Central Bank limits foreign borrowing by Nigerian banks

Central Bank limits foreign borrowing by Nigerian banks

Tuesday, October 28, 2014 10:27 am

A new circular by Nigeria’s central bank has limited banks to foreign currency borrowings to 75 percent of shareholders’ funds from 200 percent

The new regulation, in a document dated 24 October, replaces a 2001 rule capping foreign borrowings at 200 percent of shareholders’ funds.

It also requires banks to have adequate liquid foreign assets including cash and government securities to cover maturing foreign obligations and a contingency arrangement with other financial institutions to cover loan repayment.

The bank is trying to manage exchange rate risks and curb pressures on the naira from excess demand for dollars.

The CBN has also introduced new rules to prevent banks that do not meet minimum capital requirements from paying dividends in a bid to shore up the sector.

This was conveyed in a circular dated Oct. 8 sent to lenders and discount houses that the amount banks can pay in dividends would depend on their capital levels, statutory reserve requirements and the proportion of non-performing loans.

In the past, lenders paid out a high proportion of net profit as dividends, despite their risk profiles and capital levels. The regulator said it wanted to correct this situation with the new rules.

“There shall be no regulatory restriction on dividend payout for banks that meet the minimum capital adequacy ratio, have a cash reserve requirement of ‘low’ or ‘moderate’ and a non-performing loan ratio of not more than 5 percent,” the regulator said in the circular.

The central bank has vowed to prevent a repeat of the circumstances that led to a bailout in 2009 and has moved towards strengthening rules and tightening capital requirements.


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