Banks are Free to Lend to Politicians – CBN

Emma Okwuahaba


With another election year looming in the horizon, the Central Bank of Nigeria has stated that banks are free to lend to politicians in the country. The CBN provided the clarification while refuting claims in some quarters that it had directed banks to stop granting credit facilities to politically exposed persons (PEPs).

In a statement yesterday, signed by its Head of Corporate Communica-tions Mohammed Abdul-lahi, the banking regulator stated that it had at no time issued such a directive “as such would amount to the CBN meddling with the internal credit administration processes and procedures of banks.”

It said: “For the avoidance of doubt, banks and other financial Institutions are at liberty to grant credit facilities to any individual and/or a corporate entity in line with the institution’s credit policy and in consonance with extant rules and regulations.”
The CBN also yesterday pegged the interest rate on loans from the N200 billion Intervention Fund introduced recently for the purpose of refinancing bank loans to the manufacturing sector, at 7 per cent.

Under the guidelines released by the Development Finance Department of the CBN and posted on its website, it stated that “the Fund shall be administered at an all-in interest rate/charge of 7 per cent per annum payable on a quarterly basis.
It added that “the managing agent (the Bank of Industry) shall be entitled to a 1 per cent management fee and the banks, a 6 per cent spread.”

The CBN also published the conditions for operating the intervention fund as well as the guidelines for the N200 billion Small and Medium Enterprises Credit Guarantee Scheme, pegging the interest rate to the prime lending rates of the participating banks.

The guidelines for the N200 billion intervention fund further specified that the loan is a maximum of N1 billion for a single obligor in respect of refinancing/restructuring, with the facility of a maximum tenor of 15 years and or working capital facility of one year with provision for roll over and allows for moratorium in the loan repayment schedule.

The BOI is the managing agent for the fund which is targeted at manufacturers including SMEs defined as entities with an asset base (excluding land) of between N5 million and N500 million and with a labour force of between 11 and 300.
The fund is accessible as a long term loan for the acquisition of plant and machinery, refinancing of existing loans, resuscitation of ailing industries, refinancing of existing leases, or for working capital purposes.

For the N200 SME fund, of which the CBN is the managing agent, the guidelines specified that it shall cover activities in manufacturing, agricultural value chain, educational institutions, and any other activity as may be directed from time to time.
Besides, the borrower, noted the CBN, can be a legal business operating as a sole proprietorship, that is, a start-up company with satisfactory cash flows indicating a fixed asset cover ratio of 100:150.

The maximum loan amount is N100 million which can be in the form of working capital, term loans for refurbishment/equipment upgrade/expansion, overdrafts, and so on.
The guidelines also specified that the guarantee cover shall be 80 per cent of principal and interest and shall be valid up to the maturity date of the loan with a maximum tenure of 7 years, inclusive of a two-year moratorium.