This Day (Lagos)
2 July 2009
Lagos — Central Bank of Nigeria (CBN) yesterday in Abuja said that commercial banks should follow its guidelines while lending to all the three tiers of government and their agencies.
The warning was contained in a circular signed by the CBN Director of Banking Supervision, Dr. Dan Eke, The apex bank had last week advised commercial banks to be more cautious in lending to the public sector.
The CBN directive is coming as the revenue accruing to the three tiers of government had nosedived, forcing them to look inwards for additional sources of funds.
The revenue shared by the three tiers each month, which rose to more than N450billion last year, dropped to less than N200 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.
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 posted on the CBN website said that " a maximum limit of 10 per cent 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 per cent, it should be brought down to the maximum limit of 10 per cent by Dec. 31, 2009.
"Banks are reminded of the history of non-performing public sector credits and are, therefore, strongly advised 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 of the sector," it said.
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