As part of efforts to entrench risk management in banks, the Central Bank of Nigeria (CBN) on Tuesday said it has reviewed the risk weights assigned to some certain exposures in the banking industry.
The banking sector regulatory body said this in a letter with reference number: “BSD/DIR/GEN/LAB/06/003,” dated January 31; a copy of which was posted on its website.
The letter titled: “Review of Risk Weights on Certain Exposures in the Computation of Capital Adequacy,” was approved by the Director of Banking Supervision of the Central Bank, Tokunbo Martins.
The regulatory body raised risk weighting on loans to the public sector from 100 per cent to 200 per cent – effectively discouraging states and local governments from crowding out private sector credit growth.
It also raised risk weighting of sectors which account for more than 20 per cent of the loan book from 100 per cent to 150 per cent.
The Central Bank said the recent crisis in the Nigerian banking industry highlighted several weaknesses in the system, key of which was the excessive concentration of credit in the asset portfolios of banks.
More details later