Relevant Provisions of The CBN Guidelines for accessing Real Sector Support Facility (RSSF) through CRR & Corporate Bonds.
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) at its 119th meeting held on 23rd & 24th July,2018 , emphasized the need to increase the flow of credit to the real sector of the economy in order to consolidate and sustain economic recovery.
In order to achieve this objective, Deposit Money Banks (DMBs) would henceforth be incentivized to direct affordable, long-term bank credit to the manufacturing, agriculture as well as other sectors considered by the CBN as employment and growth stimulating while corporates/Triple A-rated companies will be encouraged to to issue long-term corporate bonds (CBs). The CBN will be therefore laying more emphasis on projects targeted not only are backward integration but also those that will enhance Nigeria’s import substitution strategy.
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Details of this incentive facility are what will constitute the focus of this article.
What are the objectives of the facility guidelines?
The objectives of this facility are to :-
– Improve access to affordable finance to the manufacturing, agricultural and other related sectors that are employment and growth stimulating to the economy.
– Stimulate growth in employment-elastic sectors.
What are the activities to be covered facility under the guidelines?
– Greenfield (new) and expansion (brownfield) projects in manufacturing, agriculture and other related sectors approved by the CBN. Emphasis will be placed however on new projects.
– Priority shall be accorded projects with high local content, import substitution, FX earnings and potential for job creation.
– Trading activities are strictly prohibited under the facility and any attempt by a DMB at falsification through presentation of projects that don’t meet the eligibility criteria/specified terms and conditions shall attract severe penalties from the CBN.
What are the types of facilities available under the CBN guidelines?
The following facilities are available under the CBN Guidelines :-
Differentiated Cash Reserves Requirement (DCRR) Regime
– This shall comprise loans to greenfield or expansion projects using CRR.
– Emphasis shall be on new projects.
– Tenor :- 7 years minimum
– Moratorium – 2 years
– The Participating Financial Institution(PFI) shall bear the credit risk
– It should be noted that the refinancing of existing loans is prohibited for funding under this program and any attempt to falsify information shall attract severe sanctions from the CBN.
Corporate Bonds(CBs)
– These are financing instruments issued by corporates and that meet eligibility criteria outlined by the CBN.
– Tenor :- Not below 7 years
– Moratorium :- As specified in the prospects of the issuing corporate.
What are the modalities of the facility?
Maximum amount accessible under the facility guidelines :- 10 Billion Naira per project.
Interest Rate:- 9% per annum. Any required interest above 9% is required to be reported to the CBN.
What are the provisions of the guidelines on repayments?
Repayments are to be amortized and remitted on a quarterly basis to the CBN.
What are the eligibility criteria for participants in the facility program?
PFIs
– Only CRR contributing DMBs shall be eligible to participate under the DCRR.
– For CBs, all FIs and general public are eligible to participate in investing in corporate bonds.
Borrowers
– A borrower shall be an entity Incorporated in Nigeria under CAMA 2020. Such a borrower must not have a non-performing facility with any FI.
What are the responsibilities of stakeholders under the guidelines?
CBN
– Articulate and review guidelines for the implementation of the facility.
– Review the CB for investment.
– Invest in CBs issued by corporates.
– Determine the limits of DCRR & CB Investments.
– Appraise & monitor and evaluate projects and the facility.
– Render periodic reports on performance.
– The CBN shall disburse funds to projects through DMBs in agreed tranches.
PFIs
– Undertaking due diligence based on normal business considerations.
– Forwarding an initial credit request on the proposed project to the CBN for pre-funding assessment/ Approval-In-Principle (AIP) to proceed.
– Forwarding final approved requests to the CBN for funding after meeting all conditions-precedent to disbursement of the facility.
– Monitoring the projects.
– Complying with the guidelines of the facility.
Borrower
– To adhere strictly to the terms and conditions of the facility.
– To utilize the funds for the purpose for which it was granted.
– To comply with the guidelines.
– Making the project and records available for inspection/verification by the CBN.
What are the provisions of the guidelines on discontinuation of a credit facility?
The guidelines provide that where a facility is repaid or otherwise discontinued, the PFI shall advise the CBN immediately, giving particulars of the facility. Any outstanding amount under the facility is to be refunded to the CBN.