual

46

15.9

Classification of other assets

46

15.10

Revolving and overdraft facilities

48

15.11

Facilities without approval

48

5

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