CBN sets limits for banks on non-performing loans

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.”