In an effort aimed at curbing unbridled borrowing by state governments, the Federal Government, through the Fiscal Responsibility Commission (FRC), has unveiled a comprehensive template and guidelines for banks to adhere to before extending loans to state governments.
This initiative is geared towards ensuring that banks rigorously comply with essential prerequisites before approving loans to states. Historically, banks often extended loans to states without a full understanding of the associated risks.
The newly introduced template seeks to mitigate these risks by requiring banks to have a thorough understanding of all relevant information before making lending decisions.
In addition to the template, the FRC is urging the Central Bank of Nigeria (CBN) to issue updated guidelines to banks, offering detailed instructions on the necessary requirements they must meet. This includes proof of compliance with the Fiscal Responsibility Act.
The overarching objective of these stringent measures is to safeguard both banks and states from potential financial challenges.
