CBN Prohibits Trading, Loan Refinancing in New Credit Scheme

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The Central Bank of Nigeria (CBN) Thursday prohibited operators involved in trading activities from accessing its real sector support facility and warned banks that attempt to “falsify through presentation of projects that do not meet the eligibility criteria/specified terms and conditions shall attract severe penalties”.

Also, it stressed that refinancing of existing loans is prohibited for funding under the programme, saying that any attempt to falsify information would also attract severe sanctions.

These formed part of the guidelines for accessing the Real Sector Support Facility (RSSF) through Cash Reserve Requirements (CRR) and Corporate Bonds (CBs) released Thursday.

The activities to be covered under the programme would be Greenfield (new) and expansion (Brownfield) projects in manufacturing, agriculture and other related sectors approved by the CBN.
It, however, pointed out that emphasis would be placed on Greenfield projects.

The facility shall have minimum tenor of seven years and two years moratorium. Also, participating financial institution (PFI) shall bear the credit risk.

At its July 2018 Monetary Policy Committee (MPC), the CBN had emphasised the need to increase the flow of credit to the real sector of the economy in order to consolidate and sustain economic recovery.

To achieve this objective, the central bank had also stated that banks would henceforth be incentivised to direct affordable, long-term bank credit to the manufacturing, agriculture, as well as other sectors considered as employment and growth stimulating.

Also, it had stated that Corporates/Triple A-rated companies would be encouraged to issue long-term corporate bonds (CBs).

But under the new guidelines, the CBN pointed out that banks interested in providing credit financing to Greenfield (new) and Brownfield (new/expansion) projects in the real sector (agriculture and manufacturing) may request the release of funds from their CRR to finance the projects, subject to the bank providing verifiable evidence that the funds shall be directed at the projects approved by the CBN.

It stated: “This programme involves investment by the CBN and the general public in CBs issued by Corporate subject to the intensified transparency requirements for Triple A-rated entities.

“Such requirements would include publishing through printing of an Information Memorandum spelling out the details of the projects for which the funds are required together with terms and conditions showing that these are long term projects that are employment and growth stimulating.”

The new guidelines stressed that priority would be accorded projects with high local content, import substitution, foreign exchange earnings and potential for job creation.

According to the CBN, the objectives of the facility includes to improve access to affordable finance to the manufacturing, agricultural, and other related sectors that are employment and growth stimulating to the economy.
In addition, it is aimed at stimulating growth in employment-elastic sectors.

Providing insights into the differentiated CRR (DCRR) system, the guidelines stated: “It shall comprise loans to Greenfield or expansion projects using CRR. Emphasis shall, however, be on new projects.”

In terms of CBs, which are financing instruments issued by corporates that meet eligibility criteria as specified by the CBN, the tenor shall be as specified in the prospectus by the issuing corporate but not below seven years. Also, the moratorium for such CBs shall be as specified in the prospectus by the issuing corporate.

It specified: “The maximum facility shall be N10 billion per project. Facilities are to be administered at an all-in interest rate/charge of 9 per cent per annum. Bank customers are encouraged to report any bank to the CBN’s Director of Banking Supervision, where such DMB may have charged interest rates above the prescribed maximum of nine percent per annum.

“Repayments shall be amortised and remitted on quarterly basis to the CBN.
“Only CRR contributing DMBs shall be eligible to participate under the DCRR. For CBs, all financial institutions and general public are eligible to participate in investing in CBs.

“A borrower shall be an entity incorporated in Nigeria under the Companies and Allied Matters Act of 1990. Such borrower must not have a non-performing facility with any financial institution.”

Under the programme, the PFIs are expected to undertake due diligence based on normal business consideration; forward an initial credit request on the proposed project to the CBN for pre-funding assessment/ approval-in- principle to proceed; forward final approved requests to CBN for funding after meeting all conditions precedent to disbursement of the facility; and disburse funds to obligors through their banks in agreed tranches, based on disbursement schedules submitted by the banks to the CBN within five working days of release from the CBN.

The PFIs are also expected to render periodic returns as specified by the CBN from time to time, monitor the projects and comply with the guidelines of the facility, among others.