Regulatory and Legal Framework for Lending
What the exam tests
This domain tests the rules that constrain lending: the BOI enabling framework, BOFIA 2020, CBN prudential and credit rules, single-obligor and insider limits, credit reporting, and legal perfection of security.
Core rules
- BOFIA 2020 and CBN circulars govern licensing, prudential limits, and credit conduct; the BOI Act defines the Bank's development-finance mandate.
- Single-obligor limits cap exposure to one borrower or connected group as a percentage of shareholders' funds unimpaired by losses; aggregate connected borrowers.
- Insider and related-party lending requires disclosure, approval at the appropriate level, and compliance with limits.
- Credit information must be reported to the central credit risk management system and licensed credit bureaus.
- Security must be perfected under applicable law: registration, consent, stamping, and enforceability.
Worked example
Shareholders' funds unimpaired by losses are ₦10bn; the single-obligor cap is 20%, or ₦2bn. Existing exposure to the borrower and its connected companies is ₦1.8bn, leaving ₦200m of headroom. A requested ₦500m facility cannot be fully approved without an exemption or a reduction in existing exposure. The reasoning requires aggregating connected borrowers and using the correct capital base, not paid-up capital alone.
Traps
Using paid-up capital instead of shareholders' funds; ignoring connected-party aggregation; treating a CBN circular as optional; and taking security without registration or consent. Also check whether foreign-currency exposure needs separate limit treatment.
Key points
- Apply BOFIA 2020, CBN prudential rules, and the BOI Act together.
- Single-obligor limits use shareholders' funds unimpaired by losses.
- Aggregate connected borrowers before testing limits.
- Insider lending needs disclosure and proper approval.
- Perfect security through registration, consent, and stamping.