CBN warns banks on public sector lending

The Central Bank of Nigeria (CBN) on Wednesday in Abuja reiterated its warning that commercial banks should follow laid down guidelines for lending to all the three tiers of government and their agencies.

The warning was contained in a circular signed by Dan Eke, the CBN Director of Banking Supervision. The CBN last week advised commercial banks to be more cautious in their lending to the public sector.

The circular, posted on the CBN’s web site, states, “A maximum limit of 10 percent of the total credit portfolio should be placed on public sector credits both on-and-off balance sheet.

“Where the existing credit limit to the public sector has exceeded the prescribed maximum limit of 10 percent, it should be brought down to the maximum limit of 10 percent by Dec. 31, 2009.”

The circular further reminded banks of the history of non-performing public sector credits and therefore strongly advised them to exercise caution and avoid the mistakes of the past.

“The CBN will be constrained to reintroduce measures to curb public sector loans if banks do not put in place appropriate measures to avoid the excessive exposure to the sector,” it said.

The CBN directive is coming on the heels of falling revenues accruable to the three tiers of government following a fall in revenue from the sale of crude oil, forcing them to look inwards for additional sources of funds.

The revenue shared by the three tiers each month, which rose to more than ₦450 billion last year, dropped to less than ₦200 billion in the first half of the year.

The Federation Account Allocation Committee (FAAC) attributed the revenue decline to fluctuating crude oil prices and Nigeria’s inability to meet its OPEC production quota due to the Niger Delta crisis.

The News Agency of Nigeria (NAN) reports that the FAAC had to resort to using funds from the Excess Crude Account to augment revenue from crude oil and taxes.

The circular categorically states that “granting of credits to all tiers of government and their agencies” in line with the provisions of an earlier circular with reference number BSD/03/2002 dated April 15, 2002 “is hereby revised.”