Central Bank of Nigeria in a recently released circular stated that before any bank could extend loans to any federal agency, state or local government, their guarantees must be approved by their legislative chambers henceforth.
This new requirement on Credit Risk Management System (CRMS) guidelines is to mitigate credit risk in commercial, merchant and non-interest banks, by the Central Bank of Nigeria (CBN).
The guideline stated: “ All lending institutions are to ensure that National or State Assembly Approval(s) are in place as a precondition to accepting federal, state, or local government guarantee for any loan/exposure/credit to any company or entity legally registered or established in Nigeria.”
The circular also restricted banks’ staff loan and aligned same with the standard credit policy of financial institutions. Consequently, it stated: “All participating and reporting banks shall cease to treat all categories of staff loans as payroll/Human Resource (HR) issues.
Consequently, all staff loans shall have credit files which are expected to have duly executed loan/credit offer letter clearly stating the approved terms”. In the circular, signed by Director Financial Policy and Regulation Division, Dr. Hassan Mahmud, the apex bank said the objective of the additional guidelines is to provide compliance clarification and guidance for the rendition of credit/ loans transaction in banks.
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