CBN tracking timelines for banks’ recapitalization, sets limits for NPLs
The Central Bank of Nigeria (CBN) may have tactically flagged off planned recapitalization of banks in phases following the setting of fresh limits for exposure to non-performing loans (NPLs) that will reflect in the books of licensed banks and other financial institutions in the country.
Details form an exposure draft on prudential guidelines to microfinance banks, Deposit Money Banks, Mortgage refinance companies, finance companies, and Development Finance Companies seen by Business Hilights Abuja Bureau chief weekend has revealed.
Starting with deposit money banks (DMBs), the apex bank said “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.”
Industry analysts said the five percent limit will among other things, save banks from falling below the required liquidity ratio to stand as a safe financial institution.
CBN also made it clear to banks that due diligence and customers’ credit history must come to play so as to beat the surreptitious habitual debtors.
On the limit for the Mortgage Refinance Corporation, CBN said, “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.”
Besides, the apex bank further warned that Micro Finance Banks (MFBs) must not make it an optional issue in providing 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.
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.
“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.”
It would be recalled that in his speech shortly after being sworn in for his second and final terms as governor of the CBN, former GMD of Zenith Bank, Mr Godwin Emefiele opened up on his readiness to embark on recapitalization drive for financial institutions.
He averred that the process which will come in phases will begin before the end of the year.
According to him, the recapitalization of Nigerian banks has become long overdue following observed pressure on capital adequacy ratio in the system due to rising forex parity since the last recapitalization exercise in 2006.
