Central Bank of Nigeria to Impose Lending Limits on Banks for Power Sector

The Central Bank of Nigeria, CBN, is set to curtail the excesses of banks as regards their funding of power projects.

This is in the light of recent concerns over the viability of the Power Holding Company of Nigeria, PHCN’s assets acquired by new investors. The concern stems from experts who are of the view that the privatised assets are obsolete, outdated and will likely require a huge amount of money to revamp to a state where they will be able to make minimal contribution to the companies’ profitability and to Nigeria’s power needs, in general.

There are also fears about majority of the loans going bad, in view of the fact that months after paying for the assets, the new owners are yet to take ownership. Going by the structure of bank loans, especially in Nigeria, the interest on the loans have started accumulating and no one knows for sure when the new owners will fully take charge of the assets and reach a breakeven point.

Enforcing lending limits

To this end, the CBN is considering reviewing its policies on sectoral lending by banks and also enforce the single obligor limits, the maximum amount banks borrow to single individuals or corporate.

Confirming the development, the Director, Corporate Communication, CBN, Mr. Ugochukwu Okoroafor, in an email response to Sweetcrude, disclosed that from January 2014, normal measures will be introduced to curb unbridled lending by banks.

He said, “The CBN did not impose any caps. However, our concentration risk mitigants such as Single Obligor Limit of 20% applie.

There is also a macro-prudential risk mitigant to address Sectoral concentration, which takes effect in January 2014, but this does not involve imposition of caps.”

Experts’ concerns

Similarly, the International Finance Corporation, IFC, told investors that its investment activity in the Nigerian power sector over the next couple of months will be in the area of Greenfield projects. This implies that the old assets may not have been wise buys.

The Director, Infrastructure Department, IFC, a subsidiary of the World Bank Group, Mr. Bernard Sheahan, said, “We have a detailed rehabilitation plan. We believe this plan will be important in the short run, like to add capacity, while in the long run the critical pieces will be to build Greenfield capacity.

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