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019

Credit Risk Management Policy Guide

Version No: 8.0

August 2020 To be the world’s most respected African Bank

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Table of Contents

1. Ownership, Approvals of the Policy and Version Control ............................................................... 11

Introduction ............................................................................................................................ 11
Ownership of the Policy.......................................................................................................... 11
Approval of the Policy............................................................................................................. 11
Version Control ...................................................................................................................... 12
This document has been reviewed by .................................................................................... 12
2. Policy - Objectives, Scope, Purpose and Review .......................................................................... 14
Core Objective ....................................................................................................................... 14
Supporting Objectives ............................................................................................................ 14
Scope..................................................................................................................................... 14
Coverage ............................................................................................................................... 14
Purpose of the Policy ............................................................................................................. 15
Establishment of Risk Management Policies .......................................................................... 16
Review of Credit Risk Management Policy Guide................................................................... 16
Guidelines for Changing and Approving Policy Changes........................................................ 17
Others ............................................................................................................................. 17
3. Bank’s Business and Risk ............................................................................................................. 18
Access Bank’s Strategic Intent and Corporate Objectives ...................................................... 18
Risk Management Philosophy of the Bank ............................................................................. 18
Risk Culture Statement .......................................................................................................... 20
Credit Officer Risk Rating (CORR) ......................................................................................... 20
3.4.1 Risk Appreciation Programme ......................................................................................... 21
Types of Risks ....................................................................................................................... 22
Credit Risks..................................................................................................................... 22
Issuer Risk ...................................................................................................................... 23
Pre-settlement Risk ......................................................................................................... 23
Settlement Risk ............................................................................................................... 24
Clearing Risk................................................................................................................... 24
Equity Risk ...................................................................................................................... 24
Price Risk ........................................................................................................................ 24
Liquidity Risk ................................................................................................................... 24
Fiduciary Risk ................................................................................................................. 24
Disclosure Risk ............................................................................................................ 24
Documentation Risk .................................................................................................... 25
Legal and Regulatory Risk ........................................................................................... 25
Country Risk ................................................................................................................ 25
Operational Risk .......................................................................................................... 25

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Foreign Exchange Rate Risk ....................................................................................... 25

Credit Risk Products and Service Offerings............................................................................ 25
3.6.1 Term / Time Loan ............................................................................................................ 27
3.6.2 Revolving Credits ............................................................................................................ 27
3.6.3 Overdraft facilities ........................................................................................................... 28
3.6.4 Lease Facilities ............................................................................................................... 28
3.6.5 Warehouse Financing ..................................................................................................... 28
3.6.6 Loans to Staff .................................................................................................................. 29
3.6.7 Local Placements and Takings from Banks ..................................................................... 29
3.6.8 Other Lending Products .................................................................................................. 29
3.6.9 Import finance facility (IFF) .............................................................................................. 29
3.6.10 Export Finance ................................................................................................................ 30
3.6.11 Credit Product Programs ................................................................................................. 30
3.6.12 Off-Balance Sheet Credit Facilities .................................................................................. 31
3.6.13 Commercial Papers (CP) ................................................................................................ 32
3.6.14 Letter of Credit (LC’s) ...................................................................................................... 33
4 Credit Risk Organization Structure, Roles and Responsibilities ..................................................... 34
4.1 Credit Risk Organization Structure ......................................................................................... 34
4.2 Roles and Responsibilities ..................................................................................................... 34
4.2.1 Roles and Responsibilities of Organizational Groups ...................................................... 35
4.2.2 Roles and Responsibilities of Credit Risk Management Units.......................................... 40
4.2.3 Roles and Responsibilities of Customer-facing Business Units ....................................... 46
5 Credit Risk Management ............................................................................................................... 48
5.1 Risk Identification ................................................................................................................... 48
5.1.1 Introduction ..................................................................................................................... 48
5.2 Risk Measurement ................................................................................................................. 48
5.2.1 Acceptance Criteria ......................................................................................................... 48
5.2.2 Negative List ................................................................................................................... 49
5.2.3 Restricted List ................................................................................................................. 50
5.2.4 Policy Loans.................................................................................................................... 50
5.2.5 Exposures to politically exposed entities ......................................................................... 50
5.2.6 Insider Related Exposures .............................................................................................. 51
5.2.7 Guidance Limits .............................................................................................................. 59
5.2.8 Advised Facility ............................................................................................................... 59
5.2.9 Unadvised Facility ........................................................................................................... 59
5.2.10 Temporary Extensions .................................................................................................... 60
5.2.11 Guidelines for acceptance of Intra group exposures ........................................................ 60
5.2.12 Techno – Economic Viability Study ................................................................................. 60

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5.3 Exposure and Risk Limits ....................................................................................................... 61

5.3.1 Definition of Exposure ..................................................................................................... 61
5.3.2 One Obligor Concept ...................................................................................................... 62
5.3.3 Exposure Limits .............................................................................................................. 63
5.3.4 Risk Limits....................................................................................................................... 64
5.3.5 Risk Rating Limits ........................................................................................................... 66
5.3.6 Establish Total Facilities .................................................................................................. 69
6 Credit Risk Management Process ................................................................................................. 71
6.1 Credit Risk Portfolio Planning ................................................................................................. 71
6.1.1 Target Market Definitions ................................................................................................ 72
6.1.2 Steps for carrying out credit portfolio planning ................................................................. 74
6.1.3 Industry Selection and Prioritization ................................................................................ 75
6.1.4 Target Market and Risk Acceptance Criteria (TM/RAC)................................................... 75
6.1.5 Risk Acceptance Criteria and Portfolio Guidelines........................................................... 77
6.1.6 TM/RAC Deviation Approval Process .............................................................................. 85
6.1.7 Key Success Factors for Select Industries ...................................................................... 88
6.1.8 Guidelines for Takeover of Credit Facilities of Obligors from Other Banks and Financial
Institutions ......................................................................................................................................91
6.2 Exposure Development and Creation ..................................................................................... 92
6.2.1 Preliminary Credit Screening ........................................................................................... 92
6.2.2 Credit Origination Process .............................................................................................. 93
6.2.3 Credit Analysis ................................................................................................................ 93
6.2.4 Credit Risk Evaluation ..................................................................................................... 94
6.2.5 Guidelines for Structuring of Limits / Assessment of Eligible Loan Amount...................... 95
6.2.6 Syndications.................................................................................................................... 97
6.2.7 Facility Renewals ............................................................................................................ 98
6.2.8 Credit Risk Ratings ......................................................................................................... 98
6.2.9 Approaches to Risk Creation and Management ............................................................ 103
6.2.10 Credit Approval ............................................................................................................. 104
6.2.11 Credit Offer and Acceptance ......................................................................................... 111
6.2.12 Credit Documentation .................................................................................................. 111
6.2.13 Credit Availment ............................................................................................................... 112
6.2.14 Offer Letters .................................................................................................................. 114
6.3 Exposure Management ........................................................................................................ 115
6.3.14 Facility Performance Monitoring .................................................................................... 115
6.3.15 Standard Financial and Non-Financial Covenants ......................................................... 116
6.4 Risk Monitoring .................................................................................................................... 118
6.4.14 Monitoring End Use of Fund .......................................................................................... 118
6.4.15 Monitoring of Temporary Overdraft (TOD) and Excess over Limit (EOL) ....................... 119

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6.4.16 Monitoring of Exposure and Risk Limits......................................................................... 119

6.4.17 Monitoring the Performance of Rating System .............................................................. 120
6.4.18 Monitoring the Credit Portfolio Quality ........................................................................... 120
6.4.19 Monitoring of Collaterals and other Credit Risk Mitigants ............................................... 120
6.4.20 Exposure Quality Classifications ....................................................................................121
6.4.21 Definition of Default ........................................................................................................122
6.4.22 Credit Collateral Management ........................................................................................124
6.5 Risk Control ..........................................................................................................................124
6.5.1 Risk Controlling at Individual Level .................................................................................125
6.5.2 Guidelines for following up Watch List Accounts ............................................................125
6.5.3 Recovery Process ..........................................................................................................126
6.5.4 Restructuring of Credit Facilities .....................................................................................126
6.5.5 Risk Controlling at Portfolio Level ...................................................................................128
6.5.6 Strategies for Risk Control .............................................................................................128
6.6 Administration of Existing Exposures ....................................................................................129
6.6.1 Customer Meetings and Call Reports .............................................................................129
6.6.2 Credit Checking .............................................................................................................129
6.6.3 Financial Information ......................................................................................................129
6.6.4 Documentation Lodging, Review and Follow-up .............................................................130
6.6.5 Covenant Check-Off List ................................................................................................130
6.7 Maintenance of Credit Information ........................................................................................130
6.7.1 File Management ...........................................................................................................130
6.7.2 Background Information .................................................................................................132
6.8 Credit Audit ...........................................................................................................................133
6.8.1 Credit Review Mechanism..............................................................................................133
6.9 Flow Chart of the Credit Process ...........................................................................................136
7 Credit Risk Mitigation and Collateral Management Policy .............................................................142
7.1 Background ...........................................................................................................................142
7.2 Objective ...............................................................................................................................142
7.3 Scope 142
7.4 Implementation of policy........................................................................................................142
7.5 Credit Risk Mitigants .............................................................................................................143
7.6 Legal Enforceability of Credit Risk Mitigants ..........................................................................144
7.7 Type of Credit Risk Mitigation (CRM) acceptable to the Bank................................................144
7.7.1 Netting 144
7.7.2 Collateral........................................................................................................................147
[Link] Guidelines on Collateral from third party.........................................................................156
[Link] Guidelines for Apportionment of Collateral across Multiple Exposures ..........................157

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[Link] Guidelines on collateral from a different country ............................................................ 157

[Link] Collateral for syndicated loans....................................................................................... 157
[Link] Consent to share in security held by Access Bank PLC................................................. 158
[Link] Minimum Collateral Coverage ....................................................................................... 158
[Link] Other Requirements ...................................................................................................... 158
[Link] Release of Collateral, Guarantees and Support ............................................................ 159
[Link] Waivers or Amendments to Existing Legal Documentation ............................................ 160
[Link] Collateral Substitution ....................................................................................................161
[Link] Collateral Inspection / Site Visits ....................................................................................161
[Link].1 Frequency of Inspection/Visitation...........................................................................162
[Link] Collateral Valuation ........................................................................................................162
[Link].1 Basis of Valuation ...................................................................................................162
[Link].2 Collateral Valuation .................................................................................................163
[Link].3 Minimum Requirements to be included in report on Collateral Valuation .................164
[Link].4 Haircut 166
[Link].5 Volatility Hair Cut for Collateral................................................................................166
[Link].6 Maturity Mismatch Haircut .......................................................................................166
[Link].7 Frequency of Valuation ...........................................................................................167
[Link].8 Top-up of collateral .................................................................................................168
[Link] Liquidation of Collateral ..................................................................................................168
7.7.3 Guarantees ...........................................................................................................................169
[Link] Guideline on Acceptance of the Guarantee ................................................................169
[Link] Indicative List of entities whose Guarantee is recognized .......................................... 169
[Link] Guideline on Guarantee provided by entity from a different Country .......................... 170
[Link] Guideline for apportionment on Guarantee Amount across Multiple Exposures ......... 171
[Link] Substitution of Guarantee ...........................................................................................171
[Link] Maturity Mismatch Haircut ..........................................................................................172
[Link] Comfort Letter ............................................................................................................172
7.7.4 Credit Derivatives ..............................................................................................................173
[Link] Guideline on the acceptance of Credit Derivative .......................................................173
[Link] Eligible types of Credit Derivative ...............................................................................173
[Link] Criteria for recognition of Credit Protection ................................................................174
[Link] Basket Credit Derivative .............................................................................................175
[Link] Maturity Mismatch Hair cut ........................................................................................176
8 Delinquency Management and Loan Workout ..............................................................................178
8.1 Asset Classification ...............................................................................................................178
8.1.1 Performing Assets ..........................................................................................................178
8.1.2 Non-performing Loans ...................................................................................................180

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8.2 Provisioning ......................................................................................................................... 181

8.2.1 CBN Prudential Guideline ............................................................................................. 181
8.2.2 IFRS Loan Loss Impairment Policy ............................................................................... 182
8.2.3 Modified Financial Assets.............................................................................................. 185
8.2.4 Loan Loss Provisioning ................................................................................................. 186
8.3 Credit Recovery ................................................................................................................... 186
8.3.1 Interest and Charge Waivers ......................................................................................... 187
8.3.2 Bad Debt Write-off......................................................................................................... 187
8.3.3 Erroneous Charges or Interest ...................................................................................... 188
8.3.4 Recoveries and Credit Write-Back ................................................................................ 188
8.3.5 Declassification ............................................................................................................. 188
8.3.6 Full and Final Settlement............................................................................................... 188
8.4 Guidelines for Recovery, Commencement and Methods ...................................................... 189
8.4.1 Managing Recovery Process......................................................................................... 189
8.4.2 Commencement of Recovery for Classified Assets ....................................................... 190
9 Portfolio Management Guidelines and Risk Reporting ................................................................. 194
9.1 Portfolio Management Policies ............................................................................................. 194
9.1.1 Objectives ..................................................................................................................... 194
9.1.2 Minimum Review Standards .......................................................................................... 195
9.1.3 Migration Analysis ......................................................................................................... 195
9.1.4 Portfolio Review ............................................................................................................ 196
9.2 Management Reporting ........................................................................................................ 197
9.2.1 Risk Reporting .............................................................................................................. 198
9.2.2 Structure of Risk Reports .............................................................................................. 198
9.2.3 Coverage of Risk Reporting .......................................................................................... 198
9.2.4 Operational Level Reports ............................................................................................. 209
10 Specialized Lending Policy. ..................................................................................................... 211
10.1 Objective of the Policy ......................................................................................................... 211
10.2 Scope of the Policy .............................................................................................................. 211
10.3 Agricultural Finance Policy ................................................................................................... 212
10.3.1 Loan Administration and Disbursement ........................................................................ 212
10.3.2 Target Market............................................................................................................... 214
10.3.3 Excluded Projects ......................................................................................................... 214
10.3.4 Risk Acceptance Criteria for Agricultural Financing ...................................................... 214
10.3.5 Agricultural Financing Products .................................................................................... 215
Collateral/ Security/ Support ...................................................................................... 217
10.4 Project Finance Facility ....................................................................................................... 217
Background ............................................................................................................... 217

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Project Appraisal ........................................................................................................218

Main Criteria of Project Selection Include: ..................................................................221
Security for Project Finance Loans .............................................................................222
Insurance ...................................................................................................................223
Syndication .................................................................................................................223
Maximum Duration of Loan .........................................................................................224
Conditions Precedent to the Availability of the Loan ...................................................224
Loan Disbursements...................................................................................................224
Reporting ....................................................................................................................224
Monitoring Mechanism ...............................................................................................225
Legal ..........................................................................................................................226
10.5 Reserved Based Lending (RBL) ...........................................................................................226
Background ................................................................................................................226
RBL Policies ...............................................................................................................227
Credit Appraisal ..........................................................................................................227
Establishing the Borrowing Base ................................................................................228
Collateral for RBL .......................................................................................................228
Reserve - Based Loan Documentation .......................................................................229
Hedging The Risk .......................................................................................................229
10.6 Object Finance Policy ..........................................................................................................230
Introduction ................................................................................................................230
OBJECT FINANCING IMPLEMENTATION TERMS .................................................. 231
Major Risks and Mitigants .......................................................................................... 233
Product Lines and Areas of Intervention .................................................................... 235
Object Financing Proposals and Applications ............................................................ 235
Environmental and Social Policies ............................................................................. 236
Co – Financing .......................................................................................................... 237
Appraisal Procedure and Lending Process ................................................................ 237
Acceptable Security ................................................................................................... 238
Loan Documents ....................................................................................................... 239
Applicable Limits On Loans and Lines of Credit ......................................................... 240
Interest Charges ........................................................................................................ 240
Disbursement Conditions ........................................................................................... 241
Loan Tenor and Repayments Terms.......................................................................... 242
Reporting Process ..................................................................................................... 242
Inspections and Monitoring ........................................................................................ 244
Object Audit ............................................................................................................... 244
Agreements and Loan Documentation ....................................................................... 245

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Loan Agreement ........................................................................................................ 246

Lending Process ........................................................................................................ 246
Classification and Provision Requirements ................................................................ 247
10.7 Real Estate Finance Policy................................................................................................. 249
Background ............................................................................................................... 249
Objective of the Policy ............................................................................................... 250
Scope of the Policy .................................................................................................... 250
An Overview of Real Estate Market in Nigeria ........................................................... 250
Risk Associated with Real Estate Project Finance ..................................................... 251
Product Lines ............................................................................................................ 253
Project Proposals and Application ............................................................................. 254
Environmental and Social Policies ............................................................................. 254
Co - Financing ........................................................................................................... 256
Appraisal Procedures and Lending Process .............................................................. 256
Security ..................................................................................................................... 257
Loan Documents ....................................................................................................... 258
Applicable Limits On Loans and Lines of Credit ......................................................... 258
Interest Charges ........................................................................................................ 259
Disbursement Conditions ........................................................................................... 260
Loan Tenor and Repayment ...................................................................................... 261
Project Implementation .............................................................................................. 261
Reporting Procedures ................................................................................................ 262
Inspection and Monitoring .......................................................................................... 263
Project Audit .............................................................................................................. 264
Agreement and Loan Documentation ........................................................................ 264
Loan Management..................................................................................................... 265
Monitoring of Real Estate Market ............................................................................... 265
Classification and Provision Requirements ................................................................ 266
11. Environmental and Social Risk Management (ESRM) ............................................................. 268
11.1 Introduction ....................................................................................................................... 268
Purpose of the ESRM Manual........................................................................................... 268
The ESRM Policy ............................................................................................................. 269
Policy Approach......................................................................................................... 269
Scope of Application .................................................................................................. 270
Assessment of E&S Risks ......................................................................................... 271
Changes to the ESRM Policy or New Policy Development ........................................ 272
ESRM procedures ............................................................................................................ 273
11.4.1 Procedures Approach ................................................................................................... 273

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11.4.2 Governance...................................................................................................................... 280

11.4.3 Roles and Responsibilities................................................................................................ 283
Glossary ........................................................................................................................... 286
Appendices ....................................................................................................................... 289
Appendix 1: Financial Product Type List...................................................................................... 290
Appendix 2: Access Bank Exclusion List ..................................................................................... 291
Appendix 3: Access Bank Cement Policy .................................................................................... 294
Appendix 4: Access Bank Oil & Gas Policy ................................................................................. 298
Appendix 5: Access Bank Power Sector Policy ........................................................................... 302
Appendix 6: Access Bank Agriculture Sector Policy .................................................................... 308
Appendix 7: ESRM procedures overview .................................................................................... 317
Appendix 8: Low Risk Financial Product Types ........................................................................... 318
Appendix 9: New clients (without an accompanying transaction) ................................................. 319
Appendix 10: Transactions with Known Use of Funds ................................................................. 320
Appendix 11: Project Finance (Equator principles) ...................................................................... 321
Annexure 1 ......................................................................................................................................... 322
Annexure 2 ......................................................................................................................................... 330
Annexure 3 ......................................................................................................................................... 332
Annexure 4 ......................................................................................................................................... 336

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1. Ownership, Approvals of the Policy and Version Control

Introduction

This document describes the Credit Risk Management Policy Guide of Access Bank Plc. It
contains the Bank’s strategy relating to its lending activities and articulates the credit risk
philosophy, appetite, culture, defined target market, risk acceptance criteria of the Bank as
well as the Bank’s credit risk management process and infrastructure. The acceptable
behaviour and practices required of all personnel involved in credit creation, processing,
availment, monitoring, control and recovery activities are also highlighted. It is therefore
important for all personnel who have lending responsibilities to acquaint themselves with
the Credit Policy of the Bank as well as the Nigerian banking, accounting and tax
regulations.

Ownership of the Policy

The ownership of the Credit Risk Management Policy Guide (CPG) rests with the Chief
Risk Officer (CRO). She/he shall be responsible for the implementation of the policy across
the bank. She/he has a key role in guiding and assisting businesses and support functions
to identify, measure, monitor and control Credit risk in the bank’s book.

Approval of the Policy

The Credit Risk Management Policy Guide has been approved by:

Table 1: Policy Approvals

Name Representing Signature & Date

The Chief Risk Officer/ED, Risk Management.

Group Deputy Managing Director
Group Managing Director / CEO
Management Credit Committee (MCC)
Board Credit Committee (BCC)

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Version Control

Table 1: Revision History

Prepared By Date Version Comments

October, This is the volume 4.0 ''Credit Risk

Inyang Nsikan 2015 4.0 Management Policy and Portfolio Plan’’

The purpose of this policy documents is to

articulate the additions / modifications to all
the sections of the policy that were deemed
Samuel Oladimeji June, 2018 5.0 necessary.

February Consolidation o f Access and Diamond

Jumoke Akande 2019 6.0 Credit policies.

To articulate the additions / modifications to

September all the sections of the policy that were
Jumoke Akande 2019 7.0 deemed necessary

To update the policy with recent regulatory

Benjamin Uzoka August 8.0
2020 provisions, provide clarity and bring it in tune
with current practice.

This document has been reviewed by:

Table 2: Reviewer History

Document Reviewer

Name Signature

Reviewed by Seyi Kusoro Unit Head, Credit Administration and

Documentations
Oluwaseyi
Reviewed by GH, Risk Portfolio Mgt. & Risk Projects
Owolabi
Reviewed by Omobola Group Head, Credit Administration &
Faleye Documentation
Reviewed by Babatunde
Unit Head, Compliance Advisory & Support
Aro
Reviewed by Tajudeen Head, Compliance & Monitoring -Head
Adeboye Office

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Reviewed by Fatai Oladipo GH, Corporate Counsel

Reviewed by Pattison Head, Group Conduct & Compliance

Boleigha

Concurrence Gregory Executive Director, Risk Management

Jobome

Approved by Roosevelt Group Deputy Managing Director

Ogbonna

Approved by Herbert Group Managing Director

Wigwe

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2. Policy - Objectives, Scope, Purpose and Review

Core Objective

The core objective of the Credit Risk Management Policy Guide is to enable maximization
of returns on the bank’s credit risk portfolio, from a risk adjusted perspective. This is done
by putting in place robust Credit Risk Management Systems consisting of Risk
Identification, Risk Measurement, Setting of Exposure & Risk Limits, Risk Monitoring &
Control and Reporting of Credit Risk in the Banking Book.

Supporting Objectives

 To provide a clear and consistent direction for the Bank for creating and
managing credit exposures;
 To maintain a high-quality risk assets portfolio and minimize credit losses
arising from errors of judgment and inefficient risk management practices;
 To achieve the lowest level of non-performing loans in the industry whilst
maximizing returns on assets created;
 To maximize stakeholder value;
 To develop a strong credit risk culture where all staff actively participate in the
Bank’s risk management process and respond to them with cost effective
actions.
 To formalize and communicate the bank’s commitment to achieve its business
goals and objectives pertaining to Credit Risk in the Banking Book.
 To achieve and remain fully compliant with the regulatory requirements of
Central Bank of Nigeria, Basel II standards and International best practices in
relation to Credit Risk exposures in the Banking Book.

Scope

This policy brings under its ambit funded, non-funded, on and off-balance sheet exposures
in the Banking Book that subject the Bank to Credit Risk including Counterparty Credit
Risk

Coverage

Credit Risk Policy will cover:

 All credit risk exposures in the Banking Book under Corporate & Investment
Banking, Commercial Banking, Business Banking and Retail Banking.
Definitions of the above SBUs are as practiced by the bank and may be
modified from time to time.
 Credit risk arising out of different exposure types such as Retail, Corporate,
Specialized Lending, Banks other Financial Institutions, Sovereign and any
other structure as approved by the Bank from time to time.

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Credit Risk Policy will not cover:

 Exposures in the Trading Book that are subject to market risk capital charge
under Market Risk Policy of the Bank

Purpose of the Policy

 This document sets out a framework for the consistent management of Credit
Risk at Access Bank Plc. (“the Bank” or “Access Bank”). It has been developed
in keeping with the commitment of the Board of Directors (“the Board”) and the
Management of the Bank to establishing and sustaining tested practices in
Credit Risk Management at par with leading international banks. It derives from
the Bank’s Enterprise Risk Management (ERM) Framework, which represents
a structured approach to identifying opportunities, assessing the risk inherent
in these opportunities and managing these risks proactively in a cost-effective
manner.
 Access Bank’s Credit Risk Management Policy Guide is the primary reference
document for creating and managing exposures to credit risk in Access Bank.
The manual outlines the general policies and procedures for credit risk
management in the bank and incorporates provisions for Risk identification,
Risk Measurement, Exposure and Risk Limits, Risk Monitoring, Risk Control
and Risk Reporting of credit risk exposures.
 The Credit Risk Management Policy Guide is designed to:
Standardize credit risk policies for the bank, giving employees clear and
consistent direction for the creation of credit risk exposures across all
assets creating business units;
Provide a comprehensive guide and framework in creating and managing
credit risk assets.
Ensure prompt identification of problem credits and prudent management of
deterioration in credit quality.
 Outline the requirements for risk identification, risk measurement, setting
exposure and risk limits, risk monitoring & Risk Control and Risk Reporting
at both levels of individual exposure and the overall credit risk asset
portfolio.
Provide a framework for the ongoing maintenance of the bank’s risk
management policies and processes.
 This policy must be read in conjunction with other Access Bank policies
including Market Risk Policy, Asset & Liability Management (ALM) Policy
Operational Risk Policy, Environmental and Social Risk Policy, Country
Risk Management Policy, Policy on Cross Border supervision requirement,
Risk Appetite Policy, AML/CFT Policies, Anti Bribery and Corruption
Manual etc.

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Establishment of Risk Management Policies

 Risk management policies and procedures are articulated by the Risk and
Management Control function of the bank. The Chief Risk Officer has
responsibility for compiling and presenting credit risk management policies to
the Management Credit Committee for review and endorsement to the Board
of Directors for approval through the Board Credit Committee. The Board of
Directors shall approve risk management policies and such approval shall be
evidenced in writing through a Board Extract and by the signature of the Group
Managing Director.
 Credit Risk Management will be fully represented at the Head Office and in the
countries. All issues regarding credit risk management emanating from the
countries or concerning the countries will be referred to the team responsible
for subsidiaries credit risk in the Head Office, which thus serves as the clearing
house for credit risk management issues from the subsidiaries
 Credit Risk Management at the Head Office is responsible for setting overall
policies on all issues relating to credit risk management. The countries may
institute procedures that must be in compliance with these policies. They may
also institute local policies adapted to their peculiarities, but which must not be
at variance with Head Office policies. Any local policy that is at variance to
Head Office policies must be approved at the same level for the Head Office
policies.
 Head Office may also delegate the development of certain policies to the
subsidiaries. Such policies shall be approved as Head Office policies.
 The countries may also originate independent local policies i.e. policies for
issues not specifically addressed in Head Office policies. In addition to approval
by the Head of Credit Risk Management at the country level and MD for the
relevant country, such policies must be endorsed by Credit Risk Management,
Group Office and approved by the GMD.
 Throughout this Guide, any reference to the Head of Credit Risk Management
shall be interpreted to mean the Chief Risk Officer at the Head Office except
stated otherwise.
 While approved policies and guidelines as articulated in the Credit Risk
Management Policy Guide (“The Guide”) are intended to provide guidelines for
prudent optimal credit risk management in the bank, it is expected that
creativity and good judgment shall be exercised by all bank employees in the
process of creating and managing credit risk assets in the bank

Review of Credit Risk Management Policy Guide

 It is expected that the credit risk management policies will be reviewed on an

ongoing basis (at least on an annual basis) to ensure that the overall approach
to creating and managing credit risk exposures remains relevant and is

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responsive to changes in the environment and the bank’s corporate and

business unit strategies.
 The Credit Risk Management Policy Guide will reflect changes in policy
provisions including as may be required additional pages and/or sections to
reflect new policy provisions. In the event of a fundamental change in direction
and/or revision of the risk management strategy of the bank, complete
reproduction of the entire document may be required.

Guidelines for Changing and Approving Policy Changes

 All Access Bank personnel who are involved in the credit process and apply
these guidelines on a continual basis shall be responsible for ensuring that the
provisions remain relevant and adequate to address the changing needs of the
environment, as well as support the achievement of the bank’s business goals
and objectives
 As may be required in response to changes in the environment and the
changing needs of the market place, the risk management policies shall be
reviewed periodically (at least on an annual basis). Proposals for addition to or
modification of policy statements and procedures or any section of this guide
will be documented in writing by the initiating officer and presented to the Head,
Risk Quality Assurance to ensure due process and evaluate the proposed
revisions to the provisions of the bank’s risk management policies
 Amendments to the approved policy shall be documented in the form of
supplemental policies and procedures and presented to the Management
Credit Committee (MCC) for review and endorsement to Board Credit
Committee (BCC), and the Board of Directors for approval. On approval by the
Board of Directors indicated by the Board Extract, the Group Managing Director
shall append his signature on the policy as evidence of approval and such
amendments shall be inserted as addenda to The Guide.

Others

As used throughout this Guide, wherever an approval may be given by a designee other
than the primary authority for such approval, the designation must be in writing and must
state the terms of the designation e.g. the period covered, any restrictions on the powers
of the designee etc.

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3. Bank’s Business and Risk

Access Bank’s Strategic Intent and Corporate Objectives

Access Bank’s Aspirations and Corporate Objectives in the planning period 2018 - 2022
are as follows:
 To be the No 1 Bank in Nigeria
 To increase in Revenue so as to be strong in Liquidity and Capital Adequacy
Ratios.
 To be strong in Risk Management.
 To dominate top 100 Corporate and Increase Market share in High Revenue
Commercial Regions.
 To be the Bank for Top SMEs in Business Banking.
 To be a Top Retail Customer Growth Bank.
 To be the Bank of choice for Top Corporates controlling 25% of Market share.
 To build expertise in key sectors - Attract and develop talent with expertise in
key growth sectors.
 To Dominate Trade and Transaction Banking.
 To build strong Franchise outside Africa, guided by best Practice and highest
professional Standards.

Risk Management Philosophy of the Bank

As described in Access Bank’s Enterprise Risk Management Framework, the Bank

considers risk management philosophy and culture as the set of shared beliefs, values,
attitudes and practices characterizing how the Bank considers risk in everything it does,
from strategy development and implementation to its day-to-day activities.
In this regard, the Bank’s Risk Management philosophy is that moderate and guarded risk
attitude will ensure sustainable growth in shareholder value and reputation. The Bank
believes that enterprise risk management will provide the superior capabilities to identify
and assess the full spectrum of risks and to enable staff at all levels to better understand
and manage risks. This will ensure that:
 Risk acceptance is done in a responsible manner;
 The executive and the board of the Bank has adequate risk management support;
 Uncertain outcomes are better anticipated;
 Accountability is strengthened; and
 Stewardship is enhanced.

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 The Bank has identified the following attributes as guiding principles for its risk
culture.
 Management and staff shall:
 Consider all forms of risk in decision-making;
 Create and evaluate business unit and Bank wide risk profile to consider what
is best for their individual business units/ department and what is best for the
Bank as a whole;
 Adopt a portfolio view of risk in addition to understanding individual risk
elements;
 Retain ownership and accountability for risk and risk management at the
business unit or other point of influence level;
 Accept that enterprise risk management is mandatory, not optional;
 Strive to achieve best practices in enterprise risk management;
 Document and report all significant risks and enterprise risk management
deficiencies;
 Adopt a holistic and integrated approach to risk management and bring all risks
together under one or a limited number of oversight functions;
 Empower risk officers to perform their duties professionally and independently
without undue interference;
 Ensure a clearly defined risk management governance structure;
 Ensure clear segregation of duties between market facing business units and
risk management/control functions;
 Strive to maintain a conservative balance between risk and profit
considerations; and
 Continue to demonstrate appropriate standards of behaviour in development of
strategy and pursuit of objectives.
 Risk officers shall work as allies and thought partners to other stakeholders within
and outside the Bank and be guided in the exercise of their powers by a deep
sense of responsibility, professionalism and respect for other parties;
 Risk management is a shared responsibility. Therefore, the Bank shall aim to build a
shared perspective on risks that is based on consensus;
 Risk management shall be governed by well-defined policies, which are clearly
communicated across the Bank;
 Equal attention shall be paid to both quantifiable and non-quantifiable risks; and
 The Bank shall avoid products and businesses it does not understand.
These philosophies and culture shall underlie credit risk management in Access Bank.

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Risk Culture Statement

At Access Bank, we embrace a moderate risk appetite, whilst delivering strategic

objectives. We anticipate the risks in our activities. We reward behaviour that aligns with
our core values, controls and regulations. Challenges are discussed in an open
environment of partnership and shared responsibility.

Risk Culture Pledge will be recited by the relationship officer at every credit presentation:

 I have confirmed all financial and behavioural information concerning this

borrower
 I have not withheld any information nor misled the Bank regarding this
transaction
 I understand the risks and problems that could arise after this facility is
disbursed and these risks are within the Bank’s risk appetite
 I have not compromised myself with the borrower or related interests
 I will continually monitor the facility and the borrower and report problems
immediately
 I take personal responsibility for redressing any adverse developments on the
facility

Credit Officer Risk Rating (CORR)

CORR is a measure of the overall quality of a Credit Officer’s consciousness of risks

inherent in the portfolio under his / her watch.
It is also a measure of deliberate efforts being made to strengthen quality of the
Bank’s Risk Assets.
CORR would aid in the assessment of a Lending Officer’s overall’s attitude to
resolution of risk issues.
The measure is derived from the Officers Credit Administration and Monitoring
efforts as defined below:

Administration This is a measure of compliance with basic dictates of

regulatory guidelines and the bank's Credit Policy Guide
(CPG). It captures adherence to limits, provides holistic
view on completeness of documentation and serves as a
guide for maintaining healthy ratios on key metrics.

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Limit Management
This is a sub sector of Administration considerations which
focuses on exposures within Sectors that the Bank is
working on to come within regulatory limits, or exposures
that are watch listed on SOL, or top exposures with low
qualifying risk mitigants thereby causing a reduction in
Capital Adequacy Ratio

Monitoring A measure of the deliberate monitoring efforts made to

maintain a high quality of risk assets under the watch of the
officer.
This is assigned a higher weight in order to ensure that
performance on facilities assist to reduce impairment
charges thereby preserving profitability.

The goal is not to exclude any officer in the creation / monitoring of exposures, but
to support Lending Officers to align with the Bank’s target asset quality and risk
consciousness.
Lending Officers shall be classified using the CORR Grid below:

CREDIT OFFICER
CORR GRADING
RATING

CORR 1 5% Low Risk

CORR 2 20% Moderate Risk

CORR 3 45% Above average Risk

CORR 4 >45% High Risk

3.4.1 Risk Appreciation Programme

As a Systemically Important Bank (SIB) in Nigeria with growing global profile, the
Bank’s risk and capital metrics remain critical. It is therefore important that we

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continue to invest in our risk practices to achieve/sustain our desired Moderate risk
outcomes.

The Objective of the Risk Appreciation Programme (RAP) include:

 The standardisation of appropriate risk behaviour, decision-making,
exceptions handling and brand consciousness within the Bank’s approved
governance framework whilst defining acceptable practices.
 Entrenching a uniform risk culture within the organisation as well as preparing
the workforce for relevant response and approach to diverse risk issues would
remain a strong factor in building a sustainable risk governance in the bank.

It is thus imperative for all staff in the Bank to demonstrate a strong and shared
consciousness of risk that is derived from the Bank’s risk appetite, strategic direction
and values.
The target participants include:
 All Group Heads (both market-facing and non-market-facing),
 All Senior Lending Officers scoring Credit Officer Risk Rating (CORR) of
“Above Average” or “High”,
 All Senior Officers designated to run products or processes categorised as
‘Complex’,
 Managing Directors of Subsidiaries and recommended staff in the various
subsidiaries.
 Any Staff being prepared for specific responsibilities in Nigeria or abroad for
which RAP is indicated as a requirement.

The Faculty for this program shall consist of the ED Risk, Head Group HR, Group
Managing Director and External Resource (for example: Senior Regulators, Senior
Consultants).
The program shall be held on a need basis

Types of Risks

Credit Risks

Effective risk management requires proper identification and understanding of the credit
risks. Credit risk arises from both lending and trading activities. In lending business, credit
risk is the potential that an obligor is either unwilling to perform on an obligation or its
ability to perform such obligation is impaired resulting in economic loss to the Bank. In the
case of trading activity, credit risk reflects the possibility that the trading counterparty will
not be able to complete the contract at any stage.

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Losses due to credit risk could emanate from the Bank’s dealings with an individual,
corporate, financial institution or a sovereign.

The major credit risks that affect banks include direct lending risk, counterparty risk and
contingent lending risk.

Direct Lending Risks

Direct lending risk is the risk that actual customer obligations will not be repaid on time.
Direct lending risks occur in products ranging from loans and overdrafts to credit cards
and residential mortgages. It exists for the entire life of the transaction.

Counterparty Risk
Counterparty risk is the risk that a counterparty to a transaction will fail to perform
according to the terms and conditions of the contract, thus causing the holder of the claim
to suffer a loss in cash flow or market value

Cross Default Risk

This is the risk that the default on one debt obligation will trigger the default on another
debt obligation. Failure of one set of obligation to perform leads to the automatic
declaration of other obligations to be in default.

[Link] Contingent Lending Risk

Contingent lending risk is the risk that potential customer obligations will become actual
obligations and will not be repaid on time. Contingent lending risk occurs in products
ranging from letters of credits to guarantees to unused loan commitments. It exists for the
entire life of the transaction.

Issuer Risk

Issuer risk is the risk that the market value of a security or other debt instrument may
change when the perceived or actual credit standing of the issuer changes, thereby
resulting in exposure of financial loss.
In underwriting and distribution activities, in the event of a commitment to purchase a
security or other debt instrument from an issuer or seller, there is a risk of inability to sell
the instrument within a predetermined distribution period to an investor or purchaser. In
this event, direct lending risk and unintended price risk is created. This risk is sometimes
also described as issuer risk.

Pre-settlement Risk

Pre-settlement risk (PSR) is the risk of default on a contractual obligation before

settlement of the contract by a counter party in a transaction.

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Settlement Risk

Settlement risk occurs when there is a simultaneous exchange of value with a counter
party for the same value date and verification that payment is received is not made until
after the bank has paid/ delivered on the obligation. There is a risk that the counter party
does not deliver as such resulting in exposure of the bank to direct lending risk.

Clearing Risk

Clearing risk occurs when funds are transferred on a customer’s instructions to transfer
or to order the transfer of funds before the bank receives reimbursement or the customer’s
accounts is funded. Clearing risk is the risk that the bank may not be reimbursed on the
same value date for payments made on behalf of customers.

Equity Risk

Equity risk occurs when the bank invests in, holds or receives equity, equity-like securities
or other junior securities in non-affiliated entities. These securities include instruments
such as common shares, preferred shares and related derivative instruments such as
warrants, stock options, calls and stock index futures. Equity risk encompasses potential
conflicts with our normal senior creditor role, as well as our exposure to permanent
declines in carrying values.

Price Risk

Price risk is the risk that market conditions may change for an individual instrument or for
all securities of the same general class. For example, a change in the level of interest
rates affects the price of all interest rate sensitive instruments. Price risk is not to be
confused with issuer risk, which describes price changes attributable to real and perceives
changes in the quality of a particular issuer and instrument.

Liquidity Risk

Liquidity risk is risk that the bank may be unable to meet its financial commitments to
customers or markets when due.

Fiduciary Risk

Fiduciary risk occurs when the bank is charged with the responsibility of acting as a trustee
for third parties. Fiduciary risk is most significant where the charge is involuntary i.e. in the
event that a trust agreement is not in place clearly outlining the duties and responsibilities
of the bank and when the bank may be exposed to potential or real conflict of interest.

Disclosure Risk

Disclosure risk occurs when the bank acts as an agent to other investors, as an
underwriter, or as an advisor on a transaction. The risk is that there is disclosure of
information that the bank either knows or should have known to be incorrect, that the bank

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does not disclose actual or potential conflicts of interest, or that the bank does not disclose
or delay in disclosing material information.

Documentation Risk

Documentary risk is the risk that documentary evidence on which the bank depends to
enforce rights under contracts or transactions may not be complete, correct or
enforceable.

Legal and Regulatory Risk

Legal and regulatory risk occurs when the bank, a related corporate entity (such as
nonbank subsidiary or affiliate), a transaction or a customer is subject to a change in
exposure resulting from regulatory, civil or criminal approvals, or litigation.

Country Risk

This is a broad risk category that encompasses political risk, transfer risk and convertibility
risk. It is the risk that an event in a country (precipitated by developments within or external
to a country) will impair the value of Access Bank assets or will adversely affect the ability
of obligors within that country to honour their obligations to Access Bank. Country Risk
events may include sovereign defaults, currency convertibility and/or transferability
restrictions, or political events.
It is imperative that credit decisions and approvals in Access Bank are made after proper
consideration of all credit risks. Due care should be taken to ensure that accurate,
complete and up-to-date information in respect of existing and potential obligors are
maintained at all times and form the basis for evaluation of credit risks.

Operational Risk

Operational risk refers to the risk of loss to the bank resulting from inadequate or failed
procedures, people, systems or policies. It also includes losses from Fraud or other
criminal activity and any event that disrupts business processes.

Foreign Exchange Rate Risk

Foreign exchange rate risk refers to the risk of deterioration of the currency within which
the borrower generates its earnings against the currency of the Bank’s exposure which
may adversely affect repayment capacity.

Credit Risk Products and Service Offerings

Access Bank will position at different points of each business’ value chain as determined
by the expected strategic importance of each role, expected profitability, and capabilities.
As a general rule, Access Bank will play across the entire chain of its customer’s business.

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To achieve and sustain the desired business performance, an implied objective is to grow
the bank’s risk assets portfolio, without compromising risk asset quality and yield. A
holistic risk management framework for creating and managing risk assets and monitoring
the bank’s risk asset portfolio is a strategic business imperative for the successful
achievement of these articulated goals and business objectives.
Access Bank’s risk management policies as documented in this manual are specifically
defined to support the achievement of the overall corporate objectives and business goals
of the bank.
Existing credit risk products and service offerings that the bank will continue to offer in the
market place include:
1. Overdraft
2. Time Loan
3. Term Loans
4. Specialized lending facility (Project finance, Object Finance, Agric Finance and
Intervention Loan finance)
5. Leases
6. Contingent Liabilities (Bonds and Guarantees)
7. Bank Placements
8. Import Finance (Letters of Credit (LCs) Usance, etc.)
9. Export Finance
10. Revolving Credits
11. Contingent Liabilities
12. Product Programs (e.g. W-power, Invoice Discounting, Local Purchase Order
Financing, Work Order Finance facility, Value Chain etc.)
13. Syndication

In addition, Access Bank will identify and develop offerings to take advantage of
opportunities in the following areas:
 Mortgage finance
 Capital Markets
 Private Banking/Asset Management
 Corporate Finance and Advisory Services
 Trade Finance
 E-Business
Lending products and services shall include short and long-term loans according to the
definitions outlined below:

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3.6.1 Term / Time Loan

Term/Time loans are facilities in respect of which there is a clearly defined tenor and
repayment schedule. A time loan is usually for tenors of one year or less, while a term
loan is for tenors longer than one year.

Term/Time loans are normally given to finance specific transactions, capital projects,
expansion programs etc.
Examples of credit products that shall qualify as Term Loans include:
 Equipment Financing
 New Technology Capital Loan
 Asset Replacement
 Personal Loan
 Mortgage Facilities

And some cases will be the option for disbursing Project Facilities or Object Facilities

3.6.2 Revolving Credits

Revolving Credits will include short term facilities in respect of which repayment (en bloc
or in instalments as the case may be) shall be required within a fixed period of time.
Revolving credits are short term/tenured facilities with predefined cycles that relate to the
customer’s business/trading cycle. On repayment, the customer may re-borrow under
same conditions provided there is no material change to his financial position. Approval
for revolving credit facilities may be granted subject to the provisions of the bank’s risk
management policies. The tenor of revolving credit must not exceed 3 years.
Qualification for revolving credit facilities shall be limited to customers with established
businesses in stable industries and will include product lines such as:
 Contractor Project Finance
 Distributor Finance
 Import Finance / Commercial Paper (CP)
 Custom Duty payment
 Letter of Credit Financing (LCs)
 Suppliers Financing
 Note / Bill discounting
 Credit Card products
or any other as may be approved from time to time.

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3.6.3 Overdraft facilities

Overdraft facilities shall be provided to cover the working capital requirements of a

business and may also be revolving credits. Maximum tenor of overdraft is 12 months,
subject to renewal on application by the customer and appropriate approval in line with
the bank’s credit risk management policies.
Important considerations in respect of overdraft facilities and approved exposure limit shall
include:
 Profitability of business
 Ability of the company to complete its asset conversion cycle
 Exposures to other banks / lenders
Temporary Overdraft accommodation shall be approved for not more than 30 days per
request.

3.6.4 Lease Facilities

A lease facility exists where Access Bank acquires or funds the acquisition of capital
assets at a client’s request and then hires or leases the asset back to the client for an
agreed periodic rental. Title to the asset remains with the bank until when fully repaid and
the client exercises the option to purchase the asset for a predetermined price.
This facility may be used for a wide range of capital assets including industrial machinery,
telecommunications equipment, motor vehicles, etc. Structuring and documentation are
very important considerations in a lease transaction and must take account of the following
factors:
 flexible pricing
 ability of the bank to take effective and prompt possession of the asset in the
event of default by the lessor
 Adequacy of insurance protection etc.
 These must be documented in a lease agreement and approved by legal
counsel.

3.6.5 Warehouse Financing

In this form of financing, the bank takes physical control of the goods financed. Access
Bank will only undertake warehouse financing where it takes control of the goods financed
using an independent acceptable and reputable warehousing agent. Appointment of
acceptable warehousing agents for Access Bank shall be approved by MCC based on
recommendation from the Chief Risk Officer/ED Risk.

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In general, warehouse financing should only be considered under the following conditions:
 The goods financed are fast moving consumer goods.
 Maximum tenor is 12 months.
 Release from stocks should be on a FIFO basis.
 Periodic stock taking is required to verify the quantity and quality of goods
financed. The frequency may vary with the type of goods.
 The forced sale value of the goods must be adequate to cover the bank’s
exposure at all times.

3.6.6 Loans to Staff

Loans to staff will comply with the guidelines stated in the Staff Loan Policy, which shall
be subject to periodic review by the Board.

3.6.7 Local Placements and Takings from Banks

Access Bank will only place funds with banks for which there are approved placement
lines. In general, placements should be for tenors of less than 1 year. While there are no
limits on takings from other banks, care should be taken to avoid any concentration risks.

3.6.8 Other Lending Products

Other lending products shall include structured credits for consumer purchase, which are
mostly short to medium term funding, to meet the following needs:
 Vehicle purchases
 Vehicle refurbishment
 House rent
 Hire purchases
 Consumer durables (e.g. electronics, furniture)
 Others (education, travel etc.)
 Longer term funding shall be provided for Mortgage facilities.

3.6.9 Import finance facility (IFF)

This facility is designed as a working capital facility for customers engaged in importation
of goods. It is targeted at customers who have shown huge volume in import transactions
and have established regular demand for foreign exchange. A customer is expected to

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contribute a minimum amount of total value of the Letter of Credit as may be approved by
the bank from time to time.

3.6.10 Export Finance

The facility is designed to finance the various stages of export trades either prior to
shipment which is known as pre-shipment credit (production, purchase, storage,
transportation to the port of departure of goods destined for export etc.) or after shipment
of goods to the date of realization of export proceeds which is known as post shipment
credit finance (discounting of approved invoices/bill of exchange/receivables etc.).

3.6.11 Credit Product Programs

Credit product programs shall be defined and approved to accommodate specialized

credits up to a preapproved level to a predefined set of customers with homogenous
characteristics, similar product needs or risk profiles under clearly defined standard terms
and conditions.
Approved credit product programs shall:
 target specific customers or customer segment
 contain standard risk acceptance criteria for evaluating and further approving
individual transactions under the program
 demonstrate that the behaviour of the portfolio will be predictable in terms of
yield, delinquencies and write-offs, and specify tracking and reporting
mechanisms to identify trends in portfolio behaviour early and allow timely
adjustments
 specify maximum program limit and maximum individual limit per customer
 stipulate funding instruments and maximum / minimum tenor
 detail minimum documentation requirement
 state principal terms and conditions
The Bank’s product programs shall include but not limited to:
 Customer instalment loans
 Customer and small business revolving credit lines
 Residential mortgages
 Short term foreign exchange lines
 Routine short-term credit loans.
 Short term payment related lines
 Trade finance

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 Oil and Gas contract finance

 Distributor finance
 Commercial papers
 Credit Cards
 Cash Collateralized Product Program
 Receivable Finance (Invoice Discounting) Product Program
 Personal Loan Product Program (Retail Banking);
 Asset Finance Product Program (Retail Banking);
 Auto Loans Product Program (Retail Credit Product); etc.
The list of the Bank’s product programs shall be subject to periodic reviews, which shall
be approved by MCC. The terms and conditions for each of the product programs are
detailed in the Product Program memo

3.6.12 Off-Balance Sheet Credit Facilities

Off-balance sheet credit facilities are facilities granted for short term or long term, which
invariably create contingent liabilities, and crystallizes when the underlying event(s) which
they represent occur(s).
Examples of Off-Balance sheet credit facilities are detailed as follow:
 Bonds & Guarantees
Bonds and Guarantees are undertakings by the bank made at the request of a customer
to a beneficiary.
 Bank Guarantees
This will include guarantees issued by the bank to third parties on behalf of a customer.
These lines are contingent liabilities and shall require 100% cash cover, a counter
indemnity from a first-class Bank or adequate acceptable tangible security cover. In the
alternative, they will include clauses to make them effective only upon receipt of equivalent
cash amount from the beneficiary. Bonds / guarantees may however be issued on a clean
basis to better rated obligors (typically multinational companies) that normally borrow
clean or against negative pledge and a letter of indemnity.
These instruments must have the following elements:
 Access Bank’s obligation must contain a specific expiration date or a defined
term. The maturity of the underlying contract must exceed the tenor of the
guarantee / bond.
 The Bank’s undertaking must be limited to a specific amount.

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 The obligation to pay must arise upon the fulfilment of certain specified
conditions. These may include the presentation of specific documentation
which must be unambiguous as to their legal interpretation.
 In the event that the guarantee / bond is called, the obligor must have an
unqualified obligation to reimburse the bank on same terms as the bank is
expected to perform under the instrument.
 Issuance of guarantees / bonds must be reviewed by the bank’s legal counsel
for adequate wording to protect the interests of the bank.
 On expiration, the bond or guarantee must be returned to the Bank for
cancellation before underlying security/cash collateral is released. Also the
underlying security/cash collateral may be released upon issuance of Letter of
discharge or a certificate of work by the Contract Employer, in such cases the
documents must be duly confirmed by appropriate officer in Project monitoring
unit.
Issuance of guarantees to support offshore facilities is strongly discouraged and must be
approved at the next higher level than required under the Credit Facilities Approval grid.
Such approval shall only be given after due consideration of requirements of all exchange
control regulations and mitigation of associated foreign exchange risk.

 Advance Payment Guarantee (APG)

An Advance Payment Guarantee (APG) is contract under which the issuer undertakes to
be responsible for the fulfilment of a contractual obligation owed by customer to a Contract
Employer if the customer defaults. The issuer's obligation may be primary (as in an on-
demand obligation or indemnity) or secondary (as in a guarantee). An advance payment
guarantee is typically used to underpin or guarantee the performance of a commercial
contract, such as a contract for the sale of goods or services (where the buyer is the
beneficiary) or a construction contract (where the employer is the beneficiary).
As much as possible, APG should be adequately secured. However, guided disbursement
may be considered as comfort where collateral is not in place or adequate. Disbursement
of APG proceed shall be in line with approved product program or the structured credit.
For regular credit, the disbursement milestone should be clearly captured in the approval
document.

3.6.13 Commercial Papers (CP)

Commercial Papers are unsecured short-term promissory notes issued by corporate

bodies directly to the investing public (usually through an issuing house such as a bank
etc.). Typically, CP's have tenors between 30 – 180 days. The Bank may also guarantee
a CP issuance.

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Guaranteed CPs are direct exposures for the bank. Without the bank’s guarantee, the
bank performs an agency role and earns a fee without taking a direct exposure. However,
the bank is exposed to reputation risk on all CPs it intermediates.

3.6.14 Letter of Credit (LC’s)

A letter of credit (LC) is a conditional written undertaking issued by a bank to an exporter

(beneficiary) at the request of an importer (applicant) to effect payment for a stated amount
against a presentation of document that complies with the terms of the LC.
It is also any arrangement, whereby a bank (the issuing bank) acting at the request and
on the instructions of a customer (the applicant) or on its own behalf;
 Makes payments to or to the order of a 3rd party (the beneficiary) or is to accept
any or pay bills of exchange (draft) drawn by the beneficiary, or
 Authorizes another bank to effect such payment or to accept and pay such bills
of exchange (drafts) or
 Authorizes another bank to negotiate against stipulated documents provided
that the terms and conditions of the credit are complied with.
A Standby Letter of Credit (SBLC) gives an assurance to the beneficiary that in the event
of a commercial dispute, insolvency, failure to perform etc. by the counterparty a claim
can be made against the issuing, confirming bank or nominated bank by the presentation
of a draft and a simple demand in line with the terms of the SBLC. It supports the
obligations of an applicant to pay for goods and services in the event of non-payment by
other methods.

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4 Credit Risk Organization Structure, Roles and Responsibilities

4.1 Credit Risk Organization Structure

Credit Risk Policy and Strategy

Board of
Directors (BOD)

Board Credit Committee

(BCC)

Credit Risk Monitoring and Control

Criticized
Credit Assets
Committee

Credit Risk Implementation

Chief Risk Officer

Credit Risk
Management Groups

4.2 Roles and Responsibilities

Roles and Responsibilities are at three levels viz, Policy, Monitoring and Operational.
Board of Directors (BOD) and Board Credit Committee (BCC) are responsible for approval
of policies and its implementation throughout the bank. Management Credit Committee
and Criticized assets committee are responsible for assisting the BOD and BCC in
monitoring the implementation of risk policies. Credit risk management department is

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responsible for operational aspects of implementing credit risk policy guidelines. The Chief
Risk officer is the head of Credit Risk Management function and is to oversee the
implementation of the credit risk policy guidelines throughout all credit risk taking functions
in the bank.

4.2.1 Roles and Responsibilities of Organizational Groups

This section of the policy deals with the roles and responsibilities of the Board of Directors,
Board Credit Committee and Management Credit Committee.

[Link] Board of Directors (BOD)

The Board of Directors is the highest approval authority for both credit risk policies and
credit facilities in Access Bank and shall be responsible for approval of credits beyond the
authorized approval limits of the Board Credit Committee.
The Board of Directors of the bank shall be responsible for articulating and reviewing on
an ongoing basis the credit risk strategy and credit risk policy of the bank that outline
clearly the risk appetite and return preferences that will govern the creation and
management of credit risk assets in the bank. Specifically, the Board shall be responsible
for:
 Approval of Credit risk policy to mandate a set of standards for Credit risk
management throughout the bank that include risk identification, measurement,
setting of exposure and risk limits, monitoring and control and risk reporting
 Ensuring that the Bank implements a sound methodology that facilitates the
identification, measurement, monitoring and control of credit risk
 Determining Credit risk management strategies to enable maximization of
profitability on a risk adjusted basis
 Ensuring effectiveness, independence and integrity of credit risk management
system through internal control & audit
 Periodically (at least annually) reviewing the credit risk strategy and credit risk
policy of the bank
 Approving the Bank’s overall risk tolerance in relation to credit risk consistent
with the business strategy of the Bank based on the recommendation of the
Chief Risk Officer.
 Ensure that the Bank’s overall credit risk exposure is maintained at prudent
levels and consistent with the available capital through quarterly review of
various types of credit exposure
 Ensure that top management as well as individuals responsible for credit risk
management possess the requisite expertise and knowledge to accomplish the
risk management function
 Appoint Credit Approval Officers and delegate approval authorities to
individuals and committees

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[Link] Board Credit Committee

The Board Credit committee shall under delegated authority be responsible for the
following:
 Facilitate the effective management of credit risk by the Bank
 Approve credit risk management policies, underwriting guidelines and standard
proposals on the recommendation of the Management Credit Committee (MCC)
 Approve definition of risk and return preferences and target risk portfolio
 Approve the Bank’s credit rating methodology and ensure its proper
implementation
 Approve credit risk appetite and portfolio strategy
 Approve lending decisions and limit setting
 Approve new credit products and processes
 Approve assignment of credit approval authority on the recommendation of the
Management Credit Committee (MCC)
 Approve changes to credit policy guidelines on the recommendation of the
Management Credit Committee (MCC)
 The Committee, by virtue of powers delegated to it by the BOD, will approve
any changes in credit risk policy guidelines during the currency of the policy
approved by the BOD. The necessity for changes to the policy should be due
to genuine reasons viz. regulatory changes and unexpected changes in
business scenario
 Approve exceptions to the risk policies upon thorough enquiry into
circumstances leading to exceptions, nature, size and genuineness of
exceptions. Repetition of exceptions of similar nature should lead to changes in
the policy of permanent nature. Repeated Instances of similar exceptions
should be handled through changes in the policies rather than approved as
exceptions
 BCC will review the roles of the management risk committee and criticized
assets committee, at least on an annual basis, based on revision in policies and
provide suitable recommendations to the BOD
 Approve credit facility requests and proposals within limits defined by Access
Bank Plc’s credit policy and within the statutory requirements set by the
regulatory/ supervisory authorities
 Recommend credit facility requests above stipulated limit to the Board
 Review credit risk reports on a periodic basis
 Approve credit exceptions in line with Board approval

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 Approve the Banks Credit rating methodology and ensure its proper
implementation
 BCC will regularly monitor adequacy of Credit Risk capital maintained by the
Bank based on the capital policy of the Bank.
 Review issues raised by Internal Audit that impact the Credit Risk Management
of the Bank and make suitable recommendations to the BOD

[Link].1 Composition, Quorum and Frequency

 The composition of the Board Credit Committee and the frequency of their
meeting shall be governed by the provisions in the Charter for Board Credit and
Finance Committee which stipulated these details.
 Meeting Frequency
(i) The Board Credit Committee shall meet at least once quarterly.
However, special Board Credit Committee meetings may be
convened at the instance of the Chairman of the Committee.

[Link] Management Credit Committee

The Management Credit Committee (MCC) is the highest management approval body for
credits in Access Bank and performs the dual role of credit policy articulation and credit
approval.
The Management Credit Committee shall be responsible for managing credit risks in the
Bank. The members of the committee shall include all Group Heads in the Bank, including
all Group Heads in Credit Risk Management. The functions of the committee include:
 Recommend the credit risk framework for approval by BOD through BCC and
oversee the implementation across the enterprise. All
amendments/enhancements to the credit risk framework or policy will be
recommended to BCC for approval by BOD.
 Be responsible for the implementation of the credit risk policy and strategy
approved by the BOD
 Review the methodologies and tools for identification, measurement,
monitoring and control of credit risk.
 Monitor credit risk on a bank wide basis and ensure compliance with exposure
and risk limits approved by the BOD
 Review the reports from Credit Risk Management Department, internal audit
and business lines and take decisions and reports as necessary to the BCC
and/or to BOD

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 The Committee will, inter alia, formulate guidance on dimensions to be covered

for presentation of credit proposals, covenants, rating standards and
benchmarks.
 Provide guidelines for:
 Formulation of Approval Matrix for credit approving powers
 Prudential limits on large credit exposures
 Standards for collateral
 Credit review mechanism
 Risk concentrations
 Portfolio management
 Risk monitoring and evaluation
 Pricing of facilities
 Provisioning
 Select, evaluate, validate and upgrade credit risk rating models based on the
inputs given by Credit Risk Management Department
 Setting up guidelines for identifying credit risk in all new products, processes
and activities
 Approve individual credit exposure in line with its approval limits
 Agree on portfolio plan/strategy for the Bank
 Review monthly credit risk reports and remedial action plan and coordinate the
Bank’s response to material events that may have an impact on the credit
portfolio

[Link] Composition, Quorum and Frequency

The Management Credit Committee shall be comprised of:
 Group Managing Director/Chief Executive Officer – Chairman
 Group Deputy Managing Director – Vice Chairman
 Executive Director, Risk Management
 SBU Executive Directors
 All Heads of Risk in Credit Risk Management
 Group Heads / Sector Heads in Market Facing functions
 Head of Legal (or his/her nominee as approved by the GMD/CEO)
The following officers of the bank shall sit in attendance at MCC meetings:
 Head, Group Conduct and Compliance
 Group Head, Internal Audit
 Team leads/ Unit Heads, Credit Risk Management

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 One officer from Legal Department, nominated by the Group Head

 The Credit Governance Team shall act as Secretariat
 Other Group Heads, Zonal Heads, Sector Heads
 All other Lending Officers
 For an MCC meeting to be valid, it must be presided over by the Chairman or
Vice Chairman. In their absence, the Chairman may delegate any member of
the Committee to act as Chairman. The Chairman or Vice Chairman, the
Secretary, a representative from Legal Department and at least two other Group
Heads/Zonal Heads/Sector Heads not below the level of AGM and a Group
Head/ Head of Risk in CRM shall form a quorum
 Meeting Frequency
 The MCC shall meet for CPG policy review and direction setting purposes,
at least once a year; While the Committee shall meet bi-weekly to review
and consider facility requests.
However, as may be required to ensure responsiveness to credit facility
requests, MCC meetings may be convened as required at the instance
of the Group Managing Director. In addition, in exceptional
circumstances MCC approvals may be obtained by telephone/video
conference meetings or written comments and formal approval of MCC
members properly captured in the MCC minutes.

[Link] Criticized Assets Committee (CAC)

Credit facilities that do not meet approved terms, covenants or repayment schedules shall
be regarded as delinquent loans. Such nonperforming loans that show little or no
movement during their tenor or which fails to be liquidated on due date are also regarded
as delinquent facilities and are called “Criticized Assets”. Facilities shall be regarded as
delinquent where normal repayment of principal and/or interest is in arrears for more than
90 days but less than 360 days. Facilities with little or no movement within 30 days shall
also be reviewed for early warning signs. The Criticized Assets Committee shall review all
such facilities.

[Link] Composition
The Criticized Assets Committee shall be comprised of:
 Group Managing Director or his designate - Chairman
 Group Deputy Managing Director
 Executive Director Risk Management
 SBU Executive Directors
 Credit Risk Management Groups– Secretariat

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 Group Heads of business/support units with criticized assets

The CAC shall be convened at least once every quarter to review all qualifying assets and
take decisions on remedial actions and / or provisioning. The Chairman may also
nominate a designee to chair the CAC session.

4.2.2 Roles and Responsibilities of Credit Risk Management Units

[Link] Roles and Responsibilities of Credit Risk Management Groups

The Credit Risk Management function of the bank has specific and overall responsibility
for facilitating risk asset creation and exposure management processes in the bank.
This shall encompass the following as it relates to credit risk:
 Designing and developing risk management framework and structures and
ensuring bank wide compliance.
 Coordination of the risk management policy definition process.
 Drafting specific credit risk policies, standards, procedures and guidelines to
manage the credit risk cycle (identify, measure, monitor and mitigate/control).
 Updating the policies and procedures as and when mandated.
 Identifying industry best practices, participating in industry conferences,
surveys, monitoring trends and emerging practices to be up-to-date on
regulations in credit risk and maintaining a repository of all related documents.
 Documenting credit risk management policies, procedures and communicating
to the appropriate staff.
 Identifying technology / consulting requirements and accordingly recommend
by substantiating / justifying the requirements to enhance the credit risk
management practices in the bank.
 Identifying and procuring/developing tools for management of credit risk.
 Undertaking enhancements to the credit risk framework and creating an
environment for ongoing adaptation.
 Undertaking necessary groundwork and preparing the bank to move towards
Advanced Internal Ratings Based of Basel II.
 Implementing recommendations / suggestions made through specific
resolutions by MCC.
 Establishing credit risk limits (exposure limits, risk limits etc.), seeking approval
from BOD, monitoring and reporting on an ongoing basis.
 Building, validating and enhancing the credit risk rating models.
 Ensuring compliance with the bank’s policies and procedures for risk creation
and management.

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 Reviewing recommended credit programs and endorsement of such programs

and approval.
 Detailed evaluation of risk of individual / business credits and risk rating as a
basis for approval decision.
 Recording individual credit exposures including maintaining complete up-to-
date and accurate records of all credit related customer interactions including
requests approvals, transactions and correspondence.
 Ongoing assessment and monitoring of quality and performance of the bank’s
risk asset portfolio.
 Periodic review and classification of the quality and performance of individual
credit exposures.
 Timely, accurate and complete reporting of risk assets and risk asset portfolio
quality and performance to provide informed basis for management actions and
decision-making.
 Providing regular credit risk management information reports and ad-hoc
reports to members of MCC, BCC and BOD.
 Serving as the Secretariat for the various credit committees.

Specific Responsibilities Include:

[Link] Credit Risk Review

 Confirm all credit facility requests are accompanied by relevant supporting data
to ensure informed decision-making.
 Identify inherent credit, financial and business risks in facility requests.
 Recommend visits to customer to confirm information provided on business
state, collateral etc.
 Investigate environmental factors that can influence credit decisions and make
recommendation as required.
 Recommend appropriate structure for credit facilities to ensure that the risk of
credit loss is properly mitigated including credit terms, security and repayment
terms.
 Conduct analysis and appraisals of all credit requests in accordance with
approved policies and procedures and ensure that credit exposures are created
subject to stipulated guidelines by analysis of individual credit request.
 Conduct risk acceptance evaluation and assign risk rating in line with approved
risk classification guidelines.
 Recommend approval / rejection of facility request.

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 Conduct anniversary reviews for renewal / assessment of existing facilities

performance and other credit related requests.
 Ensure proper documentation of individual exposure by adhering to set
documentation standards and procedure.
 Credit Administration and Documentation
 Ensure conformity of the credit operations to the credit risk policy of the bank
on the basis of reports received from corporate, retail and treasury functions,
corporate and retail credit administration functions and other relevant
departments of the Bank. Submission of reports to external agencies on credit
risk.
 Report the breaches in the collateral related policies to MCC on a monthly basis
and alert the Corporate and Retail Credit Department to take corrective action.
 Ensure completeness of all due diligence documentation and security
documents before signing off for availment.
 Liaise with Legal Department to confirm adequacy of documents submitted and
facilitate perfection of securities pledged.
 Maintain custody of all security documents related to the extension of credit. At
least semi-annually, the Conduct and Compliance function will audit the
adequacy of these records.
 Deliberately track and produce credit information for all parties involved in the
credit creation process to enable effective credit exposure and credit portfolio
performance monitoring.
 Conduct independent inquiries on the borrower e.g. from CBN credit bureau
and other sources.

[Link] Credit Portfolio Management

 Laying down risk assessment systems, monitor quality of loan portfolio, identify
problems and correct deficiencies, develop MIS and undertake loan portfolio
review.
 Monitor the exposure and risk limits set by the bank under various dimensions
on a continuous basis.
 Maintain database on bank-wide credit portfolio and up-to-date accurate record
performance of individual credit exposures.
 Provide detailed guidelines for monitoring and managing information on existing
exposures as a basis for informed decision-making.
 Deliberately track and produce credit information for all parties involved in the
credit creation process to enable effective credit exposure and credit portfolio
performance monitoring.

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 Ensure asset classification and provisioning as per Credit Risk Policy and
provide reports to MCC and BCC.
 Sounding alert to all the business units and other relevant functions for carrying
out suitable corrective action in case of breaches / deviations figured out during
the risk monitoring process.

[Link] Loan Monitoring

 To carry out a daily review of all sanctioned transactions.
 Review end use of approved loan proceeds.
 Review of proper utilization of facility in line with approved purpose(s) through
periodic credit review/ account performance.
 Review of debit/ credit swings on borrowing OD accounts and review of over
line/status of overdrawn accounts every morning.
 Review account turnover (debit & credit) activities to establish compliance with
covenants and mirror asset quality.
 Review facility types and repayment structures vis-à-vis the customer’s cash
flow/business type/asset conversion cycle.
 Review turnover activity on borrowing accounts to establish level of adherence,
ensure and confirm that collections on accounts are transaction/ project
specific.
 Review and track early warning signals (EWS) on specific credits and escalate
same for appropriate actions.
 Analysis of restructured accounts to expose weaknesses.
 Review financial and non-financial covenants of approved FAM with a view to
ascertaining compliance.

[Link] Remedial Assets Management Unit

Specific responsibilities shall include:
 Work with relationship team to restructure delinquent facilities for possibility of
recoveries.
 Put a structure in place to have detailed and documented information on
classified accounts.
 Ensure provision of adequate/quality information to solicitors during litigations
in respect of recovery matters.
 Exploring out-of-court settlement.

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 Realization and sale of perfected collaterals/ securities of recalcitrant

borrowers.
 Enforcement of court judgements.
 Effective follow up on repayment of agreed full and final settlement amount.
 Regular review of the activities of recovery agents/lawyers in order to measure
performance and take decisive actions.
 Maintain healthy relationship on behalf of the Bank with the various law
enforcement agents.

[Link] Legal Department

The role of the Legal Department in the credit creation and approval process shall be to:
 Assess and confirm adequacy of documents required for the perfection / up-
stamping process.
 Assess suitability of title deed and arrange for formal search to be conducted
over title deed.
 Prepare relevant documentation for execution by Customer / Surety Company
Secretary.
 Initiate and recommend external solicitor involvement to conduct search.
 Liaise with external solicitors and ensure due supervision throughout the
perfection / up-stamping of securities.
 Prepare and issue relevant demand notices and call in classified facilities as
appropriate.
 Monitor on an ongoing and regular basis, the performance of external solicitors
involved in perfection / up-stamping process or recovery-related litigation.
 Provide legal opinion as may be required or necessary.
 Assist in structuring complex transactions (project financings, syndications etc.)
and work with external counsel on documentation and agreements for such
transactions.

[Link] Project Monitoring Unit

The Project Monitoring function includes the following:

 Monitoring of all direct facilities granted by the bank that are project-related to
ensure that the expected completion timeframes are achieved to minimize the risk
of delayed repayment or non-repayment.
 Monitoring of all contingent facilities (Bonds and Guarantees) to ensure
performance and progressive reduction in the obligations of the Bank.

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 Evaluation of the potential risks that can affect projects in terms of the constraints
to the cost, time and scope, and provide guidance in the pre-and-post disbursement
processes of all project-related credit facilities.
 Periodic appraisal of all project and object related facilities in the Bank, track
milestones and provide controls to ensure performance, and timely loan
repayment.
 Pre – qualify, select, and partner with consultants to oversee large and specialized
projects; including interpreting/transcribing the consultant’s technical reports for
decision making.
 Provision of a structured project management approach for challenged
object/project financed facilities where the borrower lacks the competence to
complete the project (or manage the asset) but the repayment is premised on the
cash flows expected from the use of the asset.

[Link] On-lending Schemes Risk Management

The On-Lending Schemes Risk Management Unit is responsible for the Monitoring of all
On-lending facilities availed to customers that were sourced from Central Bank of Nigeria
(CBN) and other local and foreign development institutions.
The Unit provides surveillance of the on-lending portfolio of the Bank in line with the Bank’s
risk appetite and monitors individual loan performance of obligors to facilitate adherence
to approved loan covenants.
The unit is also tasked with Regulatory reporting in line with the requirements of the
regulators and other stakeholders.”

[Link] Environmental and Social Risk Management

The bank is committed to conducting its business in an environmentally and socially
responsible manner. In maintaining international best practice in environmental and social
risk management, the Bank shall ensure that our customers are also fulfilling their
environmental and social responsibilities. The Bank shall insist on compliance with
applicable National laws and regulations, the use of sound environmental, health & safety,
and labour practices, as these are important factors in demonstrating effective corporate
governance, ensuring sustainable wealth and commitment to loan obligations.
The Bank shall not provide financial services to projects and activities that are on the
exclusion list of the Environmental and Social Risks Management (ESRM) Manual. Such
projects shall be reviewed and approved in line with credit processes as contained in the
Bank’s CPG and ESRM Manual
The roles and responsibilities of Environmental and Social Risks Management include;

 Ensure that policies, processes and procedures are developed and integrated
as the Environmental Management System with focal aim to assess, review,
identify, manage, monitor and report the potential environmental and social

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(“E&S”) risk issues inherent in credit requests thereby putting in place requisite
mitigation to the identified risks.
 Preparation and development of environmental and social risk management
frameworks and structures in addition to ensuring compliance with requisite
regulatory, global standards (i.e. IFC).
 Investigate inherent credit’s environmental and social factors and make
recommendation as required. Conduct independent audits/due diligence on
facilities with high and moderate E&S risks.
 Timely escalation and necessary alert to senior management, committees, to
take corrective action whenever a facility breaches prescribed environmental
and social action plans.
 Monitoring of facilities with identified high E&S risks, check relevant laws and
trends in environmental and social governance architectures for interpretation
of potential impacts on the Bank’s present and potential assets.
 Assess and confirm suitability and completeness of all E&S due diligence
documentation before sign-off for availment

4.2.3 Roles and Responsibilities of Customer-facing Business Units

Customer-facing business units are responsible for generating revenues through product
delivery and sales of financial services to bank customers to achieve and sustain the
defined goals and business objectives.
In this respect, it is expected that the business units shall:
 Continually grow market share (specific to target market) by effective
management of individual customer relationships;
 Market / sell bank product and service offerings to target customers
 Create, manage and own risk assets, through a very thorough customer
selection and controlled risk availment process without compromising portfolio
profitability, and in compliance with the bank’s management policies.

[Link] Specific Responsibilities

Each customer-facing unit shall:
 Define and articulate target market, risk acceptance criteria and portfolio mix,
with concurrence from Credit Risk Management.
 Define market specific strategies.
 Initiate credit request that meet set risk acceptance criteria and target market
definition.

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 Obtain adequate information in respect of each facility request/prospect to

conduct preliminary credit screening.
 Perform preliminary credit screening to confirm that facility requests meet
Access Bank’s defined target market and risk acceptance criteria.
 Create credit facility proposals for individual/business credits within stipulated
limits and guidelines as defined by risk management policies and procedures.
 Approve credit facility requests in accordance with the Bank’s preapproved
credit programs.
 Manage risk exposures in line with approved risk management policies.
 Develop and implement appropriate response on a case-by-case basis to
manage delinquency.
 Proactively identify potential delinquency in existing exposures on a continuous
basis and support the risk management function in ensuring efficient
administration of all credit recovery activities.
In particular, each relationship manager is responsible for ensuring the coordination,
execution and monitoring of an extension of credit, from early consultation through
approval to maturity, including:
 Serving as the primary interface with the client
 Ensuring a complete, accurate and balanced assessment of risk in the
credit approval presentation
 Coordinating the approval process; managing information flow
 Ensuring that clear communication between Access Bank and the client
is maintained, and that the internal approvals are consistent with client
expectations
 Bringing in Industry, Product and other specialists (e.g., Legal, Tax)
when required
 Ensuring compliance with related policies, as referred to throughout
these policies
 Ensuring that the approval documentation is complete
 Ensuring that the legal documentation is complete, consistent with the
internal approvals and properly executed and filed.
 Ensuring quality and timely service delivery, within (or exceeding)
customer expectations.

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5 Credit Risk Management

5.1 Risk Identification

5.1.1 Introduction

This section of the Credit Risk Policy provides a framework for identification of
dimensions of Credit Risk in the Bank’s Books.

[Link] Dimensions for Identification of Risks

On and Off balance sheet exposures can expose the bank to Credit risk. The
following are the dimensions based on which the risks should be identified to be
categorized under Credit risk.
 Credit Risk – Pre-settlement and Settlement Exposures
 Exposure is classified into Banking Book and Trading books
 Settlement date of the exposure falls on or after the cut-off date (date on
which risk identification is carried out)
 Credit Risk – Settled Exposures
Credit Risk – Settled exposures include all normal funded & non – funded lending
products of the bank such as Overdraft, Term Loans, Mortgage Loans, Agriculture
Loans and Letter of Credit etc. For all such credit risk –settled exposures, risk
identification is carried out as follows:
 Exposure is classified into Banking Book and
 Exposure creates an obligation on the part of obligor to perform as per the terms
and conditions of the agreement with the Bank or
 Investments in Equity, where the issuer does not have any obligation to perform
but the bank is exposed to credit risk.

[Link] Risk Identification Matrix

Risk Identification Matrix for the existing products of the Bank is given in Annexure 1.

5.2 Risk Measurement

5.2.1 Acceptance Criteria

Access Bank will operate within a sound and well-defined criterion for fresh credit
request from new customer as well as existing customer, with an objective of
improving the quality of appraisal, reducing the turnaround time there by optimizing
cost.
Acceptance Criteria will be used as an entry level filtering mechanism to decide
whether the applicant should be subjected to a detailed appraisal as envisaged in

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the subsequent section of the policy. Bank will put in place appropriate acceptance
criteria based on the following:
 Type of entity
 Industry
 Profitability
 Net worth and Solvency
 Liquidity
 Operational Efficiency
 Promoter Contribution
 Credit History
 Track record

5.2.2 Negative List

Following are the activities / Obligors which are in the “Negative list activities” of the
Bank.
The Bank will take special care in considering any potential lending to businesses
on the negative list.
For such transactions to be considered for processing, as a result of circumstances
surrounding the request, the request must be signed off by the Chief Risk Officer
and GMD and any further approving authority subject to applicable limits.
 Defence / Weapons procurements for unauthorized contractors.
 Projects which may have negative socio-economic impact.
 Projects which may lead to occupational/ health concerns.
 Credit to companies for buy-back of its securities.
 Production of Ozone depleting materials.
 Lending for the purpose of supplying equity in a start-up business
 Any activity which is on the Negative List of the Central Bank of Nigeria.
 Any activity considered as unlawful as per the laws of the land.
 Loans to gambling enterprises, gaming companies including casinos, and
lottery operations.
 Loans to finance a company acquisition, which is expected to be “hostile”.
 Loans for speculative investments in securities, Inventory or real estate
 Loans that bail out or replace other banks and financial institutions who wish to
withdraw (Non-Performing and watch listed loans in other Banks).

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 Loans to Companies that have default credit history with Access Bank or their
facilities have been previously written-off.
 Finance of used items either as stock or Asset Finance.
 Activities that are listed in the Environmental and Social Risks Management
Manual ESRM MANUAL

5.2.3 Restricted List

Undesirable Lines of Business: Financing certain lines of business is undesirable

for the reputation of the bank and therefore the bank’s policy is to avoid transactions
in such lines of business. MCC may identify lines of business that fall under this
classification. Approval of the Board of Directors is required for any loans to these
sectors.

5.2.4 Policy Loans

These are exceptional or unsecured credit extensions to certain companies and/or

individuals having special relationships with the bank, some of which are already
subject to certain regulatory restrictions. These include, but are not limited to the
following:
 Unsecured credit to bank directors: to companies where bank directors
are also directors or companies owned or controlled by close associates
or relatives of directors of the bank. Loans in this category must be
approved by the Board prior to drawdown and also mentioned at Board
Meetings for ratification.
 Politically sensitive credits.
 Unsecured credits to executives of client companies: executives of other
banks or highly connected individuals in business or government circles.
 All other loans not expressly provided for in the Credit Policy Guide
Relationship Managers must exercise due care in proposing such facilities and
ensure that a viable first way out exists. All loans in these categories must be
approved by the GMD irrespective of the amount involved and Tenor
(MCC/BCC/Board approval may be required in line with the bank's approval grid)

5.2.5 Exposures to politically exposed entities

All exposures to politically exposed entities must be signed off based on the value
of loan request and the profile of the PEP.
Tier 1: 1) All credits request – Executives – President, Vice President, Governor,
Senate President, Speaker Federal House of Representatives, Speaker, State
House of Assembly (including their wives, close relatives and Personal Assistant)

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2) All PEP or Financially Exposed Persons (FEP) Credit request of N1B and above
(either as a single transaction or cumulative exposure). Minimum concurrence CRO
Tier 2: 1) Federal – Members of Federal House of Representatives and Senate,
Special Advisers, Ministers, Ambassadors, Federal appointees and Heads of
Government, Parastatals, Deputy Governors
2) All PEP or Financially Exposed Persons (FEP) Credit request of N100m and
above (either as a single transaction or cumulative exposures. N100m to N1B
Minimum concurrence DGM in Risk Management Division
Tier 3: 1) State- Members of State House of Assembly, Local Government Chairmen,
Commissioners, and State appointed office holders etc.
2) All other PEP or FEP with exposure of N100m and below. Minimum concurrence
CRM, Head of Risk
To avoid any potential conflict of interest situation, Access Bank shall not extend credit
to its principal independent accounting firm or its partners, nor shall the bank extend
credit to any other accounting firm or their partners who are regularly engaged to audit
the financial statements and/or affairs of the bank or its branches / subsidiaries /
affiliates.

5.2.6 Insider Related Exposures

[Link] Definition of Insider Related Exposures

Insider Related loans are credit facilities granted by the Bank to its own officers,
managers, directors, significant shareholders and other related entities (section 3.5
of the Prudential Guidelines July 2010 and BOFIA no 38 of 1998 as amended).
Insiders include directors, management staff, significant shareholders and all other
Employees of the Bank. The term “director” includes director’s wife, husband, father,
mother, brother, sister, son, daughter and their spouses (section 3.4 of the
Prudential Guidelines July, 2010 and BOFIA as amended).
A significant shareholder is defined as a shareholder who has a shareholding of at
least 5% (individually or in aggregate) of the Bank’s shareholders fund (section 3.4
(a) of the Prudential Guidelines July 2010 and BOFIA as amended)

[Link] Scope of the Policy

BOFIA (No 66, 2004 Amended Act) defines a director as any person by whatever
name he may be referred to carrying out or empowered to carry out substantially the
same functions of a director in relation to the affairs of a company incorporated under
the Companies and Allied Matters Act, 1990. As a corollary, any exposure granted
to the directors and other related parties are categorized as Insider Related
obligations and such exposures should be treated in line with this policy.

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1. This policy governs any extension of credit made by the bank to an executive
officer, director, or principal shareholder of the member bank, of any company
of which the member bank is a subsidiary, and of any other subsidiary of that
company.
2. It also applies to any extension of credit made by a member bank to a company
controlled by an insider, or to a political or campaign committee that benefits
or is controlled by such an insider.
3. This part also implements the reporting requirements of the Prudential
Guidelines concerning extensions of credit by the bank to its executive officers
or principal shareholders (or to the related interests of such persons).
4. Extensions of credit made to an executive officer, director, or principal
shareholder of the bank (or to a related interest of such person) by a
correspondent bank also are subject to restrictions set forth in this policy
document.

[Link] Definition of Related Parties

The term Related Party means any natural person or legal entity that maintains with
the Bank at least one of the following relationships:
1. The person is a member of the Board of Directors or Management, or is a
senior official of the bank
2. The person has a direct or indirect qualifying holding in the bank.
3. The person is a member of the board of directors or management of an
enterprise covered by 2 above, or by 6 or 7 below;
4. Any enterprise in which any of the persons mentioned under 1, 2, or 3 is a
member of the board of directors or management;
5. Any enterprise in which any of the persons mentioned under 1, 2, or 3 above
holds directly or indirectly, alone or with others, at least 5% of the shares or
voting rights as implied by BOFIA in section 18 (6a).
6. Any enterprise that the bank, alone or with others, controls directly or Indirectly;
7. Any enterprise controlled directly or indirectly by an entity that controls the
Bank.

[Link] Regulations on loans to significant shareholders, directors, managers

and staff of Access bank
Prudential Guidelines and BOFIA Divergence
1. All Insider Related credit must be approved by the Chief Risk Officer (“CRO”) /
Group Managing Director (“GMD”) / Management Credit Committee (“MCC”)
/Board Credit Committee (“BCC”) and Board of Directors (“BOD”). By
inference, any Insider Related credit must be approved by BOD.
2. Anybody that could be categorized as an insider of Access Bank shall not:

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 In any manner whatsoever, whether directly or indirectly have personal

interest in any advance, loan or credit facility, and if he has any such
personal interest, he shall declare the nature of his interest to the bank
(BOFIA Section 18 (1a) as amended).
 Grant any advance, loan or credit facility to any person, unless it is
authorized in accordance with the rules and regulations of the bank; and
where adequate security is required by such rules and regulations, such
security shall, prior to the grant, be obtained for the advance, loan or
credit facility and shall be deposited with the bank (BOFIA Section 18 (1b)
as amended).
 Benefit as a result of any advance, loan or credit facility granted by the
bank (BOFIA Section 18 (1c) as amended).

3. The Bank is not permitted to grant unsecured advances, loans or unsecured

credit facilities above N50,000 (Fifty Thousand Naira) to its directors (to any
firm, partnership or private company in which it or any one or more of its
directors is interested as director, partner, manager or agent or any individual
firm, partnership or private company of which any of its director is a guarantor)
whether such advances, loans or credit facilities are obtained by its directors
jointly or severally without prior approval in writing from the CBN (BOFIA 1991
Section 20 (2a) as amended). Thus, all loans or commitments to insiders must
be secured and covered by collateral in line with the Bank’s Credit Risk Mitigant
Policy.
4. In the case of a proposed advance, loan or credit facility, the required
declaration shall be made at the meeting of the Board of Directors of the bank
at which the request for the advance, loan or credit facility is first taken into
consideration. However, if the director was not present on the date of the
meeting at which the matter was discussed, he shall state his interest in the
proposed advance, loan or credit facility at the next meeting of the Board of
Directors of the bank held after he becomes so interested (BOFIA section 18
(4)).
5. The required general notice given to the Board of Directors which specifies that
he is a member of a company or firm seeking an advance, loan or credit facility
from the bank shall be regarded as a declaration of his interest in the grant of
the advance, loan or credit facility which may after the date of the notice, be
granted to that company or firm, and shall be deemed to be a sufficient
declaration of interest in relation to any such advance, loan or credit facility so
granted. Such notice shall not have effect unless it is given at a meeting of the
Board of Directors and he shall be required to do all things reasonably
necessary to ensure that the declaration is brought up and read at the next
meeting of the Board of Directors after it is so given (BOFIA section 18 (5)).
6. A general notice given to the Board of Directors by the director shall be deemed
to be a sufficient declaration of interest in relation to any advance, loan or credit
facility, if –

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a) The notice specifies the nature and extent of his interest in the company
or firm seeking the credit facility;
b) Such interest is not different in nature to or greater in extent than the
nature and extent specified in the notice at the time any advance, loan
or credit facility is made
c) The notice is given at the meeting of the Board of Directors of the bank
or the director takes reasonable steps to ensure that it is brought up and
read at the next meeting of the Board of Directors of the bank after it is
given.
(BOFIA section 18 (7a, b, c).
7. Every director of the Bank who holds any office or possesses any property
whereby, whether directly or indirectly, duties or interests might be created in
conflict with his duties or interest as a director of a bank, shall declare at a
meeting of the Board of Directors of the bank, the fact and the nature, character
and extent of the interest (BOFIA section 18 (8))
8. The Bank shall not grant or promise to grant to an insider (or a group of related
parties), an advance, credit or commitment which is more than 20% of its
shareholder’s fund unimpaired by loses in line with the Prudential Guidelines
(Section 3.2 a). Loans to a group of related parties are considered as a single
insider obligation because the group of related parties refer to two or more
natural persons or legal entities that are regarded as constituting a single
interest because they have at least one of the following relationships

[Link] Key Considerations

1. The principal concern with Insider Related Credit is the conflict of interest in
taking risk decisions with the Bank’s resources and the bank would find itself
taking on an exposure it could otherwise have avoided.
2. In order to mitigate against this, the Bank has come up with an Insider Related
Policy to guide its handling of such exposures and to eliminate risks that may
come out of potential conflicts.
3. The Bank will ensure compliance with all regulatory requirements on Insider
Related Credits.
4. The Bank will ensure specific reporting at management and Board level on all
Insider related ongoing events throughout the life cycle of the loan.
5. The bank will ensure that members of Management or Board of Directors with
an interest do not participate in the approval of credit decisions on Insider
Related Credits.
6. Insiders as described in this Policy shall not act as proxies for the purpose of
obtaining loans in their names or in the names of their companies for the benefit
of third parties. Such third party shall approach the Bank at arm’s length
independent of the Insider and the third party's credit request shall be assessed
on its merit and decision taken accordingly.
7. All insider-related credits must be signed by the Chief Risk Officer (CRO).

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8. Lending to a director or significant shareholder should be at a maximum of 10%

of the bank's paid-up capital except with the prior approval of CBN.
9. Total loans to all Insiders should not be more than 60% of the bank's paid-up
capital.

[Link] Marketing Requirement

1. The market facing teams are responsible for obtaining all the adequate
information in respect of each facility request/prospect to conduct preliminary
credit screening which confirms the insider relationship status of the customer
via KYC.
2. The relationship management team shall be responsible for creation,
management and own risk assets of insiders, through a very thorough
customer selection and controlled risk availment process without
compromising portfolio profitability and compliance with the bank’s insider
exposure policies.

[Link] Reporting Requirement

1. All regulatory returns required in relation to all insider loans (if any) must be
submitted/made available within the assigned timeframe prescribed by the
Central Bank of Nigeria or the regulatory body in the country where Access
Bank is located.
2. Credit Portfolio Unit of the Credit Risk Management should prepare a schedule
which contains the Bank’s insider-related exposures should be submitted for
Board Credit Committee’s review on a quarterly basis.
The schedule should include following:
I. The aggregate amount of insider-related outstanding: loans, advances
and leases should be listed per customer. Those that are not performing
should be further analysed by security, maturity, performance, provision,
interest-in suspense and name of borrowers to trigger critical decision from
the Committee.
II. Details of the off-balance sheet exposures arising from insider related-
party transactions should be included on the schedule.
III. All exposures to ex-Directors of the Bank, who have outstanding facilities
before the expiration of their tenures on the Board of the Bank or their
resignations there from would continue to be treated and reported as
Insider-Related Exposures throughout the facility life until the facility is fully
discharged or paid down.
IV. A related Director shall vacate office or cease to be a Director, if the
Director directly or indirectly enjoys a facility from the Bank that remains
non-performing for a period of more than 12 months.
3. A comprehensive database which contains the names of all the insiders shall
be created by the Bank. This database shall be updated monthly for the
purpose of easy identification of all insider related exposure.

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[Link] Disclosure Requirement of Insider-related credits

Access Bank is required to ensure strict compliance with the regulatory requirements
Concerning the requisite disclosure of Insider related exposure as may be obliged
from time to time. Section 3.5 (a) of the Prudential Guidelines (July 2010) requires
that all the exposures to: shareholders, employees, directors and their related
interests must be disclosed in the financial statement.

The current disclosure requirement on insider loan is as follows:

a) The under listed disclosure with respect to all the insider loans shall be
presented in the financial statements:
 The aggregate amount of insider-related loans, advances and leases
Outstanding as at the financial year end should be separately stated in a
note to the accounts. The non-performing component shall be further
analysed by security, maturity, performance, provision, interest-in
suspense and name of borrowers.
 Notes to the accounts on guarantees, commitments and other contingent
liabilities should also give details of those arising from related-party
transactions.
 The external auditors and audit committees should include in their report,
their opinion on related-party credits.
b) The requirements of the disclosure above do not apply to credits extended to
employees under their employment scheme of service, or to shareholders
whose shareholding and related interests are less than 5% of the bank’s paid
up capital as at the date of the financial report or to public limited liability
companies in which a Director has an interest that is less than 5% Section 3.5
(c) of the Prudential Guidelines (July 2010).

[Link] Monitoring Requirement

1. Credit Risk Management and the Relationship Management teams are
required to ensure that no unsecured loans to any of its insiders are granted
without the approval of the Board of Directors (and or the Central Bank as may
be applicable in the country where the bank is located).
2. The Relationship Managers should ensure that all the loans granted to the
directors, insiders and significant shareholders or a group of related insider
should be fully disclosed in the Facility Approval Memorandum in order to
enable the approving authority not only make an informed credit judgment /
decision on the credit but also observe all the regulatory requirements in
relation to the credit.
3. For Insider-Related Facility requests to be presented to MCC and BCC/ BOD
meetings, the respective Secretariats shall indicate the fact that the affected
exposures are Insider-Related while scheduling credit requests for
presentation to these Committees beforehand.

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4. A borrowing Director shall be required to abstain from taking part in the

approval process of credit request(s) sponsored by him / her. Such Director(s)
would similarly be required to abstain from discussions / approval of credits in
which he/ she has interests.
5. Credit Risk Management shall be required to confirm the status of a director's
credit facility before dividend payments to the Director. In line with CBN Circular
reference BSD/DO/CIR/VOL.1/01/18, a director who has any non-performing
facility is disqualified from receiving dividend payments. The dividend due to
such a Director shall then be applied in full towards redeeming outstanding
balances on such non-performing obligations. Directors shall be required to
sign authorizations to this effect during credit appraisal/ documentation.

[Link] Procedure for Write-Off of Fully Provided Insider – Related Credit

Facilities
According to the Prudential Guidelines (section 3.21), the following must be adhered
to;
(a) The facility must have been fully provided for in line with the loan loss
provisioning guidelines and must be in bank’s book for at least one year after
full provision.
(b) There should be evidence of board approval
(c) The approval of CBN is required for all insider or related party credits
(d) The fully provisioned facility must be appropriately disclosed in the audited
financial statement.

[Link] Requirement for Lending to Insider Related Parties

(1) In considering the approval of insider related credit, the following conditions
should be put into consideration:
 The terms of the credit facility are not less favourable to the bank than
those normally offered to other persons; and
 The granting of the credit facility is in the best interests of the bank.
(2) The credit shall be approved by all other directors of the bank at a duly
constituted meeting of the directors where not less than three quarters of all
the directors of the Bank are present and the approval shall be recorded in the
minutes of the meeting.

[Link] Documentation Requirements

1. A blank shares transfer form shall be duly signed by the director transferring his
shareholding interest to the Bank in the event of non-performance of the credit
facilities granted to him/ her and/or his/her related interests. Such transfer of

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shares should be to the Bank’s nominated broker to ensure effective control. (CBN
Circular BSD/DO/CIR/VOL.1/01/18)
2. The Bank shall also obtain from the director, a written authorization duly signed by
him instructing the bank to apply any dividend due to him to defray any delinquent
facility outstanding against him/ her and/or his/ her related interests. (CBN Circular
BSD/DO/CIR/VOL.1/01/18)
3. Disbursements in favour of Directors concerned shall be subject to executed
Director’s Consent that he/she is aware of the proposed facility and pledging its
shares of Access Bank in the event of default.
4. Documentation requirements for insider related aside director shall include the
following:
I. Executed security documentation as duly approved
II. Executed non-security documentation including offer letter, Loan
Agreement, Overdraft Agreement and Board Resolution where
applicable.
III. The transaction dynamics shall be in line with this policy in addition to
Credit Risk Management Policies.

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5.2.7 Guidance Limits

To provide flexibility in managing valued customer relationships, especially for

specific Institutional banking customers that satisfy at the minimum, the criteria
for the best risk rating, the bank shall approve ‘guidance limits’. These shall be
preapproved exposure limits not advised to the customer, but available to allow
for quick response to temporary emergency needs for
accommodation/enhancement of facilities. The purpose and other terms and
conditions may not be specified in the original approval of Total Facilities.
(Typically, however, these guidance limits should include a tenor limit.) Guidance
limits are included in Total Facilities and, unless otherwise specified, are
designated as Direct exposure.

Guidance limits may be exercised at the discretion of the relationship

management function in conjunction with Credit Risk Management up to a
maximum of 10% of the approved credit facility advised to the customer. In all
other situations, two credit officers must approve the allocation and one of the
credit officers must have a covering limit for the allocation amount. In all situations,
careful consideration must be given to the adequacy of collateral for the additional
exposure, as well as the certainty / adequacy of the obligor’s cash flow as our first
way out.

5.2.8 Advised Facility

A credit facility made known to the customer in writing through an Offer Letter is
an advised facility. For limited liability companies, Customer’s acceptance of an
advised facility must be supported by a Board Resolution.

5.2.9 Unadvised Facility

Unadvised facilities are those that are not disclosed to the customer. Amongst
other reasons, an unadvised facility may be used:
To keep client’s account balance within the scope of cover provided by its
collateral.
For relationship reasons, to keep the borrower’s account within an approved credit
limit and avoid penalty interest rates on excesses over previously approved
facilities.

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Approval for unadvised lines must comply with the requirements of this Guide
(Section [Link])

5.2.10 Temporary Extensions

All credit facilities must be reviewed once every 12 months. Facilities can be
temporarily extended for up to 30 days with the approval of the Business ED and
the Head of Risk; Up to 60 days with the approval of the GDMD. Extensions
beyond 60 days, up to 180 days must be approved by the GMD.
The bank does not encourage more that 2 consecutive extensions.

The annual review date may then be reset, as one year from the approved
extension date.

5.2.11 Guidelines for acceptance of Intra group exposures

Bank will apply the same underwriting standards to intra group exposures as that
of any other exposure. Since assets can be shifted from one company to other
within a group, bank will not engage in asset backed lending without ensuring end
use of funds.

5.2.12 Techno – Economic Viability Study

Long term viability of business of the obligor is critical in determining the overall
quality of the Term Loans Portfolio (that includes specialized lending). In
evaluating long-term viability, techno-economic viability studies facilitate a great
deal of understanding of the technical and economic feasibility of the asset or
project financed by the bank
Purpose of Techno - Economic viability studies:
 Technical viability of the project / asset / technology in terms of cost,
degree of obsolescence, proven or unproven, input, output, project
implementation schedule, alternatives, environmental issues.
 Economic viability of the project in terms of future cash flows.
 Economic life of the underlying asset / project being financed.
 Residual value.
The following are the guidelines for the conduct of TEV study:

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 TEV Study will be done by the bank with the use of Internal or external
experts depending on the type of asset/ project involved and the
availability of in-house expertise.
 A Techno-Economic viability study may be carried out during the
approval process of a loan if requested by the credit officer or the
Management Credit Committee for a prospective obligor as it is
essential to understand whether the financial projections given by the
obligor is feasible or not. A positive result from the TEV study is
essential for further considerations of the obligor.
 Bank may use external experts to conduct a TEV study, whenever the
in-house expertise is not sufficient to conduct the study. The decision
to use external experts should be approved by appropriate authority
can vary from time to time.
 External experts must be of high repute, well qualified and experienced
- chartered engineers / technicians in the respective area of study.
 TEV Study must be carried out in the following cases:
 Whenever the project / asset involves a new technology which
needs to be understood to critically analyse the financial
projections and long-term feasibility.
 Any other credit facility that demands a TEV Study as per the
assessment of appropriate authority.

5.3 Exposure and Risk Limits

Exposure limits are needed in all areas of the bank’s activities that involve risk
taking. These limits help to ensure that the exposures taken by the Bank remain
within a predetermined level to manage concentration risk arising out of excessive
exposures.
The dimensions to be used for defining such exposure limits are derived from
Regulatory prescriptions of the Central Bank of Nigeria and Prudential Limits
based on Bank’s internal considerations.

5.3.1 Definition of Exposure

Exposures comprise on and off-balance sheet items as under:

Claims on a counterparty including actual claims and potential claims which would
arise from drawing down in full of undrawn advised facilities (whether revocable
or irrevocable, conditional or unconditional) which the bank has committed itself

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to provide, and claims which the bank has committed itself to purchase or
underwrite
Contingent liabilities arising in the normal course of business and those contingent
liabilities which would arise from drawing down in full of undrawn advised facilities
(whether revocable or irrevocable, conditional or unconditional) which the bank
has committed itself to provide
Assets, and specifically assets which the bank has committed itself to purchase
or underwrite, whose value depends wholly or mainly on a counterparty
performing his obligations, or whose value otherwise depends on that
counterparty’s financial soundness but which do not represent a claim on the
counterparty.

5.3.2 One Obligor Concept

Section 20 (1a) of the Bank and Other Financial Institutions Act (BOFIA) 1991 as
amended states that a Bank shall not grant more than 20% of its shareholders’
funds unimpaired by losses to a company, its subsidiaries and associates.
However, at Access Bank, the concept of one obligor is extended to include any
company belonging to a group whose management are strongly linked by virtue
of their related ownership structure and in particular, where the business fortune
of one entity affects the other. Thus credits extended to any member of the group
shall be aggregated to determine total facilities to the group, as well as the
appropriate level of approval of such facilities.
It shall be the responsibility of the Approving Officers to determine whether related
company obligations shall be aggregated, and the basis for their decision shall be
documented. As a guide, the term “One Obligor” includes all credit extension to a
borrower including:
All subsidiaries owned at least 50%; such interest being an aggregate of both
direct and indirect shareholdings
Any less than 50% owned affiliate where the borrower exercises management
control and where, in the opinion of the credit approval officers, the commercial
fortunes of the affiliate are strongly influenced by the borrower
Any obligor related to the borrower as a result of guarantees, endorsements, or
other similar arrangements in favour of the bank
All obligors under common ownership or control of a corporation or individual

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5.3.3 Exposure Limits

[Link] Regulatory Considerations

Access Bank and its staff will ensure compliance with all laws regulating financial
institutions in the countries where it operates. Being a Nigerian bank, Access Bank
Plc is subject to laws and regulations issued by the Central Bank of Nigeria, or
other agencies of the Federal Republic of Nigeria that are established for the
regulation of financial institutions. The main laws impacting our core banking
activities are:
 Banks & Other Financial Institutions Act, 1991 (BOFIA)
 Failed Banks Act, 1994
 Economic & Financial Crimes Commission Act
 Money Laundering Act 2004
 CBN Act (which empowers it to regulate financial institutions)
 Other miscellaneous economic or financial crime regulations.
Major provisions of these laws and specific regulations that govern the extension
of credits at Access Bank include, but are not limited to the following requirements:
The total exposure to one obligor i.e. any single borrower or related group of
borrowers at any given time shall be limited to 20% of shareholders’ funds of the
bank (unimpaired by losses).
Direct or indirect interests of directors, managers and officers of the bank in any
advance, loan or facility must be declared and shall not conflict with the corporate
interests of the bank and where appropriate, authorization must be in accordance
with the rules and regulations of the bank. It is an offence under BOFIA for bank
staff to fail to declare the nature of their interest in such loan requests and
offenders are liable to a fine and up to 3 years’ imprisonment on conviction.
Access Bank shall not, without the prior approval in writing of Central Bank, grant
any advance, loan or credit facilities against the security of its own shares; or any
unsecured advances, loans or credit facilities unless authorized in accordance
with Access Bank’s rules and regulations, and where any such rules and
regulations require adequate security, such security shall be provided or, as the
case may be, deposited with the bank.

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Under the Failed Banks Act, where the information and details on the security
pledged for a loan is impossible to locate or no security is pledged at all or the
identity of the debtor is difficult to locate or the debtor is difficult to locate or the
debtor is found to be non-existent, fake or fictitious or in any way unidentifiable,
the directors, shareholders, partners……managers, officers and other employees
of the failed bank who in the pursuance of their duties were found to be connected
in any way with the granting of the loan which has become irrecoverable shall be
held liable.

[Link] Prudential Exposure Limits

Apart from the regulatory dimensions given by CBN, Access Bank will have
prudential exposure limits set out on following dimensions:

 Single and Group Borrower

 Sector Type (E.g. Manufacturing, Trading, Agriculture, Services, and Real
Estate etc.)
 Capital Market Exposure
 Industry Type
 Geographic Regions
 SBUs Type - Corporate and Retail.
 Currency Exposure
 On and Off Balance Sheet
 Rating Grades Single

5.3.4 Risk Limits

In addition to Exposure Limits, Risk Limits are necessary to keep credit risk under
predetermined levels. Credit Risk is multifaceted as it is impacted by factors other
than exposure, hence the need for Risk Limits.
The Bank will set Risk Limits Based on ratio of Risk Weighted Assets (RWA) to
Total Exposure on the following dimensions:
 Overall Credit Risk

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 Sector Type (E.g. Manufacturing, Trading, Agriculture, Services, and Real

Estate etc.)
 Capital Market
 Industry Type
 Geographic Region
 Currency Exposure
 On and Off Balance Sheet

A Note on Setting Exposure and Risk Limits is provided in Annexure 3.

Exposure and Risk Limits under various dimensions

Exposure
Limit as a
No. Dimension / Sub Dimension % of Risk Limit
Capital
Base

1. Single and Group Borrower

2. Large Exposures
3. Sector Type
Manufacturing
Trading
Agriculture
Services
Real Estate
Contracting
4. Capital Market Exposure
5. Industry Type
Power
Ports & Roads
Telecom
Hospital & Health Care

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Exposure
Limit as a
No. Dimension / Sub Dimension % of Risk Limit
Capital
Base
Other Infrastructure
Petroleum & Petroleum Products
All Engineering
Chemicals
Food Processing
Turnkey Projects / Construction
contractors
Automobiles / Auto parts
6. Geographic Regions

7. Currency Exposure
US Dollars
Pound Sterling
Euro
8. Tenor

5.3.5 Risk Rating Limits

Access Bank will use Risk Rating Limits as the primary mechanism to control its
portfolio of credit exposures. Risk Rating Limits are established by the Chief Risk
Officer and approved by Management Credit Committee and are a function of the
obligor risk rating and tenor of facilities. Risk Rating Limits shall be specified on
approval of the revised Risk Rating Policy for Access Bank. Note that regardless
of the Risk Rating Limits, Legal Lending Limits set by the Regulators shall always
prevail.
Risk rating limits shall be established for the following classes of borrowers:
 Banks, Corporations
 Government owned or controlled entities

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[Link] Measuring Exposure against Risk Rating Limits

The Risk Rating Limit process outlined below applies to exposure at the overall
relationship level. For the purposes of applying Risk Rating Limits, the obligor risk
rating that is used must be:
 For corporations, the obligor risk rating of the parent company.
 For banks, the risk rating of the lead bank.
 For other entity types, the risk rating as determined in accordance Access
Bank’s Risk Rating Policy. Exposure against Risk Rating Limits is
measured as the Outstanding’s and Unused Commitments (“OSUC”)
to a given relationship.
 OSUC is the sum of all Outstanding’s (including Direct and Contingent
Exposure) against Total Facilities, as well as the unused portion of any
Committed Facility included in Total Facilities.
 OSUC does not include settlement and clearing exposure, or the
Underwritten Position of a credit underwriting transaction unless the
position becomes aged beyond the Extension Period.
 For purposes of measuring exposure against Risk Rating Limit tenor
buckets, contractual principal repayments may be taken into
consideration.
 purposes of measuring exposure against Risk Rating Limits, OSUC may
be considered net of:
 Reductions resulting from asset sales
 Risk mitigation efforts restricted only to On & Off Balance sheet netting

[Link] Risk Rating Limit Exceptions (RRLEs)

Risk Rating Limit Exceptions are discouraged and must be approved in advance
at the appropriate level.

[Link] RRLE Types

The required approvers to an RRLE depend on the RRLE type, as defined below.
Unless stated otherwise, an RRLE must be approved in advance.
 Cash Exceptions

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 Exceptions that can be attributed to cash collateralized facilities.

 ‘Immaterial’ Exceptions
 Immaterial overages to already approved Risk Rating
 Limit exceptions, defined as overages up to 10% of Risk Rating Limit.

[Link] Passive Exceptions

Passive exceptions are those caused by:
 A valuation changes on an existing transaction
 A downgrade in the risk rating of the obligor

Passive exceptions need not be preapproved; Instead, they are

flagged as part of the regular reporting process, and must be
Note reviewed and their associated action plan must be approved as
soon as possible after they occur, but no later than the next
quarterly review of Risk Rating Exceptions.

[Link] All Other: Long Term and Continuing

All other RRLEs, not captured in the definitions above, are considered to be ‘Long
Term and Continuing’.

[Link] Required Approvals

Cash, Immaterial and Passive RRLEs require approval from Line ED and Chief
Risk Officer (or their designees)
All other RRLEs require approval by MCC.

[Link] Administrative Issues

All requests for exception approvals (excluding cash collateralized exceptions)
must include an action plan and time frame for bringing the credit exposure back
within Risk Rating Limits, and must clearly identify the Relationship Manager or
Business Head requesting the exception.
An approved Risk Rating Limit exception does not need to be reapproved (by the
above approvers) during the Annual Review process. However, all Risk Rating
Limit Exceptions must continue to be noted on the Facility Approval Memo.

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[Link] Reporting
All Risk Rating Limit exceptions will be reported monthly to the Management
Credit Committee.
On a quarterly basis, the Chief Risk Officer will review all risk rating limit
exceptions including exceptions that have aged past their originally established
and approved resolution period.

5.3.6 Establish Total Facilities

Credit facilities are established to express the purposes and terms under which
Access Bank is prepared to extend credit. (A proposal or marketing letter does
not require credit approval as long as it expressly disclaims any commitment or
any undertaking to provide a commitment or other services, and does not obligate
Access Bank in any way. Marketing letters will be jointly approved by the business
head or ED and the Head of Risk).
In some cases, it may be appropriate to establish Total Facilities that exceed the
Risk Rating Limit. It is the responsibility of the Relationship Manager to ensure
that actual OSUC stays within the Risk Rating Limit or is covered by an approved
Risk Rating Limit exception.
When establishing Total Facilities for a relationship, Total Facilities must include:
All existing and proposed Direct, Contingent, including those offered under
approved Credit Programs.
Facilities extended to all related entities including the parent entity and its majority
owned or effectively controlled entities. It should also include credit facilities to
affiliates (up to 20% but less than 50% owned) where the borrower effectively
controls or provides support to the affiliate; or where there is a material economic
relationship in either direction, as determined by the credit approvers.
Existing and proposed credit facilities for which the obligor provides credit
enhancement (e.g. guarantees), and that credit enhancement is one of the
primary sources of repayment or one of the principal considerations in the
approval of the facility.

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[Link] Foreign Exchange Limits

Access Bank’s foreign exchange limits and position limits shall be guided by the
requirements of the Market Risk Policy manual.

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6 Credit Risk Management Process

Access Bank’s Credit Risk Management Framework is made up of five distinct

modules for the proactive creation and deliberate management of credit risk
exposures in the bank. Each module represents a critical component of the Bank’s
credit risk management framework for creating and maintaining an appropriate
credit risk environment in the bank to maximize return on credit risk assets with
minimal loss. These modules are:
 Risk Portfolio Planning
 Exposure Development and Creation
 Exposure Management
 Delinquency Management / Loan Workout
 Credit Recovery

6.1 Credit Risk Portfolio Planning

Credit portfolio planning is the starting point of the Bank’s credit risk management
process. It entails an analysis and evaluation of the current portfolio structure and
a clear definition and agreement of the following:

 Target risk asset portfolio structure, broken down according to sector,

product type, geographic regions, credit risk rating class, etc.;
 The Board-approved risk limits that the Bank is willing to permit relative
to the Bank’s risk bearing capacity.
 The target markets and criteria for risk acceptance at the overall
corporate level and across each risk creating business unit in the Bank.
 The Bank’s credit portfolio goals and objectives. These usually cover
the following specific areas: Quality, Composition, Growth and
Profitability.
In developing the credit portfolio plan, the Bank shall give cognizance to the
Bank’s strategic/business plan, budget and profit plan, internal resources,
competition, macro-economic variables and legal/regulatory requirements.
The credit risk portfolio plan shall be prepared by Credit Portfolio Management
and approved by the Board at the start of every financial year. It provides the basis
for annual/periodic reporting to Executive Management and the Board on portfolio

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management strategies and the overall portfolio performance. It also provides the
board of directors with an opportunity to anticipate conditions in the Bank's
operating environment and to react accordingly with decisive actions.

6.1.1 Target Market Definitions

The target market segment and focus areas for each market-facing business unit
is broadly summarized as follows:

Business Unit Target Market Market Focus

Corporate and Cement and Construction, Multinational, well-structured

Investment Banking Telecommunications, Manufacturing, Oil large local and foreign owned
and Gas, and Financial Institutions companies with minimum annual
sectors, and selective focus in the turnover of ₦20 billion and with
Downstream Oil & Gas, Power, risk rating falling within a
Transportation, Agriculture and Real specified limit, as well as
estate sectors financial institutions in the
banking, capital markets,
pensions and insurance sub-
sectors

Commercial Banking Corporate and Investment Banking Incorporated companies with

value chain, Federal, State, and Local turnover of ₦5 to N20 billion and
Governments & MDAs. Asian above (excluding companies that
Companies in key sectors/industries and meet Corporate and Investment
select states/cities, Manufacturing Banking SBU customer criteria),
Companies, Consumer, Hospitality and Federal Government ministries,
lifestyle companies and contractors in departments and agencies, as
select sectors (Oil and Gas, well as state and local
Construction and Real Estate). governments

Business Banking Distributors & Dealers, Importers & Companies and small and
Exporters, Educational Institutions, medium enterprises ("SMEs")
Religious Organizations, Healthcare with annual turnover of not more
Providers, Professional Associations, than ₦5 billion.
Travel Agencies, Hospitality, MSMEs

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Retail Banking Affluent professionals,

UHNIs | HNIs, employees in the value chain of
the Group's Corporate Clients,
Affluent Professionals, Employees in the
as well as students, pensioners,
Value Chain,
employees of religious
Micro Small Medium Enterprises, organizations and informal
Religious Leaders, traders, while the Private
Banking section focuses on High
Students,
Net-worth Individuals (HNI) and
Pensioners. Ultra-High Net-worth Individuals
(UHNI)

6.1.2 Steps for carrying out credit portfolio planning

 Analyse internal and external factors: This analysis would enable the
identification of risks in the loan portfolio and the opportunities that the Bank may
want to consider for enhanced profitability or growth. After the risks are identified,
the analysis would determine the impact of those factors on the loan portfolio so
that appropriate goals, objectives, and strategies can be established. The use of
stress testing or similar means such as scenario analysis is helpful in determining
the impact of external factors on the loan portfolio. External factors include
macroeconomic variables, global economic conditions, competition, inflation and
political factors.

 Determining the portfolio goals and objectives: The goals and objectives shall be
set covering the four areas defined above. The Board shall approve the goals
and objectives and shall also consider and approve the strategies that are
designed to accomplish the loan portfolio goals and objectives. The strategies
that can be employed to achieve the goals and objectives include:

 Modifying loan underwriting standards to allow more or less risks;

 Establishing credit administration standards, i.e., use of loan servicing plans
and loan covenants;
 Modifying the terms of credit extended, such as loan amortization
requirements;
 Adjusting interest rates based on loan characteristics; and
 Modifying capital and risk funds positions.

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 Determine the current credit portfolio composition (mix) by products, maturity,

collateral, industry, rating class and geography

6.1.3 Industry Selection and Prioritization

Our portfolio concentration limits will continue to be based on outlook and growth
prospects, strategic importance of the industry and opportunities available to
Access Bank. Consequently, Access Bank will lend to companies falling within a
defined target market.
Portfolio limits in Access Bank are judgmentally determined based on the
attractiveness and importance of various industries to the economy, the quality of
obligors and management’s appetite for exposures in these industries. Access
Bank will continuously employ techniques to optimize the performance of its credit
portfolio with the objective of maximizing returns while minimizing risk.
We identify Non-Target Market sectors as those that experience: negative growth
trend or trend towards obsolescence, no banking potential, major risk areas, like
event risk or Non-Target Market for Access Bank. Exceptions need to be strongly
justified and should be limited to leaders in their field. Except otherwise stated We
intend to AVOID exposures to Non-Target Market or high risk names such as:
 Armament
 Gambling
 Mining
 Hazardous industries (e.g. health damaging or environmentally unfriendly
businesses)
 Religious bodies
 Commodity traders
These are generally highly volatile sectors. Above list is not exhaustive and may
be reviewed periodically.

6.1.4 Target Market and Risk Acceptance Criteria (TM/RAC)

Two well established techniques for expressing risk appetite and which shall play
critical roles in portfolio management in Access Bank are “Target market
definition” and “Risk acceptance criteria”.

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The target market definition shall articulate clearly acceptable and desirable
profile of customers for the various credit product and service offerings in the
bank. Risk acceptance criteria specify the terms and conditions for extension of
credit and creation of risk exposure.
For credit program-based transactions, articulation of target market and risk
acceptance criteria shall form part of the credit program documentation and
approval process.
For individual/business credit-based transactions, target market and risk
acceptance guidelines must be outlined by the market-facing business unit, and
endorsed by Credit Risk Management for approval by the Management Credit
Committee.
Guidelines shall specify the dimension for desirable credits as follows:
 Target market guidelines
 Industry or business
 Location / geography
 Size of borrower / customer
 Financial profile
 Risk rating
 Management’s background, experience and skills profile
 Years in business
 Reputation
 Risk Acceptance Criteria guidelines:
 Forms of credit extension
 Pricing or returns
 Covenants and documentation
 Tenor
 Security
These guidelines may stand on their own or may be part of annual operating or
industry reviews and should be communicated to officers within the bank in
addition to the Board Credit Committee and Management Credit Committee.

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6.1.5 Risk Acceptance Criteria and Portfolio Guidelines

Within the above defined target market, Access Bank shall deploy a selective
approach in determining the specific entities and individuals to lend to. Risk
Acceptance Criteria (RAC) shall be defined as carefully planned environmental
and competitive benchmarks designed in line with the predetermined risk appetite
of the bank.
Below are parameters which shall serve as guidelines for defining RAC at Access
Bank. Each SBU shall be required to apply these guidelines in the definition of
RAC for their defined target market. These should be reviewed / revised
periodically against any environmental changes and other factors that may
necessitate their revision.

[Link] Quantitative Parameters

 Current and potential market position/share of industry
 Strong financial ratios (debt/equity ratio etc.)
 Evidence of Operating Cash Generation/alternative sources of repayment
 Account turnover vis-à-vis existing Facilities
 Expected/earned revenue (Effective yield)
 Related Accounts
 Commitment to other banks etc.

[Link] Qualitative Parameters

 Favourable indicators based on industry analysis (using Porters Five
Forces or other models)
 Demand for product
 Operating cost structure
 Experience and sophistication of management/prime mover
 Fluidity and speed of decision-making process
 Internal efficiency factors
 Type and Availability of security
 Other regulatory environmental factors (macro and micro risks etc.)

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To guide preliminary screening of credit requests, the following TM/RAC screens

are defined for Access Bank:
 General Corporate Trading/Manufacturing
 Financial Institutions (Banks)
This screen shall guide all extensions of credit to standalone business entities.
For extensions of credit under credit programs, distinct TMRAC screens shall be
defined within the credit programs.
TM/RACs will customarily be generated for individual entities within a group (i.e.
per obligor) with only certain criterion assessed on a group basis (Risk Rating,
Account Profitability and Relationship Returns) to capture the conglomerate
structure of local companies. Exceptions to this rule are only cases where written
irrevocable cross-corporate guarantees are in place for all consolidated obligors,
and they are all in the same line of business. In this case only one TM/RAC may
be employed.
In the section that follows, we give the rationale for each criterion in the various
TMRAC screens we will use in the bank. General Corporate Target Market Screen
The TM screen for borrowers in the Institutional Bank is as shown below. Obligors
are separated into Tiers I, II and III reflecting the level of risk with each tier. The
tiering shall be a fundamental determinant of pricing and a foundation for loan
pricing model in Access Bank:

REQUIRED REQUIRED REQUIRED

S/N CRITERIA Tier I Tier II Tier III
KYC, Reputation and
1 Integrity Required
2 Acceptable Industry Acceptable Industry
3 Risk Rating
4 Minimum Sales N10bn N5.0bn N1bn
5 Financials Audited Minimum 3 Minimum 3 Minimum 3
years by years by years audited
approved approved
auditors auditors
Net margin (min)
6 (Trading/Manufacturing) 2.5% / 4.0% 2.0% / 3.0% 1.5% / 2.0%
7 Current Ratio (min) 1:1 1:1 1:1

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Leverage (max)
(Trading/Manufacturing or
8 cap intensive) 2.5 / 2.0 3.5 / 2.5 4.5 / 3.0
9 Debt service Coverage* >1
10 Account Profitability N100mm N50mm N5mm
At least 75% At least 60% At least 50%
11 Key Success factors score score score
10 years or 5 years or 3 years or
12 Industry experience more more more
13 Management Rating Excellent Very Good Good

* Calculated as (Operating EBITDA / (Interest +

Principal Repayment)

The risk rating criteria shall be defined for each Tier upon approval of a revised Risk
Rating Policy under development for Access Bank. Assessment of management rating
shall be judgmental but guided by the Management Assessment Form attached in the
Appendix.

Risk Acceptance Criteria

S/N CRITERIA REQUIRED Tier I REQUIRED Tier II REQUIRED Tier III

1 Maximum 7 years 5 years 3 years
Tenor
2 Aggregate Lower of Single Lower of N1.5bn or Lower of 500mm or
Exposure Obligor Limit or 120 120 days of sales 120 days of sales
Limit (ex. days of sales
Cash
secured)
Loans Max. 50% of Total Max. 50% of Total Max. 50% of Total
Facilities Facilities Facilities

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3 Products Overdraft Overdraft Overdraft

Trade Trade Trade
Guarantees/Bonds Guarantees/Bonds Guarantees/Bonds
Term Loans Term Loans Term Loans
(FCY exposure only (FCY exposure only (FCY exposure only
for for for
exporters/importers) exporters/importers) exporters/importers)
4 Security Required Required Required
Pari-Passu Pari-Passu Pari-Passu
All Assets All Assets All Assets
Debenture Debenture Debenture
Negative pledge
(where applicable)
5 Return on
Risk (Yield)
(obligor
must fail
on both to
return an 5% 8% 10%
exception)
OR
Min. Total
AP/Av.
Exposure

Any name must pass TM criteria nos. 3 & 4 to qualify for the respective Tier.
More than 3 TM deviations downgrades the obligor to the next lower Tier.
All customers with sales turnover of less than N1bn will automatically default to
Tier IV (which is where majority of Commercial Bank obligors will fall into).

[Link] Ownership Issues – KYC, Reputation & Integrity

This criterion helps us to filter out companies whose sponsors do not have a good
reputation, who might pose KYC / AML / Franchise or extraordinary ownership
risks to the bank.

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[Link] Approved Industry

Target market names belong to a pre-developed set of industries, defined in
Industry Selection & Prioritization above as ‘Target Industries’. Selection criteria
for approved industries include long term survival and viability, acceptable risk
profile, and available banking opportunities. This criterion is also being proposed
to filter out obligors operating in high risk industries such as real estate and
commodity trading.

[Link] Risk Rating (Group Risk Rating for Economic Groups)

Risk ratings for corporate borrowers in the Bank shall be primarily determined
using the Bank's approved Obligor Risk Rating Model. The Judgmental Scorecard
may be used in exceptional cases. Minimum risk ratings for each Tier shall be
determined in consultation with the business. Risk acceptance criteria associated
with Tier II & III obligors are inevitably tighter and more structured to maintain
portfolio quality.
For economic groups, the Risk Rating criterion will be determined using a
Weighted Average Probability of Default process in line with CIB Risk Rating
policy.

[Link] Group Sales

The sales criterion provides comfort through scale and dominance, as well as
ensuring adequate wallet size. Obligors that meet the benchmarks are expected
to have a need for a variety of products that would maximize cross-sell potential.

For obligors that are start-ups where no financial statements

exist, this criterion should show as a deviation (i.e. Financial
projections should not be used).
Note Start-up companies that are affiliated to an existing group
relationship with ACCESS BANK and are being established in
a related industry to the group‘s core business will be
considered TM regardless of number of TM deviations.

[Link] Auditors
This criterion ensures that obligors are audited by competent and reputable firms,
which attests to the quality of financial information disclosed, and hence the
quality of credit analysis and risk profile generated. The list of acceptable auditors

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shall be approved by the Chief Risk Officer in conjunction with the business group
heads. The Chief Risk Officer may approve the use of any auditor not on the
approved list.

[Link] Financial Criteria

Four different criteria will be used, reflecting the most meaningful ratios; Net
Margin, Current Ratio, Financial Leverage, and Debt Service Coverage. The
ratios selected are meant to capture the operating, liquidity, solvency and cash
flow performance of individual obligors. Different levels have been set for
manufacturing and trading businesses, to recognize their different operating
characteristics.

All quantitative TM criteria will be based upon most recent full

year audited financials available. In case of audited financials
being outdated, unaudited or management financials may be
Note used for information purposes only, and this must be clearly
stated. For obligors of a start-up nature where no financial
statements exist, this criterion should show as a deviation (i.e.
Financial projections should not be used).
Where a company suffers 3 consecutive financial losses, the
company shall not be granted any further lending except on
exceptional basis.

[Link] Account Profitability

Suitable returns must accompany every credit extension.

[Link] Key Success Factors

Minimum score has been set for KSFs for the different obligor Tiers. This criterion
is to ensure that obligors are industry ‘survivors’ and can withstand adverse future
developments. KSFs have been set for each industry / segment independently,
reflecting the unique risks and market dynamics involved and are listed at the end
of this document. Note that determination of obligor scoring on this criterion will
be largely judgmental.

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[Link] Industry Experience

The minimum years of experience criterion is meant to test that the organization
has in fact survived a varied economic life span. For Tier I names, where we
have larger exposure appetite, a minimum of 10 years’ industry experience has
been set to establish the obligor’s economic resilience. For obligors belonging to
an economic group, years in business should be measured on a group basis to
reflect actual experience.

[Link] Management Rating

Obligors are not to have a rating of worse than 3.0 (on a scale of 5.0) across all
industries / segments. This rating is developed through a Management
Assessment Form, reflecting important management attributes such as
reputation, experience, competence and depth. The Management Assessment is
an integral part of the CA process.

[Link] Risk Acceptance Criteria

As previously discussed, RACs are driven by the allocated tier of the borrower
which in turn is based on final ORR and sales turnover.

[Link] Product Offering & Tenor

Products to be offered mainly reflect the following factors:
Obligor risk profile as exemplified by Tier
Access Bank’s key strengths / competencies.
In general, products offered are working capital, term and guarantees/bonds.
Tenors to be offered reflect Access Bank’s credit / business appetite. Obligors
have been Tiered based on Risk Rating and sales turnover, to reflect their unique
credit profiles. Maximum tenors have therefore been set at 7years, 5years and
3year for Tier I, II & III obligors respectively.

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[Link] Maximum Aggregate Lending Exposure

Security shall be taken for all exposure in line with the requirements of this
Manual, and in such a way that ensures that Access Bank is Pari-passu with other
lenders. Negative pledge might also be taken, subject to being on equal standing
with other lenders. This must be established by a search at the Corporate Affairs
Commission or National Collateral registry. Where we are extending term facilities
to finance specific assets, we will take a charge over those assets.
Aggregate exposure (direct and contingent) limits have been set to avoid large
unmanageable levels of exposure to obligors disproportionate to their risk profile.
A lending exposure cap is set as the lower of an absolute level of exposure or 120
days of obligor’s sales turnover. Where term loans have been taken, or are
proposed, to finance CAPEX, and the CAPEX is yet to start contributing to the
obligor’s sales turnover, this criterion will usually result in a RAC exception.

Note Facilities secured by Cash are excluded from the calculation.

[Link] Currency
To mitigate against any possible foreign exchange risk, FCY exposure shall be
made available to obligors who earn foreign currency. Any exception should be in
line with extant regulatory requirement.

[Link] Maximum Loans per Borrower

Not to exceed 50% of aggregate clean exposure for all Tiers. This criterion is to
avoid a concentration risk should the credit profile of obligors deteriorate.

Fully cash collateralized facilities, loans to finance specific

Note assets, and facilities for import / trade finance are not included
in the definition of loans.

[Link] Security
Refer to previous discussion on Maximum Aggregate Lending Exposure. We may
lend clean or against negative pledge to some Investment Grade names or
obligors that have demonstrated capacity to borrow clean or against negative
pledge at industry level and have met their obligations without collateral subject
to MCC or BCC approval as may be applicable.

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Long term facilities to other Investment Grade and Standard Grade names must
always be secured by the assets financed, reflecting their riskier profile

[Link] Return on Risk

This criterion is to ensure that the yield on utilization of the bank’s risk capital
meets institutional hurdle rates as may be set from time to time.

6.1.6 TM/RAC Deviation Approval Process

We will not deal with a Non – TM name, except with the approval of the
supervising ED + Chief Risk Officer + GMD
Maximum number of TM exceptions allowed in any Tier is 3, otherwise the name
becomes Non-TM.

[Link] Oil & Gas Names

Certain Oil & Gas names have unique characteristics, which will result in material
exceptions in the General Corporate TMRAC screen. Therefore, we are willing to
allow certain TM deviations for the major Oil & Gas names relating to financial
ratios. The key differences are in respect to leverage and funding structures of
the major oil and gas producers in Nigeria, who are mainly well-established
multinational names. These obligors are generally managed with focus on cash
flows and profitability with limited attention paid to the balance sheet profile of the
local operating entity. As a result, high levels of funding mismatches, evidenced
by negative current ratios, 100% dividend pay-outs and high leverages are
common. We are comfortable because:
 The high levels of inherent profitability allow these names to sustain higher
levels of leverage, compared with what would normally be considered
prudent in an emerging market environment.
 High levels of intercompany funding and support also allow a greater level
of comfort with both leverage as well as funding mismatches.
Refinancing risk in a situation with large levels of intercompany funding
from the Parent is considered low.
 Moreover, the largest local banks have major risk appetite for the top tier
energy names which allows them to access a large pool of funding and

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limited concern by the lenders over higher leverages and funding

mismatches. The high leverage levels and funding mismatches are
mitigated by the inherently strong cash flows and business
fundamentals of the tier I/II names.
 There is also a distinction in the Net Margin criteria between Exploration
& Production names and Marketing names due to the difference in their
operating and financial model.

[Link] FI TM RAC screens Banks

The FI landscape in Nigeria experienced dramatic changes since the Dec 2005
deadline set by the Central Bank of Nigeria for banks to recapitalize to N25bn
(from previous N2bn). Banks have all since exceeded this minimum level, with
several attaining N100bn capitalization. Consequently, these banks are much
stronger, safer and important to the financial system. Our exposure thresholds
have been set to take account of the new reality of the banking environment to
enable us maximize the opportunities from the increased capital bases of banks.
We will have three tiers of banks, with the Tier determined by a combination of
Management Reputation & Integrity, Agusto Rating, Total Assets & Contingents.

Target Market Criteria

REQUIRED REQUIRED REQUIRED

S/N CRITERIA Tier I Tier II Tier III
1 KYC Required
2 Management At least 2 positive checking, none negative
3 Agusto Rating
Total Assets &
4 contingents N'bn 500 250 <250
Financials
Audited by Top
5 Auditors Minimum 3 years
Capital adequacy
6 ratio % (min) 25% 20% 15%

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Liquidity ratio %
7 (min) 40%
Weighted
average cost
8 funds % 5% 10% 15%
Min. Account
Profitability
9 (N'mm)

Risk Acceptance Criteria

REQUIRED REQUIRED REQUIRED

S/N CAPS Tier I Tier II Tier III
Exposure cap (Cash 100% of Total 75% of Total 25% of Total
1 collateral & OBB) Net Worth Net Worth Net Worth
Tenor: Cash
Collateral 3 years 2 years 1 year
Tenor: OBB 14 days 14 days 14 days
Exposure CAP for our
account and clean 10% of Total 5% of Total 1% of Total
2 placements Net Worth Net Worth Net Worth
Tenor 90 days 60 days 14 days

Any name must pass TM criteria nos. 3 & 4 to qualify for the respective Tier.
More than 3 TM deviations downgrades the obligor to the next lower Tier.

[Link] KYC, Management Reputation & Integrity

The recapitalization exercise has generally improved this criterion.

[Link] Agusto / Fitch / GCR Rating

Agusto / Fitch / GCR ratings are a good indication of the risk quality of Nigerian banks.
Therefore, we will use these ratings as a basis for comparing the risks of each of our
bank obligors.

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[Link] Total Assets & Contingents

This criterion gives us an indication of the size of the bank.

[Link] Weighted Average Cost of Funds

This criterion recognizes that the ability of banks to improve profit margins is strongly
dependent on their ability to differentiate themselves through lower funding costs.

[Link] FI TM / RAC Deviation Approval Process

We will not deal with a non-TM name, except with the approval of the business ED +
Head CRM + GMD.
Maximum number of TM exceptions allowed in any Tier is 3, otherwise the name
becomes non-TM.

[Link] Non-Bank FI (Stockbrokers)

Exposure to stockbrokers shall be guided by a credit program and shall be subject to
aggregate exposure limit set for this category of borrowers.

6.1.7 Key Success Factors for Select Industries

KSFs have been set for some select industries below, where there is significant
exposure. Additional industry specific KSFs shall be largely derived from industry
studies. The derivation of individual obligor score against each KSF (required in the TM
screen) will be largely judgmental. Where possible it shall be aided with some analytical
evaluation. Generic KSFs have also been identified for general use.

[Link] Oil Marketing

 Operating Characteristics
 Market Share
 Cost Structure
 Management Strategy
 Financial Flexibility

[Link] Oil Exploration and Production

 Reserve Characteristics

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 Cost Structure
 Management Strategy
 Financial Flexibility
 Environmental Impact Assessment

[Link] Oil Service

 Size and scope of operations
 Cost Structure
 Management Strategy
 Financial Flexibility
 Environmental Impact Assessment

[Link] Telecommunications (Fixed & Mobile)

 Management Strength
 Marketing / Competitive Strength
 Financial Flexibility
 Operations and Cost Controls
 Regulatory Environment

[Link] Financial Institutions

 Capital Adequacy
 Operating Efficiency
 Credit Culture
 Quality of Management

[Link] Food, Beverages and Tobacco

 Marketing Expertise / Diversified Portfolio
 Low Cost / Cost Efficiencies / Backward Integration

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 Financial Flexibility
 Parent Support / Competent Management

[Link] Cement
 Access to Raw Materials
 Financial Flexibility
 Management Strength
 Market Dominance
 Low Cost
 Technical Capability / Support
 Environmental Impact Assessment

[Link] Generic KSFs for Other Industries

 Financial Flexibility – Indicated by ORR
 Marketing Expertise/Market Share/Demand for Products – Indicated by
market share
 Access to Raw Materials (for manufacturers) – Indicated by gross margin
 Management/Parent Support – Indicated by pre-tax operating profit/parent
ownership
 Operating Efficiency/Technology – Indicated by operating profit margin.

[Link] Rationale for Generic KSFs for other Industries

Financial Flexibility – This mainly measures access to capital, which is dependent on
the financial strength of the company.
Marketing Expertise/Market Share/Demand for Products – This mainly assesses a
company’s market dominance or lack of it. A proxy for this KSF is the obligor’s market
share.
Access to Raw Materials – For manufacturers, ready access to competitively priced
raw materials is important. A proxy for this is gross margin trend.

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Management/Parent Support – This KSF focuses on measuring the performance of

management, given the company’s assets and the market environments in which it
operates. A proxy for this is the pre-tax operating profit trend.
Operating Efficiency/Technology – This focuses on the efficiency of operations of the
obligor. A proxy for this is the operating profit margin trend.

[Link] Concentration Limits / Aggregate Exposure Ceilings

Concentration limits / aggregate exposure ceilings shall be defined in terms of target
markets and risk acceptance criteria defined above. Concentration limits / aggregate
exposure ceilings shall relate to collection of credits with common risk characteristics,
or where macroeconomic or market developments can have similar impact on a group
of credits.
Concentration limits / aggregate exposure ceilings may also be defined by aggregating
credits sharing other dimensions, such as dependency on particular economic
variables (e.g. oil prices, interest rate levels, consumer spending), similarity of credit
terms or quality (e.g. tenor, type of security, risk rating, growth rate) or in terms of a
dimension which is especially important to a particular business.
A credit risk concentration is more than an aggregation of exposures to one borrower,
related parties and/or subsidiaries.

6.1.8 Guidelines for Takeover of Credit Facilities of Obligors from Other

Banks and Financial Institutions

Following are the guidelines that should be followed for takeover of credit facilities of
Obligors from other Banks and Financial Institutions:
 Bank should apply stringent acceptance criteria than those mentioned in the
general acceptance criteria for takeover of credit facilities of obligors with
other banks.
 A satisfactory credit history report should be obtained from the existing
banker of the obligor.
 In no case should the bank take over accounts that are problem credits.
 Satisfactory credit checks from at least 2 of the independent credit bureau
companies and CRMS

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 Other supporting documents as will be determined by Credit Review Group

must be provided for necessary review

6.2 Exposure Development and Creation

Exposure development and creation incorporates the procedures for preliminary

screening of facility requests, detailed credit risk analysis and risk rating, risk triggered
review and approval of facilities, and controlled credit availability of approved facilities.
This involves the following;

6.2.1 Preliminary Credit Screening

There is a requirement for preliminary screening of all credit facility requests against
the bank’s target and risk acceptance criteria. Preliminary credit screening shall be the
responsibility of the relevant customer-facing market/relationship officer and shall
involve a largely high level and peripheral analysis of the acceptability of credit facility
against credit criteria and facilitates early identification of unacceptable risk exposures
and/or priority credits.
In the event that the outcome of the preliminary credit screening of a request is a
conclusion that such facility does not satisfy the target market and risk acceptance
criteria, the facility request shall be rejected at this stage and such rejection
communicated in writing to the customer. All recommendations for denial of credit
facility request shall require endorsement by the group head of the relevant customer-
facing business unit.
Only facility requests that meet the articulated acceptance criteria shall be further
processed through the exposure development and creation procedures.
However, if in the opinion of the relationship manager, there is sufficient mitigation to
warrant further consideration of a facility request that does not meet the requirements
of the bank, such exception shall be comprehensively documented and a case
presented to the group head of the customer-facing business unit.
Preliminary screening of credit requests shall be completed within 1 working day of
receipt of a credit facility request.

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6.2.2 Credit Origination Process

Formal request in writing or loan application form shall be required for all applications
by customers for the Bank’s credit facilities. The minimum data and information
requirements for credit facility requests shall include the following:
a. Customer name
b. Company background (for corporate customers)
c. Specific purpose of credit facility
d. Financial statement analysis and cash flow projections versus debt service
where appropriate
e. Overview of existing banking relationships, including accounts and
relationships with the Bank and other bankers, and analysis of existing
exposure to banks;
f. Particulars of directors and key shareholders of the company;
g. Particulars of management including statement of qualification and
experience;
h. Description of proposed credit collaterals, including type, estimated value,
location and title;
i. Details of expected repayment sources for all loans and proposed
repayment plan;

All requests by customers for credit facilities shall be duly signed by approved
signatories and the said signatures shall be verified by the account officer.

6.2.3 Credit Analysis

Detailed analysis of credit risk shall be required in respect of credit facility requests as
a basis for informed credit approval decision. This role shall be performed by credit
analysts within each marketing team. Relationship Managers must always display
sufficient understanding of critical issues concerning their clients, including KYC
requirements.

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6.2.4 Credit Risk Evaluation

Only facility requests that satisfy the articulated target market and risk acceptance
criteria shall be further analysed in accordance with the bank’s risk management
policies. Detailed credit risk evaluation shall entail comprehensive evaluation of up-to-
date, accurate and complete data and information as a basis for a decision on the
viability, feasibility and overall acceptability of a credit facility request. Credit risk
evaluation shall involve detailed consideration of the facility request, the customer’s
industry / business, financial position, credit history, management capability, proposed
credit collateral as a basis for identifying credit risks inherent in the facility request.
Documentation of the detailed credit analysis shall be such as address the following
issues: This section may include – as appropriate to the size and nature of the
relationship – the following points:
 Purpose of credit facility(ies)
 Summary of terms, including key covenants and other indebtedness
permitted
 Assessment of major risks and mitigants
 Assessment of structure and repayment terms
 Expected primary source of repayments.
 Collateral evaluation, including acceptability, adequacy, degree of
independence of valuation and consideration of potential value erosion.
 Financial projections appropriate to the tenor and structure of the
transaction, including downside sensitivity analysis that, at a minimum, is
sufficient to cause the obligor to break covenants.
 Credit Risk rating and discussion of any credit risk migration.
 Industry/market assessment
 Viability of business proposal
 Current financial position/performance
 Credit History
 Banking relationships including account turnover/and non-credit activity.
 Quality of owners’ / key stakeholders
 Management capability

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Detailed credit analysis shall be conducted by credit analysts and documented on the
Facility Approval Memorandum (FAM). The primary outcome of the credit analysis
process shall be the credit risk rating and an approval / rejection recommendation of
the facility request.
The following components must be included as part of a Full Credit Review:
 Facility Approval Memorandum
 Target Market / Risk Acceptance Criteria screen
 Financial spreads (including projections where term loans are included in
total facilities)
 Management Assessment Form (for annual reviews)
 Risk Rating document
Approval recommendations shall clearly outline proposals on appropriate structure and
terms for the credit facility including recommended facility amount, credit terms, pricing,
collateralization and other conditions. In determining the appropriate structure for a
credit facility, the analyst shall take proper care to ensure that repayment terms,
collateralization and price are appropriate to the particular circumstances of the
customer and the purpose for which the credit is availed.

[Link] Unaudited Financial Statements

The use of unaudited financial statements for credit approval requests is discouraged.

6.2.5 Guidelines for Structuring of Limits / Assessment of Eligible Loan

Amount

The guidelines on structuring of limits are aimed at setting up a system for assessing
credit requirements in line with the business needs of obligors considering various
industry and macroeconomic parameters (and within the frame work of Bank’s credit
risk policy). The objective of assessing the loan requirement of the applicant is to avoid
far reaching implications like over financing, under financing, frequent drawdown of
funds, Excess Over Limits (EOL), approving of Temporary Overdraft (TOD) etc.

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[Link] Assessment of Fund based and Non-Fund Based Facilities

Assessment should reflect Bank’s best estimate of requirement of credit facilities based
on the following:
 Purpose of loan
 Tenor.
 Promoter’s contribution
 Other Debt obligations
 Expected Cash Flows based on Macroeconomic and Industry factors,
level of activity, Business specific factors etc.
 Collateral offered
 In addition to the above, lead time, credit period available, source of
supply, proximity of supplier, etc. are to be taken as basis in case of Letter
of Credits and business requirements in case of Letter of Guarantees
The Bank should put in place appropriate assessment methodologies for term loans
and revolving credits.

[Link] Promoter’s Contribution

Promoter’s contribution represents the stake of the promoter(s) in the project/ business
to be financed.
Bank shall fix the Promoter’s contribution based on criteria like rating of the obligor,
facility related factors viz., Fund based, Non-Fund based, revolving and non-revolving,
tenor, amortization schedule, level of collateralization etc.
Bank shall stipulate minimum Promoter’s contribution of 25% for Term Loans approved
for risk rating 2- and below obligors. 20% for all kinds of working capital facility and 20%
for all non-funded facilities. Any deviation (reduction) to the above mentioned margin
level will be approved based on satisfactory level of Debt Equity ratio of the facility.

[Link] Margin for Structured and Derivative products

Margin in the form of cash and marketable securities to be contributed by the
counterparties to structured and derivative deals shall be decided based on Expected
Potential Exposure on a case to case basis

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6.2.6 Syndications

Syndications are situations where several banks come together to finance a given
transaction due to its size or complexity. Access Bank will participate in such
syndications that are led by other banks or by Access Bank.

[Link] Type of requirements addressed under Loan Syndication:

Bank shall cover financial requirements like project finance, object finance, acquisition
finance, leasing finance, export finance, corporate loans, working capital finance, real
estate finance, underwriting under Loan Syndication

[Link] Guidelines for participation in Loan Syndication

Depending on the nature of the project, the Bank will participate in Loan Syndication
both as a Lead Manager and as a member, subject to the following conditions:
 Bank shall participate in deals syndicated by other institutions only on a full
disclosure basis and shall not participate in silent or undisclosed deals. (i.e.
the Bank will take part in the deal only when all the details about the borrower
is disclosed.) There should be only one participation deal with no other side
deals.
 Bank will participate in deals where the Lead Managers or underwriters are
of good reputation and standing in the international market with adequate
experience and expertise in handling such deals and capacity to retain its
share. Bank will not participate if the lead manager has no share in the
funding i.e. zero-retention.
 Bank will participate in such deals where the Bank’s position is at least on
par with other members, since any below par position will affect the Bank’s
concerns while taking decisions like default recognition, restructuring of the
facility. This will especially hold well if the agreement between the members
of the syndicate allows majority members to take decisions instead of all
members.
 Bank will participate only in such deals where the agreement with the
borrower allows the Bank to proceed with future “sell down” or sub
participation and same shall be stated in the covenants unambiguously.

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 Bank shall follow other guidelines set in this policy with respect to exposure
limits, risk limits, negative / restricted lending, purpose and tenor.
 Bank will exercise its regular due diligence process and follow its normal
credit risk measurement and administration process while appraising the
deal irrespective of the exposure size.
 Access Bank will only assume lead roles in syndications for which it has the
expertise and capacity (capital, industry knowledge, technical expertise,
credit analysis skills, documentation capability etc.) to manage fully.
 Bank will not participate in such syndicates where other participants do not
have the reputation and expertise of handling the deals

6.2.7 Facility Renewals

At the request of an existing customer, a facility may be renewed in accordance with

the bank’s laid down credit risk creation and management policies and procedures.
Important consideration for renewal of approved facilities shall include the following
among others:
 continued viability of business/project
 evidence of future cash flow to meet interest/principal payment obligations
 historical performance of the company over a minimum of three years
 account turnover / revenue to the bank
 extent of utilization of facility(ies) / swing on the current account
 obligor’s track record of loan / interest servicing
 status of collateral(s) including completeness of documentation, status of
perfection, current valuation
 Micro and macroeconomic considerations

6.2.8 Credit Risk Ratings

Risk ratings shall be assigned to each facility to indicate assessment of credit risk
inherent in the facility and the overall acceptability of the credit exposure. Standard risk
rating criteria shall be defined to provide a uniform basis for comparing all facility
proposals regardless of the nature, type or location of the credit facility.

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Guidelines for facility risk rating and approval shall be defined and approved by the
Management Credit Committee on the recommendation of the Chief Risk Officer.
Detailed credit analysis of facility requests shall be completed within 2 and 3 working
days of receipt of credit facility request and complete up to date information required
for detailed analysis.

[Link] Credit Risk Rating Models –

The bank will put in place a single set of standards for the measurement of credit risk
in order to ensure consistency across businesses, stability in methodologies and
transparency of risk. Every obligor and facility must be assigned a risk rating, in
accordance with an approved Risk Rating Process. The Risk Rating Policy of the bank
will deal with Credit Risk Rating Models with respect to Type of models, Model
development, Model validation, Model maintenance, data requirement, Current status
and interim approach, if any, within the framework of Credit Risk Policy.

[Link] Credit Risk Parameters

Default Risk: Risk of obligor default on a material obligation to the bank in a defined
time horizon, typically 12 months. The term Probability of Default (PD) is used to denote
this. While there are a number of ways of reckoning default by an obligor under Basel
II, the most widespread usage is to consider an obligor to have defaulted if any material
obligation is past due more than 90 days from its due date.
Recovery Risk: Risk of inability of a bank to fully recover the amount of exposure at
the time of default by an obligor either directly from obligor or indirectly from collateral
and other credit risk mitigants. The metric is referred to as Loss Given Default (LGD).
Exposure Risk: Risk caused by the uncertainty of the size of bank’s exposure to an
obligor at the time of default in relation to a facility extended to the obligor. The metric
Exposure at Default (EAD) is used to denote this dimension.

[Link] Requirements for Estimation of credit risk parameters for Non –

Retail Exposures
Estimation of these credit risk parameters involve use of Bank’s own historical data,
referred to as Reference Data Set (RDS). RDS consists of data on historical default,
recovery and exposure on defaulted obligors/ facilities. The length of RDS must at least
be 5 years for PD and 7 years for LGD & EAD while a shorter series of length of 2 years

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is permissible for PD under transition arrangement to Foundation Internal Ratings

Based Approach (FIRB).
Models built on RDS must be thoroughly validated to fulfil the requirements of Basel II.
Detailed documentation of the model building, and validation process is required for
securing supervisory approval for use of Internal Ratings Based Approach (IRBA).

[Link] Requirements for Estimation of credit risk parameters for Retail

Exposures
Creation of pools for each retail business segment: Retail exposures in each
business segment such as credit cards, personal loans, etc. would be assigned to a
number of pools to ensure homogeneity of exposures within each pool.
Identification of reference segments for each pool: Historical data are used to
create reference segments for each pool. Analysis of the behaviour of reference
segments would enable an understanding of characteristics of reference segments
driving default, exposure and recovery. These characteristics would be the basis for
modelling PD, LGD & EAD in the next step. It is important to note that reference data
for PD would contain both defaulted and non-defaulted loans, but for LGD & EAD, the
reference data would consist only of defaulted loans. The length of reference data set
must be at least 5 years for PD, LGD & EAD as per Basel requirements, while a shorter
series of length of 2 years is permissible under transition arrangement to AIRB upon
approval by the CBN.
Estimation of credit risk parameters at pool level: Drivers of PD, LGD and EAD for
each reference segment would be used for estimating PD, LGD & EAD of respective
pools.
Validation: Each one of the above steps has validation challenges. In step 1, the bank
must determine whether the assignment of exposures to pools effectively separates
exposures by characteristics that remain significant drivers of risk over time. Similarly,
identification of reference segments & estimation of credit risk parameters would be
subjected to scrutiny to ensure accuracy. A robust and detailed data maintenance
system should support implementation of IRB segmentation and quantification process.

[Link] Stress Testing

Stress Testing is a part of risk measurement process aimed at evaluating the potential
effects of a specific event and/or movement in a set of variables on exposure to risk.
Stress Testing should be based on exceptional but plausible events both at obligor /

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facility and at portfolio level. Stress testing must involve identifying possible events or
future changes in economic conditions that could have unfavourable effects on a bank’s
credit exposures and assessment of the bank’s ability to withstand such changes.
Examples of scenarios that could be used are:
(i) Economic or industry downturns
(ii) Market-risk events
(iii) Liquidity conditions
The following dimensions should be covered in Stress Testing:
 Identification of risk factors
 Approaches for creating stress scenarios
 Incorporation of outcome of stress testing into Rating and Pricing

[Link] Rating of Guarantor

Bank will rate every guarantor with the exception of domestic sovereign entities
including Central Bank, Public Sector Enterprises and Multilateral Development Banks.
Entity rating standard for the Guarantor will be on par with that of direct exposure to the
Guarantor.
Rating of the Guarantor will be done using the appropriate internal model of the bank
based on the segment / industry the guarantor belongs. All the required quantitative
and qualitative details of the guarantor should be collected to enable the rating of the
guarantor.

[Link] Risk Based Pricing

Risk Based Pricing 1 (RBP) is a critical segment of Risk Measurement that facilitates
incorporation of outcome of risk estimation in pricing of facilities with a view to attaining
expected returns for the risks taken.

1
An excel sheet with the Risk Based Pricing Methodology along with explanations is given in the
Annexure 2.

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Pricing in the form of interest rates, fee and other charges for all credit facilities provided
by the bank should fully incorporate the cost of various forms of credit risk the bank is
exposed to in extending such facilities.
The following are the essential components of Risk Based Pricing (RBP):
 Funding Rate
It is the Funding Rate charged by the Funds Transfer Pricing (FTP) System of the bank
for the maturity and liquidity characteristics of the credit facility.
 Direct Cost of Operations
It reflects the future (expected) operating expenses that can be traced to the facility
directly on the basis of such expenses incurred in the past on similar facilities.
 Indirect Cost of Operations
It reflects future operating expenses of supporting units / divisions that would be
apportioned to the facility on the basis of such expenses incurred in the past on similar
facilities.
 Premium for Expected Loss
It reflects the spread attributable to normal loss to be covered by provisioning due to
unique, obligor specific Expected Loss. It is the product of EAD (in monetary terms) of
the facility, LGD (defined as % of EAD) of the facility and PD at obligor level.
 Premium for Unexpected Loss
It reflects the spread attributable to possible but abnormal loss arising out of
widespread default by connected obligors owing to adverse developments at industry
and/or macroeconomic environment. This Unexpected Loss is required to be covered
by maintenance of adequate Regulatory Capital.

[Link] Exceptions to use of Risk Based Pricing

An exception to using or deviation from RBP can be made under the following
circumstances with approval from appropriate authority:
 Loan to Staff
 Loan to other functionaries not covered within the definitions of staff but are
employed by the bank
 Offset available from other facilities

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 Relationship subsidy to existing relationships after ensuring that such

concessions would help maintain / improve profitability from such
relationships in the foreseeable future.
 Subsidy to any new relationships that have a potential of becoming profitable
relationships in the foreseeable future.

6.2.9 Approaches to Risk Creation and Management

[Link] Credit Product Programs

These are structured credit facilities which are available to specific customers.
The objective of the product program is to put an approved structure in place
incorporating standard pricing, collateral structure and transaction dynamics.

[Link] Individual / Business Credit

 In the absence of approved credit programs, transactions for individual
customers or customer relationships will be treated as individual/business
credits. With this approach, credit is approved using the approval process
as defined in the risk management policies to the bank. This shall entail
detailed and comprehensive evaluation of the proposed transaction in the
context of existing exposures to a particular customer. Credit approval may
be for a single, simple product or for a series of large complex transactions.
 Individual/business credits shall only be applicable in respect of facility
requests and credit approvals for customers that meet the requirements of
the approved target market definition and risk acceptance criteria as defined
in the bank’s risk management policies.
 Individual / Business Credits are applicable in the event that:
 Customer characteristics are unique
 Facility request is for large, complex transactions that may result insignificant
risk such that in-depth and detailed evaluation of the customer is required
 Approval is based on detailed financial analysis and the individual judgment of
credit officers
 Transaction will result in multiple facilities, structures and forms of collateral.
 All exposures to a customer or a group approved as individual / business
credits must be aggregated and managed by the customer relationship
manager.

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 Individual / business credits approval would be appropriate for credit facility

requests such as:
 tailored or structured consumer or commercial loans
 complex corporate finance products and transactions
 It is expected that most facility requests and credit activities in the Corporate
& Investment Bank and Commercial Bank business units will be business
credits. Also, in exceptional cases, some credit activities in the Personal
Banking/Business Banking business unit may be categorized as individual /
business credits.

6.2.10 Credit Approval

Credit Approval is the documented acceptance by credit officers of the credit risks in a
credit facility. Credit approval is always required for the establishment of a credit facility.
Credit facilities shall require approval in writing at the appropriate level in line with credit
approval authority defined in this document. Approval of credit facilities shall be
documented on the Facility Approval Memorandum (FAM).

[Link] Guidelines for Framing Approval Matrix

[Link].1 Credit Approval Authorities

Bank recognizes the need for appropriate approval structure to maintain consistency
in credit quality. The revised approval matrix of the bank attempts to balance the twin
objectives of supporting the business growth, while maintaining the credit quality.

[Link].2 Dimensions of Approval Matrix

Bank will put adequate systems in place to adopt approval matrix linked to the following
dimensions:
a) Size of Exposure
b) Type of Facility
c) Extension of Ad-hoc Limits
d) Rating Grade

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e) Tenor
f) Secured and Unsecured nature of Loans
g) Takeover Loans
h) Normal Review / Renewal of Credit Facilities
i) Renewals with enhancement
j) Modifications to Existing Approvals
k) Relaxation and Waivers
l) Restructuring of facilities
m) Recall of Advances, filing of recovery suit, write off, waiver of legal action
n) Classification and movement of asset based on Exposure level
Deviations to Policy guidelines with reference to the following will be approved by the
BCC
o) Acceptance Criteria
p) Techno Economic Viability Study
q) Minimum Acceptable Margin Guidelines
r) Credit Risk Mitigants
s) Breach in Exposure and Risk Limits

[Link] Assignment of Approval Authorities

The authority to extend or approve credit will be granted to individual credit officers
based upon a consistent set of standards of experience, judgment, and ability. At
Access Bank, responsibility and accountability will be matched by appropriate authority
to perform job duties and achieve desired results and outcomes. Hence individuals and
groups with responsibility for credit creation and approval shall be accordingly
empowered with the appropriate level of authority to carry out their tasks.
Credit approval officers will be recommended by senior members of risk and business
management for approval by the Board.
The level of authority required to approve credit will increase as amounts and
transaction risks increase and as risk ratings worsen. The authority to approve credit
shall be jointly exercised by the bank’s credit risk management function and business
managers in line with the provisions of the bank policies in respect of credit approval.

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Every extension of credit must be approved in line with approval limits established in
this Guide.
Assigned credit approval authority may be withdrawn on incidence of breach of
integrity, recklessness or incompetence, inaccuracies, falsification, incomplete or
inadequate credit analysis and noncompliance with bank credit risk management
policies.
In addition to the withdrawal of such approval authority, appropriate disciplinary action
shall be determined and applied by the bank. It is the responsibility of the Relationship
Manager/Originating Officer to ensure the integrity of the credit process and the proper
documentation of the credit decision.

[Link] Approval Authorities

Individuals shall be given credit approval limits that establish the maximum amount for
which that individual may give final approval.

[Link].1 Determine the Required Approvals and Approval Levels

The level of authority required for approval can be found on the Credit Facility Approval
Grid, and is a function of the Total Facilities amount and the risk rating of the customer
All extensions of credit in the bank must be approved in compliance with the Credit Risk
Management Policy Guide.
Approval limits may be assigned to individuals in the countries as appropriate, and in
line with policies.
Extensions of credit facilities in the regions must have the concurrence of the Head of
Credit Risk in the Regional Office and must be approved by an officer of the bank with
a covering credit approval limit.
Credit requests that are above the limit of the Regional MDs will be approved at the
next higher appropriate level GMD / MCC / BCC / Board. For regional credits requiring
MCC presentation at Head Office, prior review and concurrence of the Regional Head
of Credit Risk Management is required and MCC must be notified well in advance of
the meeting of the committee to discuss the credit.

[Link].2 Guidelines for Determining Approval Authority and Level

No credit exposure shall be created on the judgment or at the discretion of a single
bank officer acting independently. All extensions of credit or Individual/Business Credit

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transactions shall require involvement of a minimum of three (3) bank officers whose
positions involve responsibility for credit creation.
Signoff for approval of credit shall require the involvement of:
 officer at the appropriate level in the market facing unit originating and
sponsoring the credit facility request
 officer at the appropriate level in the Credit Risk Management function
 approval authority in line with the approved credit approval authority
guidelines
Involvement of a signoff by at least one officer of the bank from the Credit Risk
Management function with exposure endorsement authority equal to or greater than
the amount of the credit facility request shall be condition for approval of credit.
The Approval Authority shall be in line with delegated credit approval authority limits at
the Board Credit Committee, Management Credit Committee (MCC) or designated
bank officers.
For credit acceptance and exposure creation purposes, no single facility shall be
considered in isolation, but the wider “one obligor” concept shall be applied in all
instances. Each credit exposure to/facility request from a customer and related parties
shall be aggregated to determine the total credit exposure of the bank to the particular
customer and related parties. An obligor shall therefore represent all related parties
that are associated/belong to the same group of companies whose management are
strongly linked or share the same ownership. Exposures to any such obligor shall be
aggregated to determine the level of Access Bank’s exposure to the company or group
of companies.
By definition and for the purpose of credit creation at Access Bank, a group of
companies shall exist where one or more of the shareholders of the company have up
to 20% holding in another company. In determining the appropriate approval authority
level, the aggregate of all exposures to the individual customer or group shall be
adopted.

[Link].3 Credit Approval Authority Limits

The individual levels for credit approval in the bank shall be:
 Group Managing Director/CEO
 Group Deputy Managing Director

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 Respective Executive Directors of Market Facing Business units jointly

with the Chief Risk Officer (or the Heads of Risk).
 Other designated officers.
Credit approval authority shall be approved by the Group Managing Director/CEO
based on delegation by the Board of Directors, on the recommendation of Business
EDs and Chief Risk Officer.

[Link] Group Limits

Group approval shall be required in respect of credit exposures that are in excess of
the approved individual credit approval authority. Group approval authority shall be
defined at the following levels:
 The Board of Directors
 Board Credit Committee (BCC)
 Management Credit Committee
The Management Credit Committee (MCC) shall consider facility proposals in excess
of the highest individual credit authority limit. Facility proposals that exceed the
approval authority of the MCC shall be approved by The Board Credit Committee on
behalf of the Board of Directors.

[Link] General Rules for Using Approval Authority

[Link].1Review and Re-appointment

All appointments and designations for credit risk approval, as well as corresponding
credit limits, must be reviewed and reapproved by the Chief Risk Officer at least once
a year. Each customer facing business unit shall maintain up to date records of credit
approval authority delegated to approving officers

[Link].2Approval Requirements
A Credit Program Approval
Credit programs shall be primarily defined to accommodate credit offerings where there
are business opportunities that such will address for groups or groups of customers

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with homogenous business fundamentals and/or profiles such that their financial needs
are better met through a common approach.
Approvals under credit programs shall be within approved global exposure and
maximum individual exposure limits and shall be exercised within the market-facing
business units, subject to approval limits as may be set by the bank for each product
program.
In the approval of individual transactions under approved credit programs, all
exceptions to defined parameters shall require the involvement of Credit Risk
Management.
Approval limits for individual job roles shall be set within each Credit Program and
approved as appropriate.
B Individual/Business Credit Approvals
The Board Credit Committee (on behalf of the Board of Directors), on the
recommendation of the MCC shall periodically review the approval authority assigned
to specific individual roles and organizational groups in line with responsibility and
accountability.
 Individuals
 Group Managing Director/CEO
 Group Deputy Managing Director
 Executive Directors
 Designated Business Officers
 Designated Credit Risk Management Officers
 Organizational Groups
 Board of Directors
 Board Credit Committee
 Management Credit Committee

Approving Authority Limit (N”MM)– Limit (N”MM) – Renewals

New Credits of existing credits

Executive Director 150 200

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Group Deputy Managing 400 500

Directors

Group Managing 500 600

Director/CEO

For facilities above Five Hundred Million Naira (N500, 000,000.00) the approval limit
below shall apply:

Risk Exposure Limit Existing MCC Existing Board

Ratin (ORR-based LLL) Limit BCC Limit of
g for New credits Director
s Limit

1 N41bn N20bn N40bn Legal

Lending
2+ N33bn N15bn N30bn Limit

2 N25bn N5bn N15bn

2- N16bn N2bn N10bn

3+ N3bn N1bn N10bn

3 N1.7bn N0.8bn N10bn

3- N.8bn N0.5bn N2bn

4 Above N0.1bn

[Link] Total Facilities in Excess of Risk Rating Limits

If Total Facilities exceed the Risk Rating Limit, then approvers must determine that the
level and purpose of the facilities are reasonable and there is an effective process to
ensure that actual OSUC remains within the Risk Rating Limit.

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[Link] Other Approval Requirements

 New or Increased Facilities
Any increase to Total Facilities, whether caused by new facilities or increases to
existing facilities, must be approved, based on the new Total Facilities amount, as per
the Credit Facility Approval Grid. However, any additional / increase up to 10% on the
existing loan should not require MCC approval, provided the exposure is fully secured
and all the facilities can be renewed at the next earliest date.

6.2.11 Credit Offer and Acceptance

On approval, a “credit facility offers” including terms and conditions shall be

communicated in writing to the customer by the relationship manager only after
appropriate approval in writing in line with the bank's risk management policies within
90 days. A formal acceptance of the "credit facility offer" including credit terms and
conditions in writing shall be required
Acceptance of the bank's offer letter shall be required within 60 days of a facility offer
date and conditions met within 90 days. Credit offer shall be deemed to have lapsed if
an offer letter is not issued, acceptance is not received and conditions are not met
within the time limits set above. Any deviation shall require the approval of Heads of
Risk to process.

6.2.12 Credit Documentation

An underwriting commitment should follow Commitment Letter standards. The

essential steps in documenting approved credit facilities and the resulting exposure
shall include:
A credit facility file shall be established and maintained in respect of each approved
credit facility. The relationship manager with responsibility for the customer relationship
shall liaise with the customer to obtain the required documentation, sign offs and
assignments to ensure complete and legally enforceable documentation on a timely
basis. In the event that a single bank customer has multiple exposures and facilities, a
single credit file shall be maintained to provide a single point of information on all credit
dealings with the bank.
The Credit Administration function shall be responsible for establishing the credit file
and confirming compliance with all pre-availment conditions including required
documentation for perfection of security before availability on the approved facility.

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Relationship Managers should maintain backup files for containing documentation for
all credit facilities extended to their customers.
Basic considerations in respect of credit documentation include:
 Validity of documentation under appropriate governing law
 Evidence of the authority of signatories to execute documentation
 Guarantees, as may be required, executed on standard forms. Required
registration of such guarantees must be completed.
 In respect of secured financings, all necessary steps to create, perfect and
protect the validity, priority and enforceability of the security interest, lien or
charge, as appropriate, in favour of the bank must be completed on or prior
to the date of the initial advance or draw down.
 Default, early termination or material adverse change clauses shall be clearly
articulated to protect the bank in the event of actual or possible adverse
changes in the condition of the obligor.

6.2.13 Credit Availment

Availability and draw down on approval credit facility shall be subject to confirmation by
the Credit Administration function that all pre-availment conditions including
requirement for credit documentation are completed.
No advance or draw down shall be permitted until all documentation is completed,
executed and delivered. And all requirements for, registration and stamping as may be
required and all other conditions precedent in the agreements have been met.
No advance or draw down shall be permitted until all necessary collateral, guarantee
or support is held in accordance with the terms outlined in the approval document or in
the agreement with the customer.
No advance or draw down shall be permitted until the Global Standing Instruction (GSI)
mandate form is reviewed and validated. This is a mandatory requirement before the
loan can be maintained.
All deferral request must be evidenced in writing with clear definition of the deferral
period and must be approved up to the Management Credit Committee.
The relationship manager is responsible to ensure that such deferred conditions or
security documents are met / or submitted within this period, and the Credit

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Administration function shall monitor all such deferrals to ensure that they are
performed within the approved time period.
Credit Documentation shall on a monthly basis prepare a report on deferrals and the
status clearly identifying defaults for circulation to Executive Management of the bank,
with specific attention of the GMD for appropriate action.
Waivers of any pre-availment condition included in the credit approval shall require
approval of the MCC.

6.2.14 Drawdown of Approved Facilities

Availments under approved credit facilities shall be through drawdown memorandum
approved by an officer in Credit Risk Management and an officer in Legal Department,
who will verify that all conditions precedent to drawdown have been met. Credit
programs and some specialized credit facilities shall be through an officer in Credit
Risk management only.
 Classified Facilities
Drawdown on facilities classified “substandard” are approved as described above,
while drawdown of facilities classified ‘doubtful’ and worse must be approved by the
Chief Risk Officer. At a minimum, classification shall be in accordance with prudential
guidelines set by the regulators.
 Material Change
When an established credit facility undergoes a material change in terms, tenor or
conditions (with materiality determined by the Head of Risk), Total Facilities must
be reapproved, in accordance with the Credit Facility Approval Authority Limits.
 Risk Reductions
When the amount of a credit facility is reduced or cancelled, or the tenor is
shortened, the Relationship Manager / Originating Officer must promptly advise the
applicable credit administration area, in writing, that the credit systems be updated
to reflect the changes.
 Reallocations and Sub-allocations of Approved Facilities
Two officers from the business unit may approve any reallocation or sub-allocation
from an approved facility, where the obligor, Exposure Type (Direct, Contingent)
and tenor are pre-established in order to establish or increase another facility under
the following conditions:
 The facility is for the same obligor.
 The risk rating of the new or increased facility is equal or better.

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 The Exposure Type is equal or better.

 The tenor is equal or shorter.
If the reallocation or sub-allocation is for a related obligor of equivalent or better risk
rating within the same client relationship, and the last three conditions are met, then
two business credit officers may approve reallocations / sub-allocations, one of who
must be the responsible business Group Head.
 For all other situations, approval is required from the Chief Risk Officer or
designated Head of Risk and the responsible business ED. The Chief Risk
Officer or Head of Risk has the responsibility to determine if the reallocation
constitutes a ‘material change’ in Total Facilities, and has the discretion to
require that Total Facilities be reapproved, in accordance with the Credit
Facility Approval Grid

6.2.15 Offer Letters

An Offer Letter is a commitment by the Bank to lend to a customer once the terms and
conditions contained in the letter have been satisfied.
Access Bank extends credit facilities on the basis of legal commitments notified in
writing through Offer Letters. At a minimum, an offer letter must contain the following
details:
I. Type of facility being offered
II. Amount of facility
III. Tenor of facility
IV. Pricing information (including all fees)
V. Conditions precedent to drawdown
VI. Collateral requirements
VII. Covenants for drawdown
VIII. Covenants regulating the use of the facility
IX. The source and timing of repayment of interest and principal
Offer Letters shall be in standard formats produced by the Legal Department. Any Offer
Letter that deviates from the standard format must be reviewed by an officer in Legal
Department, and such review will be evidenced by the initial of the officer on each page
of the offer letter.

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6.3 Exposure Management

This consists of all the activities involved in managing existing credit risk exposures to
minimize incidence of decline in credit quality and loss to the bank arising from such
credit delinquency.
Exposure management shall entail, on an ongoing basis:
 monitoring performance and quality of individual credit exposures
 periodic exposure quality review and exposure quality / performance
classification in accordance with the bank’s credit quality risk classification
criteria
 credit collateral management to ensure that collateralization remains adequate
and realizable in case of credit default
 prompt and timely identification of decline in quality / performance of a credit
exposure
 manage delinquency in nonperforming credit facilities
 restructuring credit exposures as may be required
In depth understanding of the business environment and deep knowledge of the
customer and customer business is necessary for effective credit exposure
management.

6.3.14 Facility Performance Monitoring

The relationship manager with responsibility for each customer relationship shall on an
ongoing basis monitor the performance of individual credit facilities and confirm
adherence to credit terms and conditions.
These shall include:
 reviewing credit facility performance to confirm adherence to credit schedule of
interest and principal repayment
 evaluating the impact of industry and market factors including competition,
demand for products, availability of supplies, government regulations and
legislation, industrial relations climate etc. on the customer and customer’s

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financial position o confirming status and adequacy of collateral and legal

documentation
 evaluating continuity and competence of management and presence of global
affiliates
Changes in market position and other factors that affect or have a potential to affect
the quality and/or performance of a credit exposure shall be promptly identified and
potential impact objectively evaluated.
Exposure Quality review will be triggered by the identification of a decline or potential
for decline in the quality of the credit facility.
The Management Credit Committee of the bank shall also institute a periodic review of
exposures above a defined threshold to evaluate the quality of the portfolio and identify
any trends. At a minimum these portfolio reviews shall be performed quarterly.

6.3.15 Standard Financial and Non-Financial Covenants

Financial and Non-Financial Covenants are mandated in order to monitor the financial
and overall performance of the obligors with regard to the credit facilities granted.
Mandating financial and non-financial covenants facilitates the monitoring authorities
of the bank in critically analysing the performance of the obligors and performing
continuous monitoring and control activities in an efficient manner.
In case of both retail and non – retail exposures, a standard list of financial and non-
financial covenants will be mandated for the credit facilities availed by the obligors,
which shall form part of the approval terms and conditions.
In case of retail products, financial and non-financial covenants will be detailed in the
respective product policy at Borrower and Facility level.
Examples:

[Link] Standard Financial Covenant for Borrowers

Negative variance between the projected and Actual sales should not exceed the range
approved in the Facility Approval Memo.
Negative variance between the projected and actual profitability should not exceed the
range approved in the Facility Approval Memo.
DSCR of the Borrower should not be less than the range approved in the Facility
Approval Memo.

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Negative Variance between the projected and Actual Net worth should not exceed the
range approved in the Facility Approval Memo.

[Link] Standard Non – Financial Covenants

Borrowing entity has to submit a note on its financial performance to the bank on a
quarterly basis.
Borrowing entity not to use the funds provided by the bank for any other purpose other
than the purpose for which the facility was provided.
Any failure on the part of the borrower to make repayments of Principal or Interest or
any fees within 10 days of the debit made to the respective account will attract a penalty
of % to % (exact % of penalty to be decided on a case to case basis).
Restrictive clause on the Limits approved by the bank / Conditional Disbursement
Clauses, based on the performance of certain conditions like – Obtaining required
licenses in a timely manner, bringing the promoter’s contribution in a timely manner as
mandated in the Approval etc.
Example for retail loans –
In case of auto loans, borrower is required to renew the insurance for the vehicle
purchased with the bank loan and should assign the same in favour of the bank.
In case of mortgage loans, the borrower should mortgage the property bought with
bank loan, in favour of the bank after disbursement of loan.

[Link] Monitoring of Adherence to Financial and Non-Financial Covenants

All Standard Financial and Non-Financial Covenants as approved and communicated
to the customer in the Offer Letter will be monitored on a continuous basis by the
business units and Credit Monitoring Function.
Credit Risk Management Groups will generate reports on a monthly basis, on the
adherence to the financial and non-financial covenants at facility and borrower level.
Credit Risk Management Groups will monitor the adherence to covenants and will
advise the relationship managers, credit analysts and Credit Administration
Department, handling the specific facility or borrower to take necessary corrective
action. Financial and non-financial covenants will be detailed in the credit policy at
Borrower and Facility level.

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6.4 Risk Monitoring

Risk Monitoring and Control are essential to ensure that credit risk assumed by the
Bank is in conformity with credit risk policy parameters from time to time.
Credit Risk Management Groups are entrusted with the responsibility of ensuring this
requirement on the basis of reports received from Business Units, Credit Administration
Unit and other relevant departments/ divisions of the Bank.
The function of risk monitoring will be handled in CRM by all SBUs-based Teams in
Credit Risk Management'.
Risk Monitoring involves periodic review by appropriate authority of both individual
facilities and portfolio. It involves:
 Monitoring End Use of Funds
 Monitoring of adherence to Financial and Non-financial covenants
 Monitoring of Collaterals and other credit risk mitigants.
 Credit Audit
 Credit Review Mechanism
 Asset Classification
 Provisioning
 Monitoring of Exposure and Risk Limits
 Monitoring the performance of Rating System
 Monitoring the Credit Portfolio Quality
 Monitoring Recovery Performance

6.4.14 Monitoring End Use of Fund

Monitoring End-use of funds ensures that the credit facility is utilized for the purpose
for which it has been granted, to eliminate any possible diversion of funds that might
lead to credit losses.
End use of funds will be monitored on the following lines:
 Asset verification and regular inspection wherever assets are created out of
Bank’s fund.
 Verification of receipts / bills / ownership documents.

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 Periodical scrutiny of borrowers’ books of accounts.

 Periodical visits to the assisted units / inspection of assets charged in favour
of the Bank.
 In case of Working Capital facility (including non-fund based facilities),
drawdown of overdraft facility has to be linked to the working capital need of
the company.
 Scrutiny of quarterly progress reports / operating statements / balance
sheets of the borrowers.
 Information from Central Bank Risk Bureau on the facilities availed by the
borrower from other banks.
 In case of Term Loans, the disbursement can be linked to the progress of
the project financed.
 End use of funds will be monitored by Credit Risk Management Groups on
a monthly basis.

6.4.15 Monitoring of Temporary Overdraft (TOD) and Excess over Limit (EOL)

All accounts for which TOD has been granted or EOL has been allowed will be
monitored. Credit Risk Management Groups will monitor on a continuous basis whether
the accounts have been brought under advised limit.

6.4.16 Monitoring of Exposure and Risk Limits

Monitoring of exposure and risk limits on a continuous basis ensures that the bank
keeps track of their credit concentration and risk concentration levels and corrective
actions are taken at the right time. This also aids the bank in avoiding loss of any new
opportunities for want of limits. Monitoring of exposure and risk limits also aids the bank
in resetting of exposure and risk limits if need arises.
Credit Risk Management Groups will monitor the exposure and risk limits set by the
bank under various dimensions on a continuous basis.
Exposure and Risk Limits should be checked on an Ex Ante basis i.e. before approval
of any credit facility, the approving authority needs to verify whether the approval of the
facility will lead to breach in any of the exposure or risk limits prior to approving of limits.

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Whenever the approved limits reach 80% level of each of exposure and risk limits set
by the bank under various dimensions, it must be treated as a management warning
level and reported.

6.4.17 Monitoring the Performance of Rating System

Credit Risk Management Groups will monitor the performance of the rating system at
least on annual basis by validating them based on following:
 Input into the rating system: Coverage of risk factors determining default
exposure and recovery.
 Rating Process: Validity of assumptions and the process of converting
expert opinion into credit rating.
 Output of the rating process: Efficiency of the rating system by validating
actual outcome with expected outcome in terms of default, exposure and
recovery.
Upon implementation of rating models based on empirical data of the Bank, the models
would be validated using statistical tools.

6.4.18 Monitoring the Credit Portfolio Quality

Bank shall monitor the overall composition and quality of the credit portfolio. Internal
risk ratings shall be used as a tool to track the current characteristics of the credit
portfolio and help determine necessary changes to the credit strategy of the bank.

6.4.19 Monitoring of Collaterals and other Credit Risk Mitigants

Collateral and other credit risk mitigants are one of the determinants of recovery and
hence monitoring the same would help in managing recovery risk. Credit Risk
Management Groups will monitor the adherence to collateral related credit risk policy
guidelines such as:
 Eligibility of Collateral and other credit risk mitigants.
 Valuation Methodology.
 Valuation frequency.

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 Re-margining Frequency.
 Loan to value.
 Legal Enforceability of Security Documents.
All the above aspects as well as details under Risk Measurement Component will be
monitored by the Credit Risk Management Groups based on reports submitted on a
monthly basis.
Any breaches in the collateral related policies, needs to be reported by Credit Risk
Management Groups to the appropriate authority on a periodic basis and Credit
Administration Department will be alerted to take corrective action.

6.4.20 Exposure Quality Classifications

The objective of these guidelines is to define management criteria for the review and
classification of existing risk exposure to ensure prompt identification and proper
management of decline in credit quality.
The overall responsibility of sustaining the quality of individual credit risk exposures is
primarily that of the Relationship Management. This shall be achieved by:
 Regular interaction with the customer
 Continuous assessment of the collectability of the credit
 Documentation of observations and recommended action
The Relationship Manager shall be responsible for credit quality review of all
outstanding risk exposures on a continuous basis. The review shall be aimed at
evaluating existing or potential problems of validity, completeness, accuracy or
collectability of these exposures, and prompt identification of potential for decline or
actual decline.
Credit Risk Management Groups will periodically (weekly) report all temporary
overdrafts and excesses over approved limits for appropriate action.
Credit Risk Management will also be responsible for conducting planned periodic
reviews of the quality of the Bank’s credit risk asset portfolio.
The bank wide credit portfolio will be reviewed on a quarterly basis in compliance with
Prudential Guidelines.

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Detailed reviews of each credit exposure will be prepared by the Relationship Manager
on a quarterly basis based on an objective evaluation of current up to date information
and classified to indicate performance based on the following criteria:
 Demand for products or services
 Evaluation of customer’s financial position
 Adherence to credit schedule of interest and principal repayment
 Status and adequacy of collateral and legal documentation
 Continuity of management and presence of global affiliates
 Impact of government regulations and legislation
 Industry relations climate
 Perceived industry risk/market position
 Performance against previously established early warning triggers.
Every credit review will be documented using the bank’s Credit Call Memorandum and
should include as assessment of the stability of the customer’s risk rating outlook as
either stable, improving or declining.
Importantly, it must indicate the performance of the company against previously
established early warning triggers.
Decline in the quality of the Risk exposure shall be brought to the attention of the
business ED and the Chief Risk Officer, who will jointly decide if the situation should be
escalated to the Chairman of Criticized Assets Committee (or his designee). Where this
is the case, it shall be done within one week of such development.

6.4.21 Definition of Default

Credit facilities (which include loans, advances, overdrafts, commercial papers,

banker’s acceptances, bills discounted, leases, guarantees, and other loss
contingencies connected with a bank’s credit risks) will be classified as either
“performing” or “non-performing” as defined below:
 a credit facility is deemed to be performing if payments of both principal and
interest are up-to-date in accordance with the agreed terms
 a credit facility will be deemed as non-performing when any of the following
conditions exists:

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 interest or principal is due and unpaid for 90 days or more

 interest payments equal to 90 days’ interest or more have been
capitalized, rescheduled or rolled over into a new loan (except where
facilities have been reclassified)
In exceptional instances where it is determined that the probability of turnaround of the
facility performing is remote, such facilities shall immediately be classified as lost and
transferred to Remedial Assets Management Unit.

[Link] Past due treatment of Overdraft

Authorized overdrafts are subject to a credit limit set by the bank, and must be brought
to the knowledge of the client. Any break of this limit must be monitored, if the account
were not brought under the limit within 90 days, it would be considered as defaulted.

In addition to the condition above, an obligor should be considered as defaulted, if there

are no credits continuously for 90 days in its Overdraft Account or if the credits are not
enough to cover the interest debited during the same period.
Enhancement in Overdraft Limits should not be approved just to avoid the facility
getting classified as default. Bank shall not increase the approved limit only in order to
show that the outstanding have come within the limits after they have been increased.
However, limits can be increased based on merits, by appropriate approval authority.
A temporary overdraft that remains outstanding for longer than 30 days shall be
classified as a Past Due Loan.
Days past due commence once any credit is granted to an unauthorized customer, if
such credit were not repaid within 90 days, the exposure would be considered in
default.
Other exceptional instances that will trigger transfer to Remedial Assets Management
Unit:
 death or disappearance of an obligor
 bankruptcy or going concern problems
 unforeseen circumstances that have significant implication on the business

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[Link] Cross Default

 For non-retail exposures, default should be applied at obligor level.
Whenever a credit facility to an Obligor is classified as default as per the
default definition mentioned above, all the credit facilities of the same obligor
should be classified as defaulted.
 For retail exposures, default should be applied at facility level and not at
obligor level and hence, Cross Default is not applicable for Retail Exposures

[Link] Treatment of interest on non-performing credit facilities:

 All categories of non-performing credit facilities should automatically be
placed on non-accrual status that is, interest due thereon should not be
recognized as income.
 All interest previously accrued and uncollected but taken into revenue
should be reversed and credited into suspense account specifically created
for this purpose which should be called “interest in suspense account” unless
paid in cash by the borrower. Future interest charges should also be credited
into same account until such facilities begin to perform.
 Once the facilities begin to perform, interest previously suspended and
provisions previously made against principal debts should be recognized on
cash basis only.
 Before a “non-performing facility”, can be re-classified as “performing”,
unpaid interest outstanding should not exceed 90 days.

6.4.22 Credit Collateral Management

Acceptance of collateral will be governed by the provisions of the Bank’s credit policy
on collateral management

6.5 Risk Control

Risk controlling is part of the overall risk management process and follows the
quantification and planning of risks, aiming to reduce the risks to a level, which
according to the stipulations from the risk strategy is manageable for the bank.

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The impulses for risk controlling are generated from the comparison of planned and
actual risk situation and risk strategy. Actual Risk Situation is assessed by risk
monitoring process, which is the responsibility of the Credit Risk Management Groups
Risk controlling will be carried out at the individual borrower level as well as the portfolio
level. There are numerous instruments that can be used in risk controlling. Depending
on the situation, appropriate instruments should be used to reach the state intended by
the bank in the most efficient manner.

6.5.1 Risk Controlling at Individual Level

Credit Risk Management Groups should carry out the process of alerting the Credit
Administration and Portfolio Management, and any other department for carrying out
suitable corrective action in case of findings of the risk monitoring process such as:
 Breaches in end use of funds.
 Instances of non-adherence to Financial and non-Financial covenants.
 Decrease in the credit quality or identification of warning signals during the credit
review process.
 Instances of wrong asset classification.
 Shortfalls in Provisioning.
 Weaknesses identified in the recovery process.

6.5.2 Guidelines for following up Watch List Accounts

When an account exhibits early warning signals of potential credit risk, the Bank will
begin proactive management of problem loans. These signals will include transaction
related signals like persistent irregularity, defaults in repayment obligations,
devolvement of LC liabilities / invocation of guarantees, operating losses, etc., and
activity related physical signals like rejection of products, some of the machines lying
idle, number of shifts / workers decreasing, etc. The warning indicators generally
emanate from the unit’s financial problems, operational problems, market related
problems and problems arising out of regulatory changes.

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6.5.3 Recovery Process

Once the problem loans are identified, following steps will be taken to analyse problems
based on facts and circumstances by the Credit Administration and Portfolio
Management & Credit Monitoring.
 Diagnosis of reasons for the deterioration in asset quality and putting the unit
under close monitoring.
 Verification of adequacy of cash accruals.
 Revalidation of assumptions made at the time of credit approval, particularly in
regard to assessment of credit risk.
 Intimating the obligor/ guarantor(s) the deterioration in the asset quality and
meeting them to insist on regularizing the account.
 Verification of documentation in terms of completeness, correctness, revival
position, creation/ registration of charges, insurance cover and rectify
deficiencies, if any.
 Evaluating the collateral for liquidity, marketability and value, attempt to improve
the Bank’s collateral position.
 Identification and study of primary and secondary sources of repayment and
evaluating their adequacy, the opportunity will be used to detect any assets of
the promoter(s)/ guarantor(s) which have not been taken in to account while
compiling opinion reports in the initial stages.
 Obtaining realistic and time bound commitment from the obligor/ guarantor(s) to
initiate suitable steps to arrest the deterioration in the loan quality.
 Determining the corrective course of action required to upgrade/ recover the
loan, after a dialogue with the obligor.

6.5.4 Restructuring of Credit Facilities

Definition of Restructured Facility

We have defined Restructured Facilities as follows;
1. Strategic Amendments – Macro related: This involves where the Bank anticipates
market changes before it becomes an issue i.e. the borrower is meeting all obligations
and nothing is due and unpaid. Examples of the market changes could be drop in crude
oil price, devaluation of the currency, loan currency conversion, change in government

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legislation etc. Such action has no classification implication as performance is not

affected in any way.

2. Strategic Amendments – Market related: This involves amendments to some of the

terms in an existing facility e.g. to win or retain customer’s business, match competitor’s
terms, among other strategic considerations. Such action has no classification
implication as performance is not affected in any way.

3. Proactive Restructuring: When it is apparent that the cashflows of a customer have

changed and these are predicted to impinge on ability to meet obligations falling due;
proactive realignment may be done, to minimise risk of missed payments.

4. Normal Restructuring: This will arise when the obligor has challenges in meeting
maturing obligations. In this situation, a restructure will be done to align the customers’
obligation to the new cashflows based on the market realities at the time. This may
have downgrade implications

Apart from the above, any deviations in the account performance owing to genuine
business conditions of the borrowers can be managed by restructuring of the credit
facility. Following are the guidelines to be followed for restructuring:
 Determination of Viability for restructuring.
 Conduct of Cost Benefit Analysis weighing cost of rescheduling to the bank with
benefits by comparing the Present Value of cost of restructuring with returns
from restructuring. This involves discounting of costs and benefits of
restructuring by an appropriate discount factor to derive Net Present Value
(NPV) associated with restructuring.
 Definition of binding and transparent results to be achieved along with other
terms and conditions.
 Maximum time period within which the restructuring will be completed from the
date of receipt of request for restructuring from the borrower shall be 15 Days.
 Approval authorities and reporting requirements (will be covered under Approval
Matrix in Risk Measurement).
 A restructured facility cannot be further restructured unless definite improvement
has been recorded. Definite improvement includes the following:

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o Payment of at least one (1) principal and interest obligation in line with
approved terms.
o Improved outlook of the obligor via ability to generate more cash flow and
/ or improved business strategy.
o Enhanced collateral with higher value than the restructured exposure and
in a perfectible state. Cases of wilful default and fraud are ineligible for
restructuring.

6.5.5 Risk Controlling at Portfolio Level

Credit Risk Management Groups will carry out the process of alerting the respective
business unit and senior management committees (Credit Risk Committees) to take
corrective action to bring existing position under the prescribed limits:
 Breaches in Exposure and Risk Limits.
 Breaches of Loss Limits.
 Breaches in NPL Levels.
 Unexpected deterioration in rating grades.

6.5.6 Strategies for Risk Control

The Business units may follow some of the strategies as mentioned below in order to
take corrective action:
 Sell Off / Sell Down of credit facilities.
 Asset Securitization.
 Risk Participation & Selling of Credit Protection.
 Hedging.
 Credit Insurance.
 Risk Based Pricing.
 Reshuffling of Portfolio.

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6.6 Administration of Existing Exposures

6.6.1 Customer Meetings and Call Reports

To provide relevant, up-to-date and reliable informed ongoing management of

exposure quality and overall business condition of the obligor and relationship with
Access Bank, it is critical that marketing/relationship management officers maintain
direct contact with customers through periodic visits to business locations as well as at
the Bank premises. The frequency of these visits shall be risk differentiated, such that
riskier obligors or large exposures are more frequent than for less risky obligors of
smaller exposures.
The Chief Risk Officer shall establish a calling policy to guide this process, as well as
define minimum information that must be contained in a credit call report. All pertinent
information derived from such credit calls shall be properly documented and circulated
to the business head and Credit Risk Management and shall be included in the
customer credit file. The documentation of the credit call shall follow a predefined
format.
Credit calls are an important part of ongoing monitoring of performance of facilities after
they are disbursed and help the bank to quickly identify problem credits and initiate
appropriate corrective actions. It is the responsibility of the relationship manager to
ensure that these calls are carried out at the specified frequency. This activity shall be
auditable.

6.6.2 Credit Checking

The gathering of bank and trade checking shall be an important component of the
continuing assessment of obligors and confirmation that the business remains a ‘going
concern’. Rules and procedures for requesting and supplying credit information shall
be articulated by Credit Risk Management.

6.6.3 Financial Information

In the ongoing administration of the quality and performance of loans and other types
of credit exposure, periodic analysis of up-to-date financial information shall be a
fundamental requirement.
While the availability of reliable, complete and up-to-date financial information on the
customer on a timely basis could be a limitation, the objective shall be, and every effort

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made to obtain as much as possible, such information that will enable informed
evaluation and conclude on the quality of the exposure and identify risk of decline in
performance and quality.

6.6.4 Documentation Lodging, Review and Follow-up

All legal documentation in respect of approved credit exposures shall be held in an

appropriately secured bank vault or a location of equivalent security and safety.
Existence and location of such legal documentation shall be indicated in the credit file
by an initialled receipt by the bank officer with responsibility for custody of such
documentation.
Documentation and collateral must agree with that specified in the approval document
as well as the agreement executed with the customer.
An annual physical verification of all credit documentation to confirm existence and
continuing enforceability shall be conducted by the Credit Administration function in
conjunction with Legal Department.

6.6.5 Covenant Check-Off List

The Risk Management function and the relevant approval authority must review all
outstanding credit transactions and commitments at least annually. The review shall be
accompanied by a covenant check-off list, which must be signed off by the officer
responsible for carrying out the review.

6.7 Maintenance of Credit Information

6.7.1 File Management

Credit files are the official records, correspondence and interaction between the bank
and customers in respect of credit relationships and exposures. Appropriate care must
be taken to ensure that credit files are maintained up-to-date on an ongoing basis and
contain accurate and reliable information to establish a trail in respect of the
establishment, change and current status of a credit relationship. The credit file serves
as the primary information source for decision-making on credits and customer
relationships.

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Credit files must contain at a minimum:

 Credit Creation Documents
 Preliminary Credit Screening form
 Credit Application form
 Credit Appraisal Analysis form
 Credit Approval Documents
 Credit Appraisal form
 Credit Offer Letter / Acceptance
 Classified Credit Memoranda
 Financial Statement
Most recent audited and/or management statement of accounts
A note as to where statements that may be relevant, but are too bulky are located.
 Memoranda and Correspondence
Memoranda and correspondence detailing the history of the relationship with
the customer, present status, and substantive contact with the borrower.
These shall include all customer correspondence, call memos and reports,
collateral documentation, internal memoranda.
 Exposure quality and performance classification.
The latest Classified Assets Management report in which the action place
and loan loss recovery program are summarized (if applicable).
 Revolving Credit and Term Loan Summaries
 Summary of basic covenants
A note as to the location of the term loan summary, covenant check-off list
and non-default certificates (if applicable), together with any memoranda or
correspondence regarding compliance with covenants, if they are relevant
but too bulky to be included in the file with other materials. All files must be
reviewed periodically and culled as may be required of outdated or irrelevant
information and only essential material retained. Information of an
unfavourable nature, such as a significant problem in the relationship should
be permanently retained and marked on the memoranda or documents.

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The marketing / customer relationship officer shall be responsible for creating a credit
file at the beginning of a credit relationship. All documentation / correspondence
generated during the credit cycle will be filed in the appropriate section of the credit file
by the originating department.
Separate files will be kept for security documents (debenture deeds, certificate of titles)
as may be required.
Each customer credit file shall be made up of two (2) components. All credit documents
originating from the bank shall be (domiciled on a Customer Credit Information
Database on the bank’s intranet), which shall be accessible to both credit risk
management and relationship management function. All paper-based credit documents
such as customer correspondences shall be maintained in hard copy in the customer’s
credit file.
Credit Risk Management shall be responsible for safe custody of credit files and
maintaining records of file movement and use in and out of the file room.
Credit files are highly confidential in nature, and should be kept secure at all times.
Access to credit files shall be properly restricted to authorized officers of the bank. It is
expected that credit files shall never be removed from the official bank premises, except
with the express permission of Credit Risk Management.

6.7.2 Background Information

The maintenance and annual updating of certain background information on customers

and prospective customers are essential. All background information should be
recorded in a readily retrievable format and should include pertinent facts such as:
 Full legal name of customer
 Legal address (and mailing address, if different)
 Legal status e.g. public limited company, partnership etc.
 Details of Management
 Ownership
 Brief historical facts e.g. registration number, date of incorporation etc.
 Nature of customer’s principal business(s)
 Other basic information as deemed appropriate
 All other information to satisfy KYC requirements for the customer.

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Responsibility for supplying the above information shall lie with the respective
relationship managers in the market-facing business units.
Responsibility for maintaining the above information in credit reporting systems shall
lie with Credit Risk Management.

6.8 Credit Audit

Credit Audit is required with a view to ensuring adherence to all appraisal standards
that has been put in place by the bank prior to approving a credit facility at various
levels as per approval authority.

a) Guidelines on Credit Audit

 Coverage
All standard borrowers accounts with a limit of N 10million and above and having a
rating of 5 or better are to be covered under Credit Audit.
b) Factors to be considered for scheduling of accounts for Credit Audit
 Obligor Accounts with exposure more than N10million
 Obligors with Risk Rating below 5 or better
 At least 50% of the fresh approvals made during the last financial year
 Obligors falling under Industries with an Outlook of High Risk

6.8.1 Credit Review Mechanism

Credit Review Mechanism (CRM) will function as a system of identification of risk and
as a monitoring tool for the accounts reviewed. Credit Review Mechanism is an
important tool for evaluating credit risk profile of the loan accounts vis-à-vis projections
and indicates the direction of credit risk migration.
Objectives:
 To promptly identify the loans those, develop credit weaknesses and initiate
timely corrective action.
 To evaluate portfolio quality and isolate potential problem credits.
 To provide information for determining adequacy of loan loss provision.

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 To assess the adequacy of adherence to loan policies and procedures and

to monitor compliance with relevant laws and regulations.
 Review of Credit Risk independently.
 Picking up warning signals and suggest remedial measures.
All credit facilities should be reviewed on an annual basis in order to evaluate default,
recovery and exposure risks, and to re-price the loans (if applicable) for any changes
in the risk profile.
Annual review of accounts will be carried out by the Credit Monitoring Team and the
authority for approval is as mentioned in the Approval matrix under risk measurement.
Credit Monitoring will submit reports to Credit Risk Management Groups on a monthly
basis, covering the details of the accounts reviewed, along with any specific credit
weaknesses identified and warning signals. Credit Risk Management Groups will
conduct the credit review mechanism through the reports submitted by the Credit
Monitoring.
All credit relationships are subject to reviews on at least an annual basis in the form of
either an ‘Abbreviated’ or a ‘Full’ Credit Review.
Notwithstanding the criteria below, at any time a credit approval authority or the Chief
Risk Officer may determine that a more frequent review cycle is more appropriate for a
particular relationship, geography, industry or business.

[Link] ‘Abbreviated Only’ Criteria

An Abbreviated Annual Review is allowable each year for the following:
 Relationships with Total Facilities of N5MM or less; within the business unit’s
defined target market, adheres to the approved Risk
 Acceptance Criteria, and facilities extended are part of an approved Credit
Program; and there are no classified facilities.
 Relationships where all facilities are cash collateralized shall also undergo
an Abbreviated Annual Review.
Facilities below N5MM will only be approved under a Credit Program. Countries may
establish local limits, which must be endorsed by the Regional Head of Credit Risk
Management and approved by the Chief Risk Officer in Head Office.
At a minimum, an Abbreviated Credit Review must include:

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 A brief ‘Summary of Risk Trends’, which focuses on the main changes in the
risk profile since the last Abbreviated or Full Credit Review.
 A review/verification of credit facilities to ensure they are appropriate to the
obligor’s needs and are correctly reflected on the FAM and in the credit
reporting systems.
 An explanation for changes in credit facilities and terms, if any.
 Reaffirmation that collateral, documentation and related security
arrangements are in full effect.
 Updated risk rating information, and a review of all Obligor Risk Ratings and
Facility Risk Ratings in the credit reporting systems to ensure they are
current and accurate.
 As applicable, any Risk Rating Limit Exceptions, and the related action plan.

 Approvals
The Abbreviated Relationship Credit Review must also be approved in line with the
Credit Facilities Approval Grid.

[Link] ‘Full Only’ Criteria

A Full Credit Review is required every year for all other relationships not meeting the
standards above, as well as for:
 Any industry, region, country or business where it is determined in a Portfolio
Review that abbreviated Annual Reviews will not be permitted
 Any relationships with classified (“substandard” and worse) facilities; or has
been adversely noted at a CAC review in the review period.
 Facilities approved with concessional pricing in relation to Risk Based
Pricing.
 Facilities approved with manual override of output of credit rating.
 Review of accounts rated 4 and below as per the Bank’s internal model.
 Any Asset that had fallen into past due status for more than 60 days within 6
months from the last review.
Components
At the minimum a Full Credit Review shall include the Credit Analysis standards as
stated in Section 6.2.3

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Approvals
The Approval requirement for a Full Credit Review is the same as that required by the
Credit Facility Approval Grid. However, where there are no increases to Total Facilities
and no overall material changes in tenor, credit terms, security/support, or the credit
risk profile of the obligor, this fact should be clearly stated in the Facility Approval
Memorandum for consideration by the Approval authority in deciding whether to fast
track approval or not.
Additional approvals may be required for relationships with adversely classified
facilities.

6.9 Flow Chart of the Credit Process

The following flow chart summarizes the credit process in Access Bank:

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Customer applies for loan in writing to the bank in

branch/lending unit RM solicitor for business

Yes
No

No

Declined. Customer is
No advised accordingly by the
Relationship Manager

Yes A

Group Head forward the FAM to Credit Risk

for Credit risk as well as Environmental & Credit Analysis and Approval
Social risk analysis communication

The credit risk registers the

Credit Analysis electronically forwards FAM to credit request
Sustainability Mgt Team in Credit Risk Mgt.
Credit Analysis and Review

C
G B

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List of qualifying credit are compiled

for MCC presentations.

RM is notified if The credits are considered by MCC where all inherent risks including
adjustments are
Environmental & Social Risks are considered for decision to be taken.
required

Is credit Approved
by MCC? No Declined. Customer is advised
accordingly by the Relationship

Yes
Inadequacies are communicated to

Heads for requisite amendment

Is credit within
MCC limit?
Yes

No

The credit request will be

considered by Board Credit
Committee. All inherent risks
including Environmental & Social
Risks are considered for decision to
be taken.

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Is Credit Approved by No
Board Credit
Committee

Yes

No

The credit request will be

considered by Board of Directors
(BOD). All inherent risks including
Environmental & Social Risks are
considered for decision to be taken.

No
Is credit approved by
Board of directors?

Yes

Credit Risk will communicate

approval indicating documents
required for drawdown

[Link]

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Customer executes the offer

letter/other loan documentation
and must meet all conditions
precedent to drawdown.

Relationship Manager/Group Head

prepare and forward the drawdown
approval memo and other
documents to Credit Risk

Inadequacies are communicated

to Relationship Manager and
Group Heads

Have all conditions

precedent to
drawdown been met

Drawdown approval is signed off by

Credit Admin and Legal Department.

For credits considered to be of high or

Examples of E&S reports
medium E&S risks, E&S Manager & E&S
E&S risk assessment reports
Specialist monitors compliance with Site Visitation report s
action plan for mitigating such risks. Checklist updates report, etc

Facility is monitored continuously and ples of reports

reported in various portfolio reports, Overdraft Reports
PPMCC, CAC, RPR, etc. Loan maturity reports

[Link]

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Is Facility
performing?

Account passed to Remedial

Asset via CAC decision

Account is package for work- Monitoring Continues

out or full scale recovery

Account is paid down

Declined. Customer is advised

accordingly by the Relationship
Manager.
Loan amount is provided for
and written off

END

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7 Credit Risk Mitigation and Collateral Management Policy

7.1 Background

Credit risk mitigation is a method of reducing credit risk in an exposure, at facility level,
by a safety net of tangible and realizable securities including approved third-party
guarantees / insurance. However primary consideration when approving credits should
always be the obligor’s financial strength and debt-servicing capacity.

7.2 Objective

The Credit Risk Mitigation Management addresses the following basic objective of
Credit Risk Management:
 Effective Credit Portfolio Management through mitigation of credit risks by using
Credit Risk Mitigation Techniques.

7.3 Scope

Credit Risk Mitigation Management process covers the entire gamut of activities
comprising inter-alia the following aspects:
 Defining the criteria on acceptability of various types of Credit Risk Mitigants
 Level / extent of Coverage
 Guidelines for valuation & periodical inspection of collateral
 Measures for security and protection of collateral value

7.4 Implementation of policy

The policy guidelines will be followed by all business units that deal with assets i.e.
credit exposure creation and development, exposure management, delinquency
management and loan recovery. The policy will be implemented by Credit Risk
Management Department. The Management Credit Committee will ensure that the
policy is adopted in letter and spirit by all relevant stake holders across the bank.

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7.5 Credit Risk Mitigants

Credit Risk Mitigation (CRM) is an activity of reducing credit risk in an exposure or

transferring it to counterparties, at facility level, by a safety net of tangible and realizable
securities including approved third-party guarantees/ insurance.

Credit Risk Mitigant (CRM) techniques consist of the use of relevant financial collateral,
guarantees, derivatives, estate mortgages and lease transactions or other instruments
in relation to all banking book exposures and asset classes, that would reduce the risk
recognized in calculating the bank’s capital requirement.

Where a rating has already taken into account a particular guarantee which has been
pledged by a borrower, then such guarantee cannot be considered any longer for the
purpose of credit risk mitigation

Strategies for risk reduction at the transaction level differ from that at the portfolio level.
At transaction level, the most common technique used by the bank is the
collateralization of the exposures by first priority claims or obtaining a third party
guarantee. Other techniques include buying a credit derivative to offset credit risk at
transaction level. At portfolio level, asset securitization, credit derivatives etc. are used
to mitigate risks in the portfolio.

However primary consideration when approving credits should always be the obligor’s
financial strength and debt-servicing capacity. The following guidelines relating to risk
mitigant as incorporated in the guidance note of BCBS (Basel Committee on Banking
Supervision) on “Principles for the Management of Credit Risk” (September 2000,
Paragraph 34) should be taken in to consideration while using a credit risk mitigant to
control credit risk.

“Bank can utilize transaction structure, collateral and guarantees to help mitigate risks
(both identified and inherent) in individual credits but transactions should be entered
into primarily on the strength of the borrower’s repayment capacity. Collateral cannot
be a substitute for a comprehensive assessment of the borrower or the counterparty,
nor can it compensate for insufficient information. It should be recognized that any
credit enforcement action (e.g. foreclosure proceedings) can eliminate the profit margin
on the transaction. In addition, the Bank need to be mindful that the value of collateral
may well be impaired by the same factors that have led to the diminished recoverability
of the credit.”

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7.6 Legal Enforceability of Credit Risk Mitigants

All documentation used in collateralized transactions and for documenting on and off-
balance-sheet netting, guarantees, credit derivatives and collateral must be binding on
all parties and must be legally enforceable in all relevant jurisdictions. Bank should
ensure that all the documents are reviewed by appropriate authority and should have
appropriate legal opinions to verify and ensure its enforceability.
It should inter alia, be ensured that: -
 The documents are executed in the prescribed form of the bank or else, the draft
of documents should have been approved by competent authority as per bank’s
guidelines.
 The documents are properly stamped, if so required under law.
 The person(s) executing the documents have the legal capacity/authority to doso.
 The documents are properly witnessed, if required, under law.
 The documents are registered, if required, under law.

7.7 Type of Credit Risk Mitigation (CRM) acceptable to the Bank

Netting

Collateral

Guarantees

Credit derivatives

7.7.1 Netting

i. On- balance sheet netting

Loans and deposits in the name of the same counterparty, customer or group or of
related parties may be netted subject to certain conditions. This is known as ‘On-
balance sheet netting’. Legally enforceable netting arrangements for loans in the form

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of deposits are treated as valid Credit Risk Mitigants and the bank may calculate capital
requirements on the basis of net credit exposures. The guidelines for accepting on-
balance-sheet-netting as valid credit risk mitigants are as stated below:
 Well-founded legal basis for concluding that the netting or offsetting agreement is
enforceable in each relevant jurisdiction regardless of whether the counterparty
is insolvent or bankrupt;
 Ability at any time to determine those assets and liabilities with the same
counterparty that is subject to the netting agreement;
 The maturity of the deposit is at least as long as the corresponding loan
 Monitoring and control of its roll-off risks (i.e. the potential for sudden increases in
exposure when short-dated obligations, which have been netted against longer-
dated claims, mature); and
 Monitoring and control of the relevant exposures on a net basis,
Assets (loans) are treated as exposure and liabilities (deposits) as eligible netting
arrangement, if the above conditions are satisfied.
Cash deposits domiciled in properly restricted accounts with the bank shall be
acceptable as collateral in respect of all credit products and services. In respect of cash
collateral, there shall be a requirement that such cash deposited be properly
segregated and placed in escrow, and not subject to any other charge to any other
lender. However, in exceptional cases where otherwise agreed by the bank, this
requirement may be waived in instances where the account balance can conveniently
accommodate such lien by another bank.

ii. Off- balance sheet netting

Netting of claims with the same counterparties arising out of the full range of forwards,
swaps, options and similar derivative contracts is ‘Off-balance sheet netting’.
As per BCBS paper ‘Treatment of Potential Exposure for Off-Balance-Sheet Items’
(April 1995) the eligibility conditions for netting off-balance sheet transactions are as
under:
1. “The bank may net transactions subject to novation under which any obligation
between a bank and its counterparty to deliver a given currency on a given value
date is automatically amalgamated with all other obligations for the same
currency and value date, legally substituting one single amount for the previous
gross obligations.

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2. The bank may also net transactions subject to any legally valid form of bilateral
netting not covered in (1), including other forms of novation.
3. In both cases (1) and (2), the bank will need to satisfy its national supervisor that
it has:
 A netting contract or agreement with the counterparty which creates a single legal
obligation, covering all included transactions, such that the bank would have
either a claim to receive or obligation to pay only the net sum of the positive and
negative mark-to-market values of included individual transactions in the event
a counterparty fails to perform due to any of the following: default, bankruptcy,
liquidation or similar circumstances;
 Written and reasoned legal opinions that, in the event of a legal challenge, the
relevant courts and administrative authorities would find the bank’s exposure to
be such a net amount under:
 The law of the jurisdiction in which the counterparty is chartered and, if the
foreign branch of a counterparty is involved, then also under the law of the
jurisdiction in which the branch is located;
 The law that governs the individual transactions; and
 The law that governs any contract or agreement necessary to effect the
netting.
 Procedures in place to ensure that the legal characteristics of netting
arrangements are kept under review in the light of possible changes in relevant
law.”
 Apart from the above conditions, the other guidelines for accepting off-balance-
sheet-netting as a valid credit risk mitigants are as stated below:
 Ability at any time to determine those assets and liabilities with the same
counterparty that is subject to the netting agreement;
 The bank monitors and controls its roll-off risks; and
 The bank monitors and controls the relevant exposures on a net basis,

iii. Eligible Instruments for netting

The Following transactions/instruments are eligible for off and on balance sheet netting
provided the above eligibility conditions have been met:
 Mutual claims between the bank and its Counterparty

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 Reciprocal cash balances between the bank and the counterparty

 Repurchase transactions
 Securities or commodities lending or borrowing transactions,
 Other capital market-driven transactions with a counterparty
 Forwards, swaps, options and other derivative instruments.

7.7.2 Collateral

The collateralized transaction is one in which the bank has a credit exposure and that
credit exposure is hedged in whole or in part by collateral posted by a counterparty or
by a third party on behalf of the counterparty. The counterparty is used to denote a
party to whom the bank has an on or off balance sheet credit exposure. Collateral
provided by the counterparty or by a third-party on behalf of the counterparty is an
essential element in the credit approval process and has an impact on the overall
assessment of the credit risk involved in an exposure.
To minimize the risk of credit loss to the bank in the event of decline in quality or
delinquency, there shall be requirement for appropriate collateralization of all credit
exposures. Guidelines for acceptability of credit collateral shall be approved by the
Management Credit Committee and shall include clear unambiguous articulation of:
 Acceptable collateral in respect of each credit product including description,
location restrictions in respect of landed property, guidelines in respect of
minimum realizable value of such collateral
 Required documentation /perfection of collateral
 Conditions for waivers of collateral requirement and guidelines for approval
of collateral waiver
 Acceptability of cash and other forms of collateral denominated in foreign
currency
Perfected legal mortgage in the name of Access Bank Plc shall be a minimum
requirement for all items pledged as security for credit facilities. Additional criteria
including insurance cover as may be defined in the bank’s credit risk management
policy provisions shall be met. It is Access Bank policy that all credit extensions to
corporate obligors shall be secured by all assets debenture.
Exceptions to this rule shall include customers in Risk Rating 1 to 2- of the bank's Risk
Rating grade, who have not had any history of Credit default in the last five years as

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confirmed from a Credit Bureau or a Rating Agency acceptable to the bank. Exception
in all other cases must be clearly documented and approved by staff with the right credit
approval limit for the proposed facility.

[Link] Selection of Collateral / Eligibility Criteria

The Bank will follow the criteria mentioned below to assess the eligibility of collateral:
 Legal certainty: Right to repossess the asset is legally enforceable and without
impediment.
 Ability to objectively price or mark-to-market the value: Market value of the asset
is readily determinable or can be reasonably established and verified.
 Liquidity: Collateral should be easily liquidated without resulting in any material
reduction in its realizable value.
 Marketability: Asset offered as collateral is marketable and there exists a readily
available secondary market for disposing of the asset.
 Low correlation with the underlying exposure - the credit quality of thecounterparty
or any related group entity and the value of the collateral must not have a
material positive correlation. For e.g. If the facility is secured by bonds issued by
the counterparty, then the value of the collateral will have strong material positive
correlation with the performance of the counterparty.
 Ability to secure control over the asset if necessary: In the case of a movable
asset, the Bank should either have physical custody of the asset (e.g. gold,
precious metal) or know its whereabouts (e.g. vehicle, machinery or equipment).
 Expertise: Bank should have the expertise and systems to manage the asset
concerned. Bank should be able to determine the valuation methodology,
frequency of valuation appropriate to the collateral.

[Link] Maturity Mismatch

Bank should align the term of validity of the collateral with that of the obligation it
secures in the following instances:
 Collateral being the asset created out of the Bank loan.
 Collateral Based Lending.

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[Link] Collateral Acceptability

The guiding principles behind collateral acceptability are adequacy and realizability.
Collateral acceptable as security in respect of approved credit exposures shall include:

1. Mortgage on landed property (Legal Mortgage/Mortgage

Debenture)
2. Debenture/Charge on assets (Fixed and/or Floating)
3. Cash/Money Market Investment (Letter of lien and
Set-Off over fixed deposits/money market
investments);
4. Treasury bills and other government securities.
5. Debt securities issued by sovereigns and public-sector
enterprises.
6. Debt securities issued by banks and corporates
7. Collective investment schemes/ Mutual funds.
8. Stocks/Share Certificates of quoted blue-chip companies.

9. Chattel/vessel Mortgage.
10. Charge on assets (Fixed and/or Floating premises/ inventory/
receivables/ merchandise/ plant/ machinery);
11. Legal ownership of financed Asset.

12. Shop mortgage (Transfer of Ownership of shop) for predefined

markets.

The following may be acceptable as support/comfort.

1. Corporate guarantees backed by 3-year financials;

2. Warehouse Warrants/Trust Receipts, shipping documents (for

imports)
3. Life Assurance Policies/ Insurance Bond (restricted to the Bank’s
list of approved insurance companies)

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4. Tripartite Field Warehousing Agreement

5. Stock Hypothecation
6. Bank guarantees (by other banks acceptable to Access Bank
Plc)
7. Domiciliation/Receivables of blue-chip companies
8. Domiciliation of Salary (Retail Credit)
9. Irrevocable Standing Payment Order (ISPO) for Ministries
Departments and Agencies, State, L.G.A with statutory
allocation.
10. Tripartite/Multipartite Collateral/Asset Management under the
control of an Access Bank approved agent
11. Post-dated cheques

[Link].1 Mortgage on Landed Property

Acceptability of mortgage on landed property as collateral for credit exposures shall be
limited to property situation in:
Highly industrialized and/or commercialized areas or
High value residential areas
The Expected Forced Sale Value (EFSV) of such landed property must be adequate to
cover not less than 120% of loan amount and a minimum of 12 months’ interest at the
bank’s approved lending rate.
The following landed property shall not be acceptable as collateral:
 property with less than 15 years remaining ground lease
 uncompleted building (except in mortgage facilities)
 country home in rural areas
 churches, mosques or places for religious assembly or worship
 cultural/community owned property, houses or palaces owned by traditional
rulers or local chiefs
 Burial grounds
Undeveloped land in prime locations like Abuja, Victoria Island and Lekki can also be
considered.

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For facilities over N50 million, EFSV must be determined by a professional estate
valuer retained by the bank but paid for by the customer.

Third party legal mortgages are discouraged by the bank, except where the third party
is a director or has shareholding in the company.

[Link].2 Cash Deposit

Cash deposits domiciled in properly restricted accounts with the bank shall be
acceptable as collateral in respect of all credit products and services. In respect of cash
collateral, there shall be a requirement that such cash deposited be properly
segregated and placed in escrow, and not subject to any other charge to any other
lender. However, in exceptional cases where otherwise agreed by the bank, this
requirement may be waived in instances where the account balance can conveniently
accommodate such lien by another bank.

[Link].3 Shares
Acceptability of stocks and shares of companies as collateral shall be limited to selected
blue chip companies quoted on the Nigerian Stock Exchange. The assessed market
value of such shares shall be based on average value of such shares over a 12month
period as indicated on the Stock Exchange Daily Official List (“SEDOL”) and shall also
reflect the most current market perception of expected future performance of such
shares on the Stock Exchange.
As a guideline, the value of the collateral shall be determined by applying a minimum
of between 30% and 50% discount on the market value. At a minimum, such collateral
value shall be adequate to ensure full recovery of the bank’s principal credit exposure
and also provide minimum of 12 months’ interest cover at the bank’s approved lending
rate.

[Link].4 Guarantee
Personal Guarantees will be supported with 3 clean credit checks (including the CRMS)
and a Notarized statement of net worth
Corporate guarantees will be supported with 3 clean credit checks (including CRMS)
and will be acceptable as follows:

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a. Cross-corporate guarantee of a subsidiary company for an approved credit line for a

group of companies or where the credit line is primarily approved for the parent
company but available to subsidiaries all supported with the respective board
resolutions
b. Corporate guarantee of a third-party company provided there is commercial
justification and must be supported by a Board resolution of each company. Articles of
Association of the company must provide that such directors have powers to issue such
guarantee on behalf of a third party;
d. Corporate guarantee for employee credit under the employees’ loan scheme.

[Link].5 Life Assurance Policies

Acceptability of life assurance policies as credit collateral shall be limited to personal
credits such as mortgages, personal loans etc. Just as for personal guarantees, life
assurance policies cannot stand alone as security for facilities, but must be additional
to some other forms of tangible collateral.
Access Bank shall on an annual basis conduct a due diligence assessment of
registered insurance companies and maintain a list of insurance companies that shall
be acceptable for the purpose of underwriting policies that shall be acceptable as
collateral for credit exposures.
Conditions for Life Insurance Policy as security shall include:
The issuing company must be properly registered under the Insurance Act and shall
be included in the list of insurance companies preapproved by the bank as acceptable
for underwriting policies acceptable as credit collateral.
The surrender value of such policy must be easily ascertained and should be
adequate to ensure full recovery of 12 months’ interest cover at the bank’s approved
lending rate.
The credit obligor shall provide an undertaking to ensure that the policy is in force
(i.e. premium payments should be up to date through the tenure of the credit)
There shall be no restrictions on assignability of the policy and such benefits shall be
duly assigned to Access Bank.
Age of the assured must be admitted.
The beneficiary clause must clearly indicate that only the assured, his administrators,
executors or assigns are beneficiaries to the policy.

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[Link].6 Negative Pledges

Confirmation of Negative Pledge by the bank’s external solicitor shall be accepted as
security upon receipt of clean search report from Corporate Affairs Commission only
for Investment Grade obligors or for other categories of Obligors as approved by the
Board or MCC
Obligors that demonstrate capacity at the industry level as being capable of meeting
their obligations without collateral shall be accepted as clean lending

[Link].7 Charge on Assets (Fixed or Floating)

Fixed or floating charge on assets of the borrower will be deemed acceptable for non-
specialized equipment in respect of which a realizable market value can be established.
Acceptability of a charge on assets as collateral shall be subject to confirmation that
such assets are not subject to an already existing charge to another lender.

[Link].8 Lien on Assets

Lien on assets financed by the bank shall be acceptable as credit collateral for such
exposure as is created by the asset finance lending. The terms of the lien shall be
general and ensure that the bank shall be entitled to take possession of and hold the
debtor’s goods pending payment of an obligation in connection to a credit availed to a
customer.

[Link].9 Shipping Documents

Domiciliation of Bill of Lading and other such transaction documents with the bank shall
be acceptable as credit collateral in respect of import finance facilities and other
international trade transactions involving the movement of goods.

[Link] Collateral Documentation / Perfection Requirement

To ensure ease of realization of collateral in the event of non-performance of credit, all
collateral documentation requirements shall be met before availment of approved credit
facilities except where there is approval to defer some documents which are
unavailable due to reasons beyond the control of the customer.

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Minimum documentation requirements in respect of each collateral type that must be

fulfilled before availability of approved credit facilities are outlined below. Note that this
list is not exhaustive and is subject to change as advised by Legal Department.
All collateral documentation requirements shall be met before availment of approved
credit facilities except where there is approval to defer some documents which are
unavailable due to reasons beyond the control of the customer.

Collateral Documentation Perfection

Mortgage on  Certificate of Occupancy  Deed of mortgage /

landed property debenture Access Bank
 Valuation report from bank
(Fresh recognized professional  Governor’s consent
perfection / up- property valuer
stamping)  Stamp
 Certificate of good title from  Registration at Land
search report Registry / Corporate
 Current Tax Clearance Commission
Certificate (TCC) of the  Legal Mortgage or
company Tripartite Legal Mortgage
 Annual Returns Receipts of Charge on Assets (Fixed of
surety Floating) (Fresh perfection or
 Annual Returns Receipts of up-stamping)
company
 Property Rate receipts
 Ground Rent receipts
 Any other documents as
required by Legal Services,
depending on location
 Signed blank deed of
assignment
 Signed sale agreement

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Charge on  Certificate of good title  Mortgage Debenture orAll

Assets Assets Debenture Stocks and
 Current TCC of company
Shares Certificates
(Fixed of  Copy of ground rent receipt
Floating)
 Copy of Tenement rate
(Fresh
receipt
perfection or
 Copy of current Annual
up stamping)
Returns receipt of the company
 Other documents as maybe
required from Legal Services,
depending on location

Stocks and  Execution of the

Share  CSCS form assignment by the shareholder

 Letter of consent from the

shareholder  Execution of Joint
 Form CSCS 1(JML1) Memorandum Lien (JML1)

Life Assurance  Original Life Policy  Notice to the insurance

Policy company of the bank’s interest
as an assignee confirmation of
the sum assured, status of
premium payment and
surrender maturity date and
any encumbrance

[Link] General Restrictions on Collateral Acceptability

[Link].1 Insurance
All assets and items pledged to the bank as credit collateral must be appropriately
covered by a valid insurance policy throughout the duration of the credit.
A comprehensive insurance program shall be in place and maintained throughout the
life of the credit exposure. Risks covered by the policy should include:

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 Property/Real Estate Fire Earthquake, tornado, flood etc.

 Equipment theft, fire, burglary etc.
 Furniture and fixtures theft, fire, burglary etc.
 Inventory theft, fire, burglary etc.
Such insurance cover shall be provided by an insurance company properly registered
under the Insurance Act and shall be limited to policies issued by insurance companies
preapproved by the bank as acceptable for underwriting policies acceptable as credit
collateral.
Sum insured must cover the insurable value of the collateral and the Bank must be
noted as first loss payee
Exceptions to the requirement for insurance cover shall include:
 Cash Collateral
 Guarantees
 Negative Pledges

[Link].2 Realizable Value

Ease of sale of collateral shall be a major consideration in respect of collateral
acceptability. As such, specialized equipment with limited alternative utility shall not be
acceptable as credit collateral. Also, landed property in non-commercial or industrial
areas shall not be acceptable as credit collateral for bank lending (also see section
[Link] for7.7.2.3 Collateral Acceptability.)
Collateral value must be appreciating or at least stable. Estimate of forced sale value
of the collateral item(s) should be adequate to ensure full recovery of the bank’s
principal credit exposure and also provide a minimum of 12 months’ interest at the
bank’s approved lending rate after deduction of all incidental charges and fees.

[Link] Guidelines on Collateral from third party

In certain circumstances, it may be necessary to obtain collaterals from a third party for
approving a credit proposal. In these situations, guarantee from the individual or entity
offering the security should be obtained. In its absence such collateral should not be
considered for Credit Risk Mitigation, though it can be obtained to get additional
comfort.

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[Link] Guidelines for Apportionment of Collateral across Multiple Exposures

Unless collateral is charged to a specific facility, the following guideline should be

followed:
 Wherever single or multiple collateral is / are charged to multiple exposures (for
the same obligor or across obligors), the bank will apportion the collateral in the
proportion of the limits at facility level. This guideline is for the purpose of capital
computation and estimation of LGD.

[Link] Guidelines on collateral from a different country

Whenever collaterals offered are located in a foreign country for exposures in domestic
or foreign countries, apart from fulfilling the eligibility criteria for collateral, the following
aspects should be looked into:
 The country should not be enlisted in any published negative list acceptable o
t
the Bank.
 Law of the country with respect to legal requirement about enforceability. It
should be favourable to the Bank for accepting the collateral.
 Procedures for creation of charges should be meticulously adhered to.
 Local solicitor must certify the process of charge creation

[Link] Collateral for syndicated loans

The bank shall not take an inferior security position in any lending transaction.
Where the customer’s general assets have been charged to other lenders prior to
initiation of banking relationship with the bank and the existing lenders are unwilling to
admit the bank into the security arrangement:
I. The bank shall insist that specific assets be carved out of the general assets
and charged in favour of the Bank.
II. Legal Group shall liaise with the Trustee Managers to ensure that the bank’s
interest is promptly noted in the Trust deed and a copy shall also be
obtained.

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[Link] Consent to share in security held by Access Bank PLC

Request for consent to allow another bank a pari-passu share in security being held by
the bank shall be approved by;

 Corporate Counsel
 GDMD/GMD

[Link] Minimum Collateral Coverage

The Collateral cover shall not fall below the percentage indicated below.

COLLATERAL MINIMUM COVERAGE REQUIRED (AS % OF

FACILITY LIMIT)

Cash Deposit 110% of facility amount

Lien on quoted 200% of Market Value

and highly liquid However, the facility shall not exceed average trading
shares/stock turnover of the stock on the floor of the NSE in the last
one month, after discounting all unusual turnover.
Where trading in a stock has been technically
suspended, there must be a clear indication when the
suspension will be lifted before such a stock will be
acceptable as security.

All assets 150% of the facility amount including 12 months’

debenture interest.

Mortgage on 120% of loan amount and minimum of 12 months’

landed interest
properties.

[Link] Other Requirements

i. The bank must monitor on an ongoing basis the extent of any permissible
prior claims (e.g. tax) on the property.

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ii. The bank must appropriately monitor the risk of environmental liability
arising in respect of the collateral, such as the presence of toxic material on
a property.
iii. Where the collateral is held by a custodian, banks must take reasonable
steps to ensure that the custodian segregates the collateral from its own
assets.
iv. The Bank has to ensure that it is not exposed to major risk concentrations
of collaterals
v. Safe custody and access controls:
(a) Authority and responsibility shall be clearly delegated to relevant individuals
and departments for approving the acceptance, monitoring or safe custody
of collateral (in this context, the term “collateral” refers to both physical
collateral (e.g. marketable shares) and any forms of document representing
the legal title to the collateral e.g. title deeds) and guarantees.
(b) Collateral and guarantees received shall be kept in a fire-proof safe or vault.
(c) The location of collateral and guarantees placed in the custody the bank shall
be properly recorded and controlled to facilitate easy retrieval in future.
(d) There shall be dual control over the access to collateral and guarantees, in
particular, where the collateral is in bearer form or can easily be sold in the
market.
(e) Movements of collateral and guarantees should be duly authorized,
acknowledged by the persons taking possession of them and properly
recorded.
(f) Collateral and guarantees withdrawn for processing should be promptly
returned to the officer in charge of their safe custody. The officer should
follow up with the owner of collateral and the guarantors for the collateral and
guarantees withdrawn for an unusually long period.

[Link] Release of Collateral, Guarantees and Support

The charge on the collateral shall be cancelled and the collateral shall be released by
the Bank only after all the claims (direct and indirect) against the collateral are settled
and with permission of the competent authority. The collateral should be released to
the authorized person only, to avoid future complications and must be recorded in the
prescribed register.

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Upon confirmation of full repayment of the credit facility and liquidation of the bank’s
exposure, all collateral, guarantee or support for any type of credit transaction shall be
released to the customer in accordance with agreed terms and conditions. Release of
collateral, guarantee or support shall be upon completion of Security Release process
on Access Document Manager (ADM) with the appropriate approval by relevant
approving authority.
In case of substitution, the collateral shall be released only after charges are created
on the substituting collateral. It should be as per the sanction of the competent authority
and the proper process as prescribed in the sanction for substitution of the property
must be followed.
Release of collateral, guarantee or support shall require approval by the Head of Risk
on confirmation of full payment of the credit facility.
Before the corresponding commitment is cancelled or repaid, the respective Head of
Risks must determine if the release of the collateral, guarantee or support constitutes
a material change in the risk of the transaction. If so, then the transaction must be
reapproved, based on the Credit Facility Approval Grid.
After the corresponding commitment or exposure is cancelled or repaid, approval must
be obtained from a credit officer and the line /affected Head of Risk and Head of Legal
after verification of cancellation or repayment.
This does not apply to adjustments in collateral amounts related to changes in asset
values, such as margining, repurchase or reverse repurchase agreements, to the
release of the underlying security in a repurchase agreement, margin lending or
securities lending activities, or asset based finance arrangements.
For bonds and guarantees, where Letter of Discharge or Certificate of Work Done is
issued release of underlying security must be approved by the Head of Risk, Legal and
Line ED of the business unit.

[Link] Waivers or Amendments to Existing Legal Documentation

Requests to waive or amend the provisions contained in existing credit agreements

must be considered carefully, as they may be a critical component of problem
identification and remedial management activities. Such requests must be approved by
the responsible business ED and in accordance with the Credit Approval Grid, but not
to exceed the Group MD/CEO limit for credits. Any waiver or amendments for facilities
above that must be approved by the GMD.

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Other types of amendments to credit agreements, such as the lengthening of tenor,

increasing facility amount, or material relaxation of collateral structure, require full credit
approval of Total Facilities, in accordance with the Credit Approval Grid.

[Link] Collateral Substitution

Substitution of collateral occurs when the Bank permits to take security interest in one
item or type of collateral while releasing its interest in another item or type of collateral
previously taken. Substitution of collateral can be full or partial. Collateral substitution
could be initiated either by the Bank or by the obligor. Wherever substitution is sought
by the Bank, the process should be completed within an acceptable time frame as
prescribed by the Bank.
Collateral substitution is a provision, which allows the borrower to obtain a release of
the original collateral title by replacing it with another form of collateral satisfactory to
the bank.
The following are the cases where the bank should seek substitution of Collateral:
i. Collateral has become obsolete due to the introduction of new substitutes or
more superior models.
i. Collateral liquidity has deteriorated significantly.
ii. Legal issues, which may affect the bank’s ability to legally enforce the collateral.
Criteria for accepting substitution of collateral:
i. Substituting collateral should fulfil all the eligibility criteria stipulated for
acceptance of collateral.
i. Substituting collateral should provide at least equal or greater collateral
coverage and similar location supported by professional valuation
ii. Substitution of collateral should not materially interfere with the operation of the
enterprise/ obligor, repayment of the credit facilities or decrease the value of the
other collateral securing the credit facilities.
iv. Documentations for new collateral must be in perfectible state without recourse
to the customer

Requests for collateral substitution shall be approved in accordance with the existing
approval grid with MCC as the highest approving authority.

[Link] Collateral Inspection / Site Visits

At the minimum, annual physical verification shall be conducted to confirm the

existence and adequacy of all collateral held as security in respect of credit exposures
by the relationship manager and Credit Risk Management (probably at the time of

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annual review of facilities). Such inspections shall include the physical inspection,
examination of security agreements to determine enforceability of liens, verification of
appropriate and adequate insurance protection, proper legal registration (and renewal
of registration), and the adequacy of overall safeguards.
Prior to disbursement of funds under a term loan, there must be a documented site visit
by the relationship manager.

[Link].1 Frequency of Inspection/Visitation

No. Type of Collateral Frequency of Inspection

1. Land, Properties, Aircraft, Vessels Annual

2. Equipment, Plant & Machinery Annual
3. Asset-backed securities Once in three months

The Bank will use external valuers to value collaterals except for retail type
transactions, i.e. trading stocks.
Bank should maintain a list of approved external valuers and surveyors. They must be
professionally qualified, reputable, experienced and competent. Their performance
should be monitored and evaluated on a regular basis.
Bank should ensure that the staff responsible for internal valuation possesses sufficient
knowledge and expertise to perform their duties. Procedures should be established to
ensure that internal valuations are not out of line with prevailing market values. For
example, internal valuations can be cross-checked from time to time with professional
valuations on a sampling basis. Accuracy and effectiveness of the methodology for
conducting internal valuations should also be back-tested by comparing the valuation
with actual sale proceeds received on subsequent disposal of the assets.

[Link] Collateral Valuation

[Link].1 Basis of Valuation

Valuation of collateral should be based on the current market value of the collateral and
should be objective and scientific to ensure that the Bank does not grant a higher credit

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limit to the obligor or improve its internal credit rating, make a lesser amount of provision
or continue interest accrual for a problem credit.
Bank should ensure that the valuation method used, whether internal or external, is
based on assumptions that are both reasonable and prudent and all assumptions
should be clearly documented.
Collateral should be valued at forced sale value. The forced sale value is usually less
than the net realizable value, which is the current market value less any potential
realization costs (e.g. carrying costs of the repossessed collateral, legal fees or other
charges associated with disposing of the collateral).
Market value is the price at which an asset might be sold on the valuation date
assuming:
1. A willing buyer and seller.
2. The transaction is at arm's length.
3. A reasonable period has been allowed for the sale.
4. The asset is freely exposed to the market.
This is because, in practice, the forced-sale value, rather than the open market value,
is likely to be closer to what eventually may be realized from an asset sale when the
market conditions are unfavourable. In assessing the value of an asset, temporary
aberrations should be disregarded (e.g. a sudden rebound in the market price).

[Link].2 Collateral Valuation

Depending on the nature of such collateral, any collateral held as security in respect of
credit exposures shall be revalued on predetermined periodic basis using appropriate
systems, using the following criteria:

i. Revaluation Period: Revaluation Period: All collaterals are to be revalued every

three (3) years. However, the relationship team shall conduct annual review of
the underlying collaterals and submit a report of such review to Credit Risk
Management Group. Collaterals for impaired facilities shall be valued as
required

ii. Impairment Trigger / Significant Increase in Facility Amount: Once there is

an impairment trigger or significant increase in the facility amount, immediate

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revaluation of the underlying collateral should be done even if the last

revaluation is not up to three (3) years old.

iii. Where All Assets Debenture is the only available collateral used: The
minimum collateral coverage shall be 150% of the facility amount including 12
months’ interest.
Such revaluation shall confirm the continuing appropriateness of and adequacy of the
forced sale value of collateral on the open market to cover the bank’s exposure.
Collateral valuation shall be conducted by outside professional appraisers where
necessary and/or dictated by industry practice or legal requirements, as in the case of
property / real estate.
Where obligations are secured by marketable securities, which are critical to the
repayment of the obligation, a predetermined “stop loss” or “sell point” shall be
established (under clear advice to the obligor) and the securities should be liquidated
if the value falls to the “stop loss” (unless additional and satisfactory security is
provided).

[Link].3 Minimum Requirements to be included in report on Collateral

Valuation

Collateral valuation reports record the instruction for the assignment, the basis and
purpose of the valuation and the results of the analysis that led to the opinion of value.
A Valuation Report may also explain the analytical processes undertaken in carrying
out the valuation, and present meaningful information used in the analysis. Valuation
Reports should be in written form. The type, content, and length of a report vary
according to the intended user, legal requirements, the property type, and the nature
and complexity of the assignment. It includes
 Valuation date
 Description of Assignment
 Purpose and Scope of the Report
 Valuation Approach Summary
 Description of the Obligor
 Description of the asset (collateral) including date of purchase, technical
specifications etc.

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 Capitalization and Ownership of the collateral

 Fair Market Value of the collateral
 Forced Sale Value
 Insurable Value
 Other Value as and when required:
 Liquidation Value: The estimated amount of money that an asset or
company could quickly be sold for, such as if it were to go out of business.
 Book Value: The value of an asset as it appears on a balance sheet, equal
to cost minus accumulated depreciation.
 Enterprise Value: Enterprise value is an economic measure reflecting the
market value of the whole business. It is a sum of claims of all the security-
holders – debt holders, preferred shareholders, minority shareholders,
common equity holders, and others.
 Going-Concern Value: The value of a company as an operating venture.
The difference between the liquidation value and the going-concern value is
the value of intangibles associated with the running of the business, such as
goodwill and intellectual property.
 Economic or Investment Value: Economic Value is the value of an asset
deriving from its ability to generate income. Investment Value, the estimated
value of an investment to a particular individual or institutional investor.
 Valuation principles and methods used in arriving at the value of the collateral
 Assumption upon which the valuation is based
 Sources of Information/ Contingent and Limiting Conditions
 Statement of Independence
 Name, address, and qualification of the valuer.
 Appraisers/ Valuer Certification
 Date of Certification
Certification of value is used as a statement in which the valuer affirms that the facts
presented are correct, the analyses are limited only by the reported assumptions. The
Valuer’s fee is not contingent upon any aspect of the report, and the Valuer should
have performed the valuation in compliance with ethical and professional standards.

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[Link].4 Haircut

To account for volatility in the market value of the collateral, Bank should apply a
conservative haircut when valuing it for the purpose of determining the extent to which
an exposure is secured. The quantum of that haircut will depend on the price volatility
of the collateral, maturity and currency mismatch between collateral and exposure.

As an intermediate approach, the bank shall use the following table for volatility haircut:

[Link].5 Volatility Hair Cut for Collateral

Collateral
Type Haircut

Cash Nil

Marketable Mark to Market discounted at the effective interest rate

instruments of the availed facility

Residual Maturity of the facility discounted at the

Legal Mortgage effective interest rate of the availed facility

Currency Haircut: A currency haircut should be applied for all collaterals where
exposure and collateral are denominated in different currencies.

[Link].6 Maturity Mismatch Haircut

When there is a maturity mismatch (in the residual maturity) between recognized
collateral and the exposure, the following adjustment will be applied.
Pa = P x (t – 0.25) / (T – 0.25)
Where:
Pa = value of the collateral adjusted for maturity mismatch
P = collateral value adjusted for volatility and currency haircuts
T = 5 years or residual maturity of the exposure expressed in years, whichever is lower

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t = T (as defined above) or residual maturity of the collateral expressed in years,

whichever is lower

[Link].7 Frequency of Valuation

Valuation shall be done by the bank’s external valuers. Frequency of valuation depends
on type and nature of collateral and asset classification of the underlying credit facility.

No. Type of Collateral Minimum required Valuation by

Frequency of
Valuation

1. Land, Properties, Every 3 years Bank's empaneled

Equipment, Plant independent valuers
and Machinery

2. Specialised Assets Every 5 years Bank's empaneled

like Aircraft and independent valuers
Vessels

[Link].8 Top-up of collateral

For all obligors, the conditions warranting additional collateral should be clearly
documented in the relevant agreement with the obligor.
Cases where additional collateral shall be warranted include:
 Value of the collateral has fallen below the level prescribed by the Bank due to
fluctuations in market price (e.g. of commodities).
 Deterioration in the debt-servicing ability of the obligor.
 Wherever top-up is required as per conditions stipulated above, the same has to
be done within an acceptable time frame as prescribed by the Bank.

[Link] Liquidation of Collateral

All collateral possessed by the Bank in the course of the satisfaction of dues, should
be disposed at the earliest suitable opportunity and not later than 18 months after its
acquisition or within such period as may be approved by CBN.

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Otherwise, the Bank will be required to include the assets acquired and held for more
than 18 months or such further period approved by CBN in the computation of its
exposure deeming the assets as owned by the bank. This is required as the bank will
be exposed to price risk of collateral possessed.

In the event of credit default, prompt action as per the bank’s policy on recovery
management should be taken. Steps should be taken for taking possession of the
collateral and sale thereof in all eligible cases, as per the procedure laid down in the
Bank’s recovery management policy, after obtaining the permission of competent
authority and the timeframe given in the policy for different steps should be strictly
adhered to.
At the time of filing suit/ application, all steps to safeguard the collateral should be taken
so that the same are not frittered away during pendency of the suit. For this purpose,
interim reliefs should be obtained from the Court by way of injunction / restraint order,
attachment before judgment, appointment of receiver etc.
Disposal of collateral shall be at arm’s length and through a transparent process (for
e.g. public auction) and should be in compliance with relevant laws and regulations.

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7.7.3 Guarantees

[Link] Guideline on Acceptance of the Guarantee

A guarantee given on behalf of obligor must represent a direct claim on protection

provider and must be explicitly referenced to specific exposures. In the case of default
on part of obligor, the guarantor should be bound to pay the amount guaranteed.
To be acceptable, the
 Guarantee should represent a direct claim on the guarantor.
 Guarantee should be unconditional and irrevocable.
 Guarantee should be properly documented and legally enforceable.
 The risk rating of the guarantor should be higher than that of the counterparty
whose exposure is guaranteed
 Guarantee should remain continuously effective until the facility covered by the
guarantee is fully repaid or settled.
 Creditworthiness of the guarantor should not be linked to or affected by the
financial position of the obligor.
 The bank must have the right to receive payment from guarantor without taking
legal action against the obligor
Guarantees not fulfilling the above criteria will be accepted by the Bank as additional
comfort but the exposure will still be treated as unsecured.

[Link] Indicative List of entities whose Guarantee is recognized

 Sovereign entities, public-sector enterprises, banks, corporate and securities

firms.
 Other entities like parent, subsidiary or affiliated companies.
 Personal Guarantees from Partners, Sole Proprietors, Directors.
 Third party Personal Guarantees.

All guarantors should be rated. Guarantor’s rating should be reviewed annually. In case
of all standard advances, guarantees covering on-going relationships with or without

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any outstanding should be revalidated every 3 years or whenever there is an increase

in the exposure of the obligor or whenever there is any change in the terms and
conditions of the facility.
Explicit documentation should define the obligation assumed by the guarantor. In the
event of default/ non-payment by the obligor, the bank should in a timely manner pursue
the guarantor for the amount guaranteed.

[Link].1 Personal Guarantee, Joint and Several Guarantees of Directors

Personal / Joint and Several Guarantees of Directors shall only be acceptable as
additional security to some other forms of tangible collateral. Persons from whom
personal guarantees may be accepted must be high net-worth individuals with first rate
credit history and excellent track record as upstanding members of the society. The
bank shall conduct credit checks to assess credit worthiness and obtain notarized
statement of net worth.

[Link].2 Corporate Guarantee

Corporate Guarantees shall only be acceptable under the following circumstances:
 Cross-corporate guarantee of a subsidiary company for a credit line approved
for the company.
 Corporate guarantee of a third-party company though not necessarily a
subsidiary or sister company, provided there is commercial justification.
 Corporate guarantee for employee credit under the employees’ loan scheme.

[Link].3 Bank Guarantee

For the purposes of the law, prime bank guarantees shall be considered acceptable
security. A bank is considered as a prime bank if it has a high risk rating based on
Access Bank’s risk rating system.

[Link] Guideline on Guarantee provided by entity from a different Country

Whenever the guarantor is located in a foreign country for exposures in domestic or

foreign countries, apart from fulfilling the eligibility criteria mentioned in section above
the following aspects should be looked into.

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 The country should not be enlisted in any published negative list acceptable o
t
the Bank.
 Law of the country with respect to legal requirement about enforceability should
be favourable to the Bank for accepting the guarantee.

[Link] Guideline for apportionment on Guarantee Amount across Multiple

Exposures

Unless Guarantee amount secures a specific facility, the following guideline shall be
followed:
 Wherever single or multiple guarantees secure(s) multiple exposures (for thesame
obligor or across obligors), the bank should apportion the guarantee amount in
the proportion of the limits at facility level.

[Link] Substitution of Guarantee

A substitution of Guarantee occurs when the Bank accepts a Guarantee given as a

credit risk mitigant for a facility while revoking its interest in another Guarantee
previously taken. Substitution of Guarantee can be complete or partial. Guarantee
substitution could be initiated either by the Bank or by the obligor or guarantor.
Wherever substitution is sought by the Bank, the process should be completed within
an acceptable time frame as prescribed by the Bank.
Following are the cases where the bank shall seek substitution of Guarantee:
 Legal issues, which may affect the bank’s ability to legally enforce theGuarantee.
 Guarantor’s risk rating has deteriorated significantly.
Bank should look in to the following aspects before deciding on substitution of
guarantee:
 Substituting guarantee’s rating should at least be equal to the rating of
substituted guarantee.
 Reason for the revocation of the guarantee/ release of guarantor should be
genuine.
 There should not be any adverse impact on the level of credit risk mitigation in
the credit facility due to revocation of the guarantee (for instance if the guarantor

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has given any other collateral as security and due to the revocation of guarantee
bank may lose the security interest in the collateral too).

[Link] Maturity Mismatch Haircut

When there is a maturity mismatch (in the residual maturity) between recognized
guarantee and the exposure, the following adjustment will be applied.
Pa = P x (t – 0.25) / (T – 0.25)
Where:
Pa = guarantee amount adjusted for maturity mismatch
P = original guarantee amount
T = 5 years or residual maturity of the exposure expressed in years, whichever is lower
t = T (as defined above) or residual maturity of the guarantee expressed in years,
whichever is lower

[Link] Comfort Letter

At times, credit facilities to a subsidiary of a multinational, corporate company may be

granted with the support of a comfort letter, rather than an explicit guarantee from the
parent company. Such comfort letters do not bind the parent in a legal obligation but
create only a morally binding obligation, on the premise that such companies usually
tend to stand behind their public image of reputation and compliance with
commitments.
However, anything less than an unconditional guarantee of the parent may expose the
Bank to undue risks, in a volatile financial world with business failures. Hence,
extension of facilities against parent comfort letters must be based on adequate
financial structure of the borrowing subsidiary. In other words, the overall financial
condition of the obligor should warrant the facilities and comfort letters as such should
have no direct bearing on the merits of the credit.
Additionally, comfort letters are to be taken only when:
 It is clearly established that the parent cannot issue a normal “debt guarantee”
because of certain extenuating circumstances.

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 The parent company issuing the comfort letter is of impeccable standing and
internationally well known, enjoying solid financial condition.
 The subsidiary is at least majority (over 50%), if not fully, owned by the parent
entity.

7.7.4 Credit Derivatives

[Link] Guideline on the acceptance of Credit Derivative

This section covers policy on credit derivatives for mitigation of credit risk. Credit
Derivatives positions for purposes other than Credit Risk Mitigation are beyond the
scope of this section.
Credit derivatives are financial contracts designed to transfer credit risk on loans and
advances, investments and other assets/ exposures from one party (protection buyer)
to another party (protection seller). Transfer of credit risk may be for the whole life of
the underlying asset or for a shorter period. The transfer may be for the entire amount
of the underlying asset or for a part of it.
A credit derivative may be referenced to a single entity or to a basket of several entities.
Credit derivatives may also include cash instruments (e.g. credit linked notes) where
repayment of principal is linked to the credit standing of a reference asset/ entity.

[Link] Eligible types of Credit Derivative

The credit derivatives can be broadly classified under the following four types and may
range from plain vanilla to complex structures that may involve any combination of two
or more of the following structures:
1. Credit default swaps
2. Total return swaps
3. Credit linked notes
4. Credit options

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[Link] Criteria for recognition of Credit Protection

This section sets out the criteria to be fulfilled by credit derivatives in order to be
recognized as a credit risk mitigant:
1. A credit derivative should represent a direct claim on the protection seller.
2. The credit protection should be linked to specific exposures, so that the extent of
the cover is clearly defined and incontrovertible.
3. The credit protection should be legally enforceable in all relevant jurisdictions.
4. There should be no clause in the contract that would allow the protection seller
unilaterally to cancel the credit cover other than a protection buyer's non-payment
of money due in respect of the credit derivative contract.
5. There should be no clause in the credit derivative contract that could prevent the
protection seller from being obliged to pay out in a timely manner in the event that
the original obligor fails to make the payment(s) due.
6. The protection seller should have no formal recourse to the protection buyer for
losses.
7. The credit events specified in a credit default swap or a credit linked note should
adequately cover the credit risk of the reference entity itself.
8. Contracts allowing for cash settlement are recognized for credit risk mitigation
purposes so far as a robust valuation process is in place in order to estimate loss
reliably. There should be a clearly specified period for obtaining post-credit-event
valuations of the reference obligation, typically no more than 30 days.
9. The protection buyer should have the right/ ability to transfer the underlying
exposure to the protection seller, if required for settlement.
10. The identity of the parties responsible for determining whether a credit event has
occurred should be clearly defined. This determination should not be the sole
responsibility of the protection seller. The protection buyer must have the right/
ability to inform the protection seller of the occurrence of a credit event.
11. Risk Rating (Internal/External): Substitution approach to be applied, which implies
that the risk rating (internal/external) of the credit derivative (protection provided)
should be better than the risk rating of the counterparty.
12. Creditworthiness of the protection provider should not be correlated or linked by the
financial position of the obligor.

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13. Minimum coverage: The credit events (events defining default) specified by the
contracting parties must at a minimum cover:
I. Failure to pay the amounts due under terms of the underlying obligation that are
in effect at the time of such failure;
II. Bankruptcy, insolvency or inability of the obligor to pay its debts, or its failure or
admission in writing of its inability generally to pay its debts as they become due,
and similar events; and
III. Restructuring of the underlying obligation involving forgiveness or postponement
of principal, interest or fees that results in a credit loss event (i.e. charge-off,
specific provision or other similar debit to the profit and loss account). When the
restructuring of the underlying obligation is not covered by the credit derivative,
but the other requirements for acceptable credit derivative are met, partial
recognition of the credit derivative will be allowed.
14. Period: The credit derivative shall not terminate prior to expiration of any grace
period required for a default on the underlying obligation to occur as a result of a
failure to pay.
15. If the credit derivative covers obligations that do not include the underlying
obligation, mismatch is allowed subject to following requirements:
I. Underlying asset and the reference obligation should have the same obligor
II. Underlying asset should have equal seniority with, or greater seniority to, the
reference obligation, and legally effective cross-default clauses should apply.

[Link] Basket Credit Derivative

Apart from single-name credit derivatives dealt with in the previous section, Bank can
obtain credit protection through credit derivatives on basket of reference names. To the
extent possible, basket should be comprised of homogeneous exposures in terms of
amount of Exposure at Default.

[Link].1 First-to-default:
In cases where the bank obtains credit protection for a basket of reference names and
where the first default among the reference names triggers the credit protection and
the credit event also terminates the contract. In this case, the bank should recognize

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the credit risk mitigation for the asset within the basket with the lowest EAD, but only if
the EAD is less than or equal to the notional amount of the credit derivative.

[Link].2 Second-to-default:
In the case where the second default among the assets within the basket triggers the
credit protection, the bank should recognize any credit risk mitigation, only if first-
default-protection has also been obtained or when one of the assets within the basket
has already defaulted. In this case, the bank should recognize the credit risk mitigation
for the asset within the basket with the second lowest EAD, but only if the second lowest
EAD is less than or equal to the notional amount of the credit derivative.

[Link].3 Nth-to-default:
In the case where the Nth default among the assets within the basket triggers the credit
protection, the bank should recognize any credit risk mitigation, only if (N-1) th -default-
protection has also been obtained or when one of the assets within the basket has
already defaulted. In this case, the bank should recognize the credit risk mitigation for
the asset within the basket with the Nth lowest EAD, but only if the Nth lowest EAD is
less than or equal to the notional amount of the credit derivative.

[Link].4 Proportionate protection:

If the contract allocates protection proportionately among entities in the basket,
protection is recognized against all the reference entities in the basket according to
their share of protection under the contract.

[Link] Maturity Mismatch Hair cut

When there is a maturity mismatch (in residual maturity) between with recognized credit
derivatives and exposure, the following adjustment will be applied.
Pa = P x (t – 0.25) / (T – 0.25)
Where:
Pa = value of the credit protection adjusted for maturity mismatch
P = credit protection adjusted for any haircuts

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T = 5 years or residual maturity of the exposure expressed in years, whichever is lower

t = T (as defined above) or residual maturity of the credit protection expressed in years,
whichever is lower

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8 Delinquency Management and Loan Workout

In the undesired event of decline in quality of assets, prompt identification and

management of such delinquency may significantly reduce credit loss to the bank. The
delinquency management / loan workout module of the integrated risk management
framework outlines the approach for identification and management of declining credit
quality. This also covers loan workout where all activities are geared towards
resuscitating nonperforming loans, and the first stage in the process of recognizing
possible credit loss i.e. loan loss provisioning (general and specific).

8.1 Asset Classification

Asset Classification should be done on a continuous basis and reported in monthly

intervals. The Bank will use the following methodology for classification of its assets
portfolio:

8.1.1 Performing Assets

Performing assets are those assets which are normal assets which have not been
classified as defaulted assets based on the default definition of the bank. Performing
assets will further be classified into two categories namely:
Standard Assets
Standard assets are those performing assets which are not identified as falling
under Watch List
Watch List Accounts
These are assets where mark-up/interest or principal is past due by more than 60
days but less than 91 days from the due date. Due to this overdue status, they are
potentially weak assets where, if left uncorrected, may result in deterioration of the
repayment prospects for the assets or bank’s credit position at some future date.
Potential weakness symptoms include:
 Early signs of cash flow / liquidity problems such as delay in servicing of trade
creditors / loans.
 Devolvement of LC / DPG instalment and non-payment of the same beyond 15
days.
 Continuous overdue in Bills facility beyond 10% of the outstanding balance.

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 BP returned unpaid outstanding beyond 15 days.

 Default in payment of interest / instalment due beyond 30 days.
 Persisting irregularities due to excess withdrawal beyond 30 days in Over Draft
account.
 No operations in the account during the reporting month.
 Inadequate or unreliable financial and other information such as audited
financial statements not obtained or are not available.
 The condition of and control over collateral is unsatisfactory.
 Borrower is the subject of litigation by third parties that may have a significant
impact on his financial position.
 Frequent changes in senior levels of management.
 Decline in production activity below 60% of the accepted level.
 Slowdown in business or adverse trend in the operations that signals a potential
weakness in the financial strength of the borrower, which has not reached a
point where servicing of the loan is jeopardized.
 Intra-group transfer of funds without underlying transactions.
 Exposures to related parties on favourable terms.
 Volatility in the economic or market conditions which may, in future, affect the
borrower adversely.
 Poor performance in the industry in which the borrower operates.
 Technical Default:
 Non-creation of charges affecting the ultimate recovery prospects in the
account.
 Failure to obtain proper documentation within stipulated time due to non-
cooperation by the borrower.
 Delayed / Non-submission of stock statements, other monthly information data
for 2 months continuously.
 Noncompliance to approval terms and conditions.
 Accounts remaining without review / renewal beyond 90 days from the due date
due to non-cooperation by the borrower.

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8.1.2 Non-performing Loans

Non-performing loans are loans that are classified as defaulted as per the default
definition of the bank. They should be classified into three categories namely, sub-
standard, doubtful or lost on the basis of criteria below:

[Link] Sub-Standard
The following objective and subjective criteria should be used to identify sub-standard
credit facilities:
1. Objective Criteria: facilities (which include loans, advances, overdrafts,
commercial papers, bankers’ acceptances, bills discounted, leases, guarantees,
and other loss contingencies connected with a bank’s credit risks) on which
unpaid principal and/or interest remain outstanding for more than 90 days but
less than 180 days.
2. Subjective Criteria: credit facilities which display well defined weaknesses
which could affect the ability of borrowers to repay such as inadequate cash flow
to service debt, under-capitalization or insufficient working capital, absence of
adequate financial information or collateral documentation, irregular payment of
principal and/or interest, and inactive accounts where withdrawals exceed
repayments or where repayments can hardly cover interest charges.

[Link] Doubtful
The following objective and subjective criteria should be used to identify doubtful credit
facilities:
1. Objective Criteria: facilities on which unpaid principal and/or interest remain
outstanding for at least 180 days but less than 360 days and are not secured by
legal title to leased assets or perfected realizable collateral in the process of
collection or realization.
2. Subjective Criteria: facilities which, in addition to the weaknesses associated
with sub-standard credit facilities reflect that full repayment of the debt is not
certain or that realizable collateral values will be insufficient to cover bank’s
exposure.

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[Link] Lost
The following objective and subjective criteria should be used to identify lost credit
facilities:
1. Objective Criteria: facilities on which unpaid principal and/or interest remain
outstanding for 360 days or more and are not secured by legal title to leased
assets or perfected realizable collateral in the course of collection or realization.
2. Subjective Criteria: facilities which in addition to the weaknesses associated
with doubtful credit facilities, are considered uncollectible and are of such little
value that continuation as a bankable asset is unrealistic such as facilities that
have been abandoned, facilities secured with unmarketable and unrealizable
securities and facilities extended to judgment debtors with no means or
foreclosable collateral to settle debts.

8.2 Provisioning

As per the guidelines of Central Bank of Nigeria two types of provisions (specific and
general) are to be made for anticipated loss on nonperforming credit facilities. Specific
provisions are made on the basis of perceived risk of default on specific credit facilities
while general provisions are made in recognition of the fact that even performing credit
facility harbours some risk of loss no matter how small.

8.2.1 CBN Prudential Guideline

As soon as credit facility is identified as delinquent, adequate loan loss provisioning

shall be made in accordance with the requirements of the prudential guidelines and the
bank’s credit policy as follows:
For facilities classified as Sub-Standard, Doubtful, or Lost:
Interest overdue by more than 90 days should be suspended and recognized on cash
basis only.
Principal repayments that are overdue by more than 90 days should be fully provided
for and recognized on cash basis only.
For principal repayments not yet due on non-performing credit facilities, provision
should be made as follows:
Sub-Standard Credit Facilities: 10% of the outstanding balance
Doubtful Credit Facilities: 50% of the outstanding balance

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Lost Credit Facilities: 100% of the outstanding balance

For prudential purpose, provisioning should only take cognizance of realizable tangible
security (with perfected legal title) in the course of collection or realization.
Consequently, collateral values should be recognized on the following basis:
For credit exposure where the principal repayment is in arrears by more than six
months, the outstanding unprovided principal should not exceed 50% of the estimated
net realizable value of the collateral security.
For credit exposure where the principal repayment is in arrears by more than one year,
there should be no outstanding unprovided portion of the credit facility irrespective of
the estimated net realizable value of the security held.
For a credit exposure secured by a floating charge or by an unperfected or equitable
charge over tangible security, it should be treated as an unsecured credit and no
account should be taken of such security held in determining the provision for loss to
be made.

General Provisions
Facility shall not be granted to a customer to trade speculatively as a means of repaying
existing challenged facility.
The bank will also make a general provision of at least 2% of outstanding credit facility
balances not specifically provided for. This shall be adjusted for the general Portfolio
or specific Asset in line with the Guide to Provision.

8.2.2 IFRS Loan Loss Impairment Policy

The Bank shall assess on a forward-looking basis, the expected credit losses (“ECL”)
associated with its debt instruments carried at amortized cost, FVOCI, exposure
arising from loan commitments and financial guarantee contracts.
Under the general approach, at each reporting date, the Bank shall recognize a loss
allowance based on either 12-month ECLs or lifetime ECLs, depending on whether
there has been a significant increase in credit risk on the financial instrument since
initial recognition. The changes in the loss allowance balance shall be recognized
in profit or loss as an impairment gain or loss.
The amount of ECLs recognized as a loss allowance or provision shall depend on the
extent of credit deterioration since initial recognition.

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Under the general approach, there are two measurement bases:

 12-month ECLs (Stage 1), which applies to all items (from initial recognition) as long
as there is no significant deterioration in credit quality;
 Lifetime ECLs (Stages 2 and 3), which applies when a significant increase in credit
risk has occurred
Stage 1

Financial instruments that have not had a significant increase in credit risk since initial
recognition or that (at the option of the entity) have low credit risk at the reporting
date. For these assets, 12-month expected credit losses (‘ECL’) are recognized and
interest revenue is calculated on the gross carrying amount of the asset (that is,
without deduction for credit allowance). 12-month ECL are the ECL that result from
default events that are possible within 12 months after the reporting date. It is not
the expected cash shortfalls over the 12-month period but the entire credit loss on
an asset, weighted by the probability that the loss will occur in the next 12 months.
The Bank shall determine the 12 months ECL on origination of all its loans and debt
portfolios. In addition, 12-month ECL are determined for its loans and debt
instruments that have not had a significant increase in credit risk since initial
recognition or that have low credit risk at each reporting date. 12-month PDs shall
be derived by observing the first 12 months of the lifetime PD curves.

Stage 2

This includes financial instruments that had significant increase in credit risk since initial
recognition on an individual or collective basis (unless they have low credit risk at
the reporting date and this option is taken) but do not have objective evidence of
impairment. For these assets, lifetime ECLs are recognised, i.e. ECLs that result
from all possible default events over the expected life of a financial instrument;
however, interest revenue is calculated on the gross carrying amount of the asset.
To determining whether the credit risk on a financial instrument has increased
significantly, the Bank shall consider reasonable and supportable (both historical
and forward-looking) information available, to compare the risk of a default occurring
at the reporting date with the risk of a default occurring at initial recognition of the
financial instrument.

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Lifetime ECL shall be recognised on loan and debt portfolios that had a significant
increase in credit risk since initial recognition with no objective evidence of
impairment. To do this, the Bank shall develop lifetime PDs, EADs and LGDs.
To enable assessment of significant increases in credit risk, the Bank shall apply the
operational simplification provided by IFRS 9 of 30 days past due rebuttable
presumption for movement from stage 1 to stage 2 for selected portfolios.
Reliance shall not be placed on 30 days past due as the only metric to identify increased
credit risk but incorporate alternate metrics and flags along with the 30 days past
due criteria as a backstop. However, for certain portfolios the 30 days past due
criteria will be rebutted where analysis shows that being 30 days past due does not
impact the default rates.
In subsequent reporting periods, if the credit quality of the financial instrument improves
such that there is no longer a significant increase in credit risk since initial
recognition, the Bank shall revert to recognizing a loss allowance based on 12-
month ECLs (i.e., the approach is symmetrical).

Stage 3

This includes financial assets that have objective evidence of impairment at the
reporting date. For these assets, lifetime ECLs are recognized and interest revenue
is calculated on the net carrying amount (that is, net of credit allowance). This is
done by applying the EIR in subsequent reporting periods to the amortized cost of
the financial asset.
Financial assets shall be assessed as credit-impaired when:
 there is significant financial difficulty of a customer/issuer/obligor (potential bad debt
indicator);
 there is a material breach of contract, such as a default or delinquency in interest
or principal payments;
 for economic or legal reasons relating to the borrower’s financial difficulty, the Bank
grants the borrower a concession that the lender would not otherwise consider.
 it becomes probable that a counterparty/borrower may enter bankruptcy or other
financial reorganization;
 there is the disappearance of an active market for a financial asset because of
financial difficulties; or
 observable data indicates that there is a measurable decrease in the estimated
future cash flows from a group of financial assets.

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 the financial asset is 90 days past due except for specialized loans for which the
presumption is rebutted.

The Bank shall also assess if there has been a reversal in the significant increase in
credit risk since initial recognition based on all reasonable and supportable
information that is available without undue cost or effort. Evidence that the criteria
for the recognition of lifetime ECL are no longer met may include a history of up-to-
date and timely payment performance against the modified contractual terms.
A customer needs to consistently demonstrate good payment behaviour over a period
before the credit risk is considered to have decreased. The period over which the
customer demonstrates good behaviour determines if the loan is moved from stage
3 to stage 2 or stage 1.

8.2.3 Modified Financial Assets

There are situations during the life cycle of a loan or receivable where the contractual
terms and/or cash flows of the facilities are either renegotiated or modified.

The renegotiation or modification of the contractual cash flows of a loan or receivable

can lead to the de-recognition of the existing contract and subsequently, the recognition
of a ‘new’ facility. This means that the entity is starting afresh and the date of the
modification will also be the date of initial recognition of the new transaction. In such
situation the entity will recognize a loss allowance based on 12-month ECLs at each
reporting date until the requirements for the recognition of lifetime ECLs are emerges.
However, in situations where the modification was for a significantly distressed asset
then the assets needs to be re-originated as a credit-impaired financial asset.

In Access Bank the following are indicators that will be considered in determining the
measurement basis for a modified/renegotiated financial asset.
a) Amendment to initial repayment pattern following a change in customer’s expected
cash flow streams
b) Extension of repayment obligation
c) Extension of loan repayment period
d) Interest rate renegotiation lower than the Bank’s approved lending rate guide for
investment grade obligors

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e) Interest and/or Principal waiver

The current stage or status of a financial asset in the books of the Bank will play a vital
role in the subsequent classification of the modified/renegotiated financial asset.

In compliance with the guidance of the CBN and IFRS 9 requirement, each case of
modification/renegotiation will be assessed individually to identify whether it is
appropriate to move to Stage 1, hold in Stage 2 or treat as an originated credit-impaired
financial asset in Stage 3
In the event that there is evidence that there is significant reduction in credit risk, the
minimum probation period of 90days will be observed before the assets is
reclassified to an earlier stage. However, where the is need for management
override to upgrade from Stage 2 and/or Stage 3, contrary to the probationary period
above and supportable evidence exists, such override must be approved by
Executive Director, Risk. Management.

8.2.4 Loan Loss Provisioning

Interest due on nonperforming credits will be suspended, credited to “Interest in

Suspense Account” and recognized only on cash basis

8.3 Credit Recovery

This is the final phase of the Access Bank credit risk management framework.
The phase consists of all the activities after a facility has been deemed lost and involves
managing such facilities to ensure that the loss to the bank is minimized. This includes:
 Activate the GSI trigger for the principal and interest only
 Credit write-off and / or interest waivers on non-performing exposures
 Re-instatement of previously written-off credit amounts on recovery of cash from
the customers.
Deliberate action shall be taken on a proactive basis to minimize the bank’s loss on
non-performing exposures. Guidelines for winding down the bank’s exposure, interest
and charge waivers as well as the next stages in the process for recognizing credit loss
such as bad debt write-off etc. are outlined here. In the event of recovery, process for
recognizing income and previously written off amounts is also defined in this phase.

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8.3.1 Activate the GSI Trigger for the Principal and Interest Only

The global standing instruction serves as a last resort for recovery of debt owed by
a customer without recourse to the customer.
This allows a creditor bank to recover past due obligations (Principal and Accrued
Interest only, excluding any Penal Charges) from a defaulting Borrower through a
direct set-off from deposits/investments held in the Borrower’s qualifying bank
accounts with participating financial institutions.

QUALIFYING ACCOUNTS

The following types of accounts qualify for GSI:

a) Individual Savings Accounts;

b) Individual Current Accounts;
c) Individual Domiciliary Accounts;
d) Investment/Deposit Accounts (N & Foreign Currency); and
e) Electronic Wallets.
f) Joint account(s)
g) And any other account as may be defined by the CBN guidelines from time to time.

8.3.2 Interest and Charge Waivers

On application by the obligor and after due consideration of the options available to the
bank in respect of nonperforming exposures, it may be determined that it is in the best
interest of the bank to accept less than the full value of the outstanding amount in
settlement of a debt or some other noncash asset as repayment. In this respect,
waivers of interest and/or credit charge shall be considered by the bank. Proposal for
waivers will be considered only after complete evaluation of all options for the Bank
and full discussion with Legal Counsel. Consideration of waivers of interest and/or
credit charge shall be limited to credit exposures classified as lost (i.e. after prospect
of full recovery are dim and there is no realizable security). Discussions and negotiation
in respect of repayment / waiver terms shall be the responsibility of Remedial Asset
Unit of Credit Risk Management.
Waiver arrangement will represent final settlement terms. New facility will only be
granted to borrowers who have enjoyed prior waivers on full settlement of previously
granted waivers.
All waivers of interest and charges shall require approval of the GMD. Approval of
interest and charges waivers shall be documented in writing and properly initialed by
the approving authority.

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8.3.3 Bad Debt Write-off

After full evaluation of a nonperforming exposure, in the event that either one or all of
the following conditions apply, such exposure shall be recommended for write-off:
 Continued contact with customer is impossible.
 Recovery cost is expected to be higher than the outstanding debt.
 Amount realized from realization of credit collateral security leaves a balance of
the debt.
 It is reasonably determined that no further recovery on the facility is possible.
All credit facility write-offs shall require written endorsement at the appropriate level as
defined by the bank. Write-offs require approval by the Board of Directors and the
Central Bank, where relevant.

8.3.4 Erroneous Charges or Interest

In cases of erroneous interest or charges debited to a customer’s account, the

management of the bank is authorized to approve reversals of such erroneous charges
or interest. Reversals of interest and charges shall be approved by the GMD.

8.3.5 Recoveries and Credit Write-Back

Whenever amounts are recovered on previously written-off credit exposures, such

credit facility shall be reclassified as performing and the amount recovered recognized
on a cash basis only.

8.3.6 Declassification

a. Declassification of facilities (i.e. Time/Term Loan, Leases etc.) may be considered

if the obligor effects payment where past due interest on non-accrual principal
does not exceed 90 days.
b. The rating of every classified loan account shall be subject to changes from time
to time as circumstances demand
c. Such declassification shall be supported by a Memo which must include:

 A copy of the most recent Classified Loan Report.

 Special details of what has changed since classification to warrant
declassification

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 Most recent audited accounts of the borrower.

d. Any declassification or upgrading of a borrower shall require the recommendation
of the Relationship Managers and supported by the Group Head. All
declassifications shall be approved by the CRO.
e. When a restructure on a classified loan is agreed with a customer, the
rescheduling shall be treated as a new facility, but provisioning shall continue until
it is clear that rescheduling is working at a minimum, for a period of 90 days.
Reversal of interest previously suspended and provision against principal
previously made should be recognized on a cash basis.

8.3.7 Full and Final Settlement

On application by the obligor and after due consideration of the options available to the
bank in respect of non-performing exposures, it may be determined that it is in the best
interest of the bank to accept less than the full value of the outstanding amount in
settlement of a debt or some other non-cash asset as repayment. In this respect,
waivers of interest and/or credit charge shall be considered by the bank. Proposal for
waivers will be considered only after complete evaluation of all options for the Bank
and full discussion with Legal Counsel. Consideration of waivers of interest and/or
credit charge shall be limited to credit exposures classified as, substandard, doubtful
and lost (i.e. after prospect of full recovery are dim and there is no realizable security).
Discussions and negotiation in respect of repayment/waiver terms shall be the
responsibility of Remedial Assets Group.
Waiver arrangement will represent final settlement terms. New facility shall not be
granted to borrowers who have enjoyed prior waivers except where exceptionally
approved by GMD. On discretionary basis, the bank shall decide to close such account,
where it is observed that the continued relationship will not be beneficial to the bank.
Recommendation for closure of account shall be considered alongside the full and final
payment proposal from Remedial Assets Group.

8.4 Guidelines for Recovery, Commencement and Methods

8.4.1 Managing Recovery Process

One of the most important aspects in maintaining the credit quality of the asset portfolio
is the need to curb incidence of Non-Performing Loans (NPLs) amongst new loans
approved. Constant credit supervision ensures maintaining the quality of the Credit
Portfolio. The Bank, through its monitoring system will assess the status of the assets
and deduce early warning signals that will activate corrective mechanism to retain the
account in standard category. In spite of the best efforts made by the Bank, there could
be deterioration in the credit quality and some assets may become NPL.

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Guidelines for recovery is framed with the objective to steer the recovery efforts of the
bank, for accounts that are showing warning signals and accounts that have been
classified as Non Performing, that will ultimately result in reducing the Loss Given
Default of the facility. These guidelines also augment the Bank’s efforts in achieving
targeted standard assets ratio by containing fresh accretion of NPLs, targeted reduction
in NPLs, targeted recovery amount.

8.4.2 Commencement of Recovery for Classified Assets

Once the account is classified as NPL then it should be managed under a dedicated
remedial process. Responsibility for such accounts should be assigned to the
“Remedial Assets Management Unit”. Workout function should be segregated from the
credit origination function. The additional resources, expertise and more concentrated
focus of a specialized recovery department normally improve collection results. The
decision to transfer nonperforming facilities to the Remedial Assets Management Unit
shall be taken at the Criticized Assets Committee (CAC) meeting under the
Chairmanship of the Group Deputy Managing Director (or Chief Risk Officer).

[Link] Methods of Recovery

 Frequent contact / follow up with the obligors through letters and personal
contact for normal recovery, contacting the guarantor if the advance is secured
by a guarantee and pressurizing through common friends and steps mentioned
under recovery process for standard assets also to be followed.
 Rehabilitation: The Banks policy on Rehabilitation has been dealt under “Risk
Monitoring and Control” component of the policy. However, assets classified as
“loss” are not eligible for rescheduling or restructuring.
 Compromise/ Negotiated Settlement: Reduction of NPLs can be achieved
through a compromise strategy where the objective of the genuine obligor is to
optimize his gain/ loss, having suffered a loss in the unit’s working and that of
the bank to minimize its loss. The broad objectives of a Compromise/ Negotiated
settlement are to:
 Reduce the level of NPLs by accelerated recovery of the same.
 Improve the profitability by reducing NPLs.
 Recycle the funds so recovered in good performing assets.
The approach of the Bank would be to recover as much as possible by
negotiation and clearing the problem loan in order to cleanse the portfolio. The
basic determinants of compromise settlements will be causes for default, need
for a compromise, process of compromise, modes of repayment and realizable
value of collateral / security.

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 Mergers and Takeovers: Corporate restructuring may provide a healthy

financial, managerial, technological and marketing support to a company that
may become sick because of controllable or non-controllable reasons. While
mergers and takeovers play a major role to achieve the competitive edge in the
global market, Bank will play a pivotal role in seeing that the sick companies/
units are utilizing this opportunity to see that this non-legal remedial route is also
exploited and the asset become performing. Mergers/ Takeovers are a process
under which a sick unit is merged with a healthy unit or, sometimes, a healthy
unit acquires a sick unit. A part of the consideration paid to the sick unit by the
healthy unit is used to liquidate the NPL, wholly or partly. The process will give
quick relief to the Bank, if it holds any sick unit.
 Lien and Set Off: Lien can be exercised by the Bank in case of all those
securities which comes to the possession of the Bank in the course of dealing
as a banker with the customer. If the Bank has any deposits in the same name
as that of the obligor, it shall exercise its right of set off in respect of obligor’s
indebtedness.
 Assignment: Assignment is the transfer of an actionable claim. When the Bank
finances against Life Insurance policies, book-debts and Supply bills to
Government Department and if the obligor defaults, the Bank shall recover the
debt by claiming to the party who is liable to pay the actionable claim through
this non-legal remedy. Appropriate notice should be given by the assignor to the
debtor.
 Suit Filing: Once it is observed that the obligor is making wilful default, the Bank
will resort to appropriate legal recovery proceedings. Bank will put in place
appropriate systems and procedures in place to ensure that Bank dues are
recognized through legal recourse.
 Sale of Collaterals: Wherever collateral is available, in case of default by the
obligor, the bank shall dispose of the collaterals charged in its favour. But before
sale, the Bank will give reasonable notice to the obligors to repay the loan failing
which collaterals held by the Bank will be sold. The process of sale should be by
public auction or through any procedures prescribed by law of the land.

[Link] Monitoring Recovery Performance

Monitoring of recovery performance by Credit Risk Management Groups as per the
Recovery section under Risk Measurement component of the policy is essential in
order to improve recovery from defaulted accounts. Such monitoring includes:
 Ensuring adherence to achievement of major milestones in recovery.
 Tracking of credit losses at portfolio level.

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 Against Expected loss of the portfolio under normal economic

environment.
 Against sum of Expected and Unexpected loss of the portfolio in case of
abnormal macro-economic environment leading to connected default.

[Link] Write off

In order to weed out the non-remunerative NPL accounts and to pave the way for the
Bank to devote more time for Business development, the exercise of write off is
undertaken after critically analysing the chances of recovery in all the NPL accounts.
The accounts can be written off only after exhausting all avenues of recovery through
normal course/ by legal means/ through compromise etc. The exercise of write off has
to be undertaken on merits of each case after considering various factors like low/ nil
income generation, capacity of the obligor/ guarantor to pay the dues, availability/ state
of the securities etc.
In the event of delinquency, where principal and/or interest are unpaid for more than
360 days, the bank shall commence deliberate action to recover on such exposures
and minimize total loss to the bank. It is expected that the required approach to resolve
lost credits shall be unique in each instance and will depend on the specific details
including documentation status, collateral situation etc.
Recovery action may without prejudice to the above provision be instigated when there
is evidence that an account cannot be salvaged by other means.
However, the following general guidelines shall apply:
 Strict compliance with management decisions on nonperforming accounts.
 Recovery action may include legal proceedings
 The bank’s entitlement shall be limited to the full amount of principal and
interest unpaid to date of recovery and all associated costs incurred in the
recovery.
 Where sale proceeds fall short of the bank’s full entitlement, demand shall
be made for the balance from the customer.
 Where sale proceeds are in excess of bank’s entitlement, the surplus shall
be credited to the customer’s account.
 Advising Legal Department to call in specific facilities as approved at the
appropriate levels of authority in the bank.

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 Overseeing the realization of securities on lost facilities.

 Liaising with Legal Department and/or external debt recovery agents for
collection of called-in facilities.
 Appointment of recovery agents.
 Preparing periodic reports on all recovery activities
 Recommending concessions / waivers in deserving cases.
 Recommending debt write-off and/or process write-back to income as
appropriate.

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9 Portfolio Management Guidelines and Risk Reporting

9.1 Portfolio Management Policies

9.1.1 Objectives

 To ensure optimal earnings through high quality risk portfolio, deliberate portfolio
strategy, planning, performance assessment and reporting will be emphasized.
Concentrations of exposures to industry/market sectors and by exposure type will be
limited in line with the bank’s risk and return preferences.
 Portfolio management is an integral part of the credit process and shall apply to
all businesses of the bank and include all risk assets’ exposures. The Executive
Committee (Credit) shall articulate risk and return preferences that will influence risk
asset behaviour in the bank. On the recommendation of the Chief Risk Officer (Risk
and Management Control), the Executive Committee (Credit) shall approve at the
corporate level and for each business unit target risk portfolio and risk acceptance
criteria. Annually and subject to quarterly reviews, Credit Risk Management shall
articulate a desired credit portfolio mix for Board Credit Committee approval.
 Portfolio Management is an integral part of the credit process that enables
Access Bank to limit concentrations, reduce volatility, increase liquidity and achieve
optimum earnings. It does so by incorporating portfolio strategy and planning,
performance assessment and reporting functions into one comprehensive
management process.
 Responsibility for Portfolio Management lies primarily with Credit Risk
Management on behalf of the Business.
 It is the objective that substantially all of Access Bank’s credit exposure is
covered by one or more of the following Portfolio Management Processes, which may
include Industry Reviews, Country or Region Reviews, Product Reviews, Risk Rating
Limit Exception Reviews, High Risk Reviews, etc.
 Each Portfolio Management Process should incorporate the following
components, as applicable.
 Setting portfolio targets and concentrations.
 Establishing target market, risk acceptance criteria and/or Key Success Factors
(or equivalent).
 Monitoring the portfolio risk profile, risk-adjusted returns, risk concentrations,
and economic/market/competitive data.

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 Identifying and analysing trends and concentrations that could affect the risk and
performance of the portfolio.
 Performing stress testing, as appropriate to the Business or the portfolio.
 Coordinating and communicating with the business and senior risk management
on portfolio issues.

9.1.2 Minimum Review Standards

All Portfolio Management Processes should include an annual review by Credit Risk
Management. The review must be documented, and must include, at a minimum:
Portfolio composition vis-à-vis targets or limits;
Noteworthy trends or risk concentrations;
Risk-adjusted returns.
In addition, at the determination of the Board Credit Committee or Management Credit
Committee, certain Portfolios will be subject to periodic review by the Chief Risk Officer.

9.1.3 Migration Analysis

The Bank shall put in place a system of undertaking migration analysis on credit
rating annually on all standard accounts.
The impact of migration in rating and any slippage in the rating grade (i.e., from low
risk to high risk) shall be studied and necessary steps shall be taken to upgrade the
asset quality.
While conducting study on rating migration, more emphasis shall be given in
respect of accounts rated under 4 and below category to prune down the
exposures.
The following measures shall be put in place to maintain the portfolio quality:
 Quantitative ceiling on specified rating categories
 Rating wise distribution of borrowers in various industries, business
segments etc. shall be evaluated

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9.1.4 Portfolio Review

Performance review of various industries under the portfolio review would help the bank
to identify the problems in the portfolio so that corrective step could be taken at the right
time.
The following measures shall be put in place for effective portfolio management:
 Review of performance of various credit portfolios
 Individual and Group borrower concentration are to be reviewed on monthly
basis.
 Reviews will be done for all accounts above the cut-off limit of N10million and
above (aggregate of fund and non-fund based limits) on an ongoing basis so
that high value assets and their portfolio correlation are reviewed periodically.
 Monitoring of loan accounts is an important phase in the process of credit risk
management. The Bank shall have well laid out system of monitoring of loan
accounts at different levels. Further the system of monitoring shall be attuned in
terms of size of the exposure and the rating grade of the loan account.
The process of risk identification starts at the time of accepting the credit proposal by
way of fixing benchmark for various financial ratios for consideration of approval of
credit limits to borrowers. In case of existing loan accounts, the following indicative tools
are utilized for identification of credit risk. The operations in the account need to be put
on critical scrutiny in the following aspects:
 Unusual debit/credit entry
 Return of Bills Receivables / Cheques unpaid
 Repeated requests for additional funds which may indicate decline in sales, low
realization of debtors or payment to pressing creditors, diversion of funds, cash
loss etc.
 Decline in level of operations in the account.
 Large return of inward bills
 Default in payment of Term Loan instalments / interest
 Devolvement of LCs, invocation of guarantees or excessive extension.
 Notice of demand from PF / Tax assessment, law suits or other legal action
against the borrowers.

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 Credit Risk Management Groups will monitor the following indicators of portfolio
quality on a quarterly basis:
 Entity and Facility Rating migrations in the credit portfolio of the bank across
dimensions such as:
 Industry
 Exposure Size
 Geographic Regions
 Sector
 Product
 Exposure Type
 Tracking of Watch List Accounts (WLA) under various dimensions as mentioned
above.
 Tracking of number of NPL against Probability of Default.
 Percentage increase in incremental NPL in comparison to incremental
exposures.

9.2 Management Reporting

It is critical to the successful implementation of these credit policies that the

comprehensive set of credit risk data generated by the businesses is identified and
communicated throughout the applicable businesses, Credit Risk Management and
senior management.
It is the responsibility of Credit Risk Management to define, construct and maintain an
independent credit risk reporting framework that effectively, consistently and
meaningfully communicates portfolio exposures.
The credit risk data and other data used to populate the independent credit risk reports
should be from independent systems, or should be subject to a reconciliation process to
ensure integrity.
It is the responsibility of the risk-taking business units to ensure that all credit risk data is
reported into the independent credit risk systems, and that it is timely, accurate and
complete; the business shall further review reports to assist in the quality control process.

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9.2.1 Risk Reporting

Risk Reporting is essential to facilitate communication of risk information to relevant

recipients to enable effective oversight on various components of Credit Risk
Management. In this sense, risk reports shall be concise, accurate, comprehensible and
timely. Reporting must cover current position, dynamics of risk exposure through time
and exceptions from policy prescriptions. The following sections cover the proposed risk
reports, structure of these risk reports and coverage. Credit Risk Management will
generate business related reports as may be required.

9.2.2 Structure of Risk Reports

Structure of Risk Reports shall include the following:

 Description of reports
 Contents and coverage of reports
 Function/ Division responsible for production of reports
 Recipients of reports
 Periodicity of reporting

9.2.3 Coverage of Risk Reporting

Risk Reporting shall cover the tasks/ functions performed in the following segments of
Credit Risk Policy:

 Categorization of exposures into Banking Book

 Risk Measurement
 Exposure and Risk Limits
 Risk Monitoring and Control

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Table 1: Categorization Exposures into Banking Book

Function/
Division
Recipien
Report Contents of the Coverage of Responsible Periodicity
No. t of
Description Report the Report for of Reports
Reports
Generating
the Reports

1. Banking All exposures by All Banking Risk Half Yearly

Book major exposure Book Analytics/ CRO
Positions types, classified positions / Portfolio
into Banking book Exposures as Management
exposure based on on the
conditions laid Reporting
down by Central Date
bank of Nigeria
2. Trading All positions which This report Market Risk Quarterly
Book were initially in the will cover only
Exposures Trading Book and those trading CRO
transferred have been book
to the transferred to the positions that
Banking Banking Book. are
Book transferred to
Banking
during the
reporting
quarter.

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 Table 2: Risk Measurement

Function/ Peri
Division odic
Recipie
Report Contents of the Coverage of the Responsible ity
No. nt of
Description Report Report for of
Reports
Generating Rep
the Reports orts

1. Approvals with Details of all credit This report will cover SBU- based MCC Quarte
Breaches in facilities approved the Credit facilities CRM rly
Acceptance with deviations in freshly approved or reporting
Criteria the acceptance reviewed with
criteria breaches in
acceptance criteria
during the reporting
month.
2. Existing Details of all Credit This report will include Credit EXCO Quarte
Borrowers that Facilities the credit facilities Governance rly
fall into Approved to the already approved to CEO
Negative List as Existing Borrowers existing borrowers of
per latest Credit , who fall into the bank that falls into
risk Policy Negative List of the negative list of the bank CRO
Bank as per the as per the latest credit
latest Credit Risk risk policy. This report
Policy will include only those
accounts that fall into
negative list as
identified during the
credit review done
during the month. This
should include the exit
strategy of the
business unit on such
accounts.
3. Credit Facilities Details of Credit This report will cover
Approved for facilities approved the Credit facilities
Borrowers to the borrowers freshly approved or
Credit EXCO Quarte
falling in falling in the reviewed during the Governance rly
restricted list of the reported month, which

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Function/ Peri
Division odic
Recipie
Report Contents of the Coverage of the Responsible ity
No. nt of
Description Report Report for of
Reports
Generating Rep
the Reports orts
Restricted list Bank along with falls into restricted list CEO
of the Bank the reasons for of the Bank.
approval CRO

4. Take Over Details of Credit This report will include SBU- based MCC Quarte
Loans Facilities all the takeover loans CRM rly
approved Approved to approved during the reporting
Borrowers taken current financial year
over from other along with the status as
banks or financial to whether it is a fresh
institutions. This approval during the
report will contain month or otherwise.
any deviations
from the takeover
loan guidelines in
the credit risk
policy
5. Credit Facilities Details of Credit This report will include Project CRO Yearly
for which TEV Facilities where credit facilities for which Monitoring
(Techno – Techno – TEV Techno – Unit
Economic Economic Economic Viability)
Viability) Study Viability) TEV Study has been done
was conducted Study was done. and was approved
This report will during the month of
include the key reporting.
points from the

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Function/ Peri
Division odic
Recipie
Report Contents of the Coverage of the Responsible ity
No. nt of
Description Report Report for of
Reports
Generating Rep
the Reports orts
TEV Study along
with the details of
Credit facility and
the borrower.
6. Risk Based Details of Credit This report will contain Risk MCC Monthl
Pricing Facilities along only the credit facilities Analytics y
with the Risk that are Approved/
Based Pricing and Reviewed during the
Actual Pricing period under review.
approved to
customer along
with the reasons
for approving
deviation rates
7. Syndicated Syndication Loans This report will include SBU- based EXCO Half
Loans approved by the all the existing CRM CRO Yearly
Bank including the Syndication Loans reporting CEO
Role Played by the along with the fresh
Bank, the Bank’s syndication loans
share in the loan approved during the
approved, month of reporting (with
compliance status an identifier for the
for Key Financial fresh approvals during
and Non- financial the month).
Covenants of the
loan etc.

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 Table 3: Risk Rating

Function/
Division Recipie Periodicit
Report Contents of the Coverage of the
No. Responsible for nt of y of
Description Report Report
Generating the Reports Reports
Reports

1. Risk Migration Entity and This report will Portfolio CRO Half
report (Credit Facility Rating include the Management Yearly
Portfolio migrations in the migrations in the
Management credit portfolio of entity and facility
in CRM)) the bank across rating grades in the
dimensions such credit portfolio of
as: the bank during the
Industry reported quarter
Exposure Size
Geographic
Regions
Sector
Product
Exposure Type
Other
dimensions
2. Historical Report on the This report will Portfolio CRO Half
Default historical default, include only the Management Yearly
sorted by risk defaults that
grade at the time happened during
of default and the reporting
one year prior to quarter.
default

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Function/
Division Recipie Periodicit
Report Contents of the Coverage of the
No. Responsible for nt of y of
Description Report Report
Generating the Reports Reports
Reports

3. Credit facilities Details of the This report will Portfolio CRO Half
approved for Credit facilities include only the Management Yearly
Obligors freshly credit facilities
below approved/ approved during
acceptable reviewed to the the quarter that are
rating grades borrowers with below the
of the Bank rating grades acceptable rating
(Credit below the grades of the bank.
Portfolio acceptable level
Management of the Bank. This
in CRM)) report should
include the rating
grade of the
borrower along
with reasons for
the approval and
mitigation
available if any.
4. Manual Details of This report will Portfolio CRO Half
override of borrowers and cover all the Management Yearly
model output credit facilities borrowers and
(Applicable for which the credit facilities for
only for Non- ratings given which the rating
Retail Credit using the entity model results were
Facilities) and facility rating overridden during
models were the reporting
overridden. This quarter.
report should
cover the original
rating given for
the borrower and
the rating given

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Function/
Division Recipie Periodicit
Report Contents of the Coverage of the
No. Responsible for nt of y of
Description Report Report
Generating the Reports Reports
Reports
after model was
overridden along
with the reasons
for override.

 Table 4: Exposure and Risk Limits

Function/
Division
Report Recipien
Contents of the Coverage of the Responsible Periodicity
No. Descriptio t of
Report Report for of Reports
n Reports
Generating
the Reports

1. Large Details of Credit Risk This report will Portfolio ERMC Monthly
Exposure Exposures classified include all the Management
s as Large Exposures credit risk
as per the Exposure exposures as on
limits set by the the reporting date
Bank.

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 Table 5: Risk Monitoring

Function/
Division Periodic
Report Contents of the Coverage of the Recipient
No. Responsible ity of
Description Report Report of Reports
for Generating Reports
the Reports

1. End Use of Details of Credit This report will Report to be Head of Monthl
Funds Facilities along with include report on generated by Risk y
the end use of funds on CRM SBUs
compliance to end all credit facilities with inputs
use of funds. This where diversion from the
report shall reveal from the policy relationship
those credit guidelines on end teams as well
facilities where use of funds is as hired
diversion of funds is identified during the consultants
identified by the reporting month. (where their
bank and reasons services have
for the same. been
employed)
2. Complianc Details of Credit This report will Report to be Head of Monthl
e to Key facilities, the include the status of generated by Risk y
Financial financial and non- compliance in the CRM SBUs
and Non- financial covenants key financial and
Financial and the status of non-financial
Covenants compliance of the covenants in all the
same credit facilities
during the reporting
month.
3. Collaterals Report on Credit This report will Credit
and other Facilities with include all credit Administration Head of Monthl
Credit Risk Credit Risk facilities freshly Department Credit y/Quart
Mitigants Mitigants covering approved during Administr erly
details regarding the month as well ation
credit risk mitigants as existing
such as Eligibility, facilities.
CRO
Valuation, Loan to

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Function/
Division Periodic
Report Contents of the Coverage of the Recipient
No. Responsible ity of
Description Report Report of Reports
for Generating Reports
the Reports
Value and Legal BCC
Enforceability.
4. Delinquent Details of Credit This report will Portfolio CAC Quarter
Credit Facilities with include all credit Management ly
Facilities number of days of facilities that were
delinquency (Past in delinquent status
due days). during the reporting
month
5. Asset Asset This report will Portfolio CRO Quarter
Classificati Classification include all the credit Management ly
on Status Status of all Credit
exposures as on
Policy
of all Credit Facilities the date of
MCC
Facilities This report shall reporting
also cover
movement of
assets from one
category to
another.
6. Recovery Details of credit This report will Remedial Monthl
performanc facilities under include all the Assets CRO y
e recovery and the recoveries during Management CFO
recovery the reporting month Unit
performance
against the targets
7. Restructure Details of Credit This report will Risk Analytics CRO/ Quarter
d facilities include only the BCC ly
restructured along credit facilities
with reasons, restructured during
terms and the reporting period
conditions.

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Function/
Division Periodic
Report Contents of the Coverage of the Recipient
No. Responsible ity of
Description Report Report of Reports
for Generating Reports
the Reports

8. Credit This report will The Bank’s on- On-lending CRO/GM Monthl
issues on contain details of lending Schemes Schemes Risk D. y.
On- the on-lending portfolio. management
lending facilities the Bank
Exposures has in its book,
issues that may
arise from time to
time as well as
recommendations
on how those
issues can be
resolved.
9 Global This report will This report will Credit Portfolio Manage Monthl
Standing contain information include all the Management ment/Bo y/Qua
Instruction on the GSI recoveries during ard of arterly.
reporting process as it the reporting Directors
relates to month /CBN
frequency of use
and amounts
recovered or
released.

 Table 6: Stress Testing

Function/ Division
Coverage
Report Responsible for Recipient of
No. Contents of the Report of the
Description Generating the Reports
Report
Reports

1. Plausible 1. Plausible Scenarios Risk CRO/ ED Risk Quarterly.

Scenarios chosen. Analytics BRMC
for stress 2. Impact of scenarios
testing. on Risk measures at
Portfolio level.

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 Table 7: Validation

Function/
Division
Coverage
Report Contents of the Responsible Recipient of Periodicity
No. of the
Description Report for Reports of Reports
Report
Generating
the Reports

1. Validation This report will - Risk Analytics. CRO/ ED Risk Annual

of credit risk include the data
models used for building
the rating models
The approach
adopted and the
output

9.2.4 Operational Level Reports

Access Bank Credit Risk Management shall provide accurate, timely and complete credit
reporting on obligor and portfolio basis for informed management decision-making. The
following categories of reports will be produced in the indicated frequencies:

Credit Compliance Reporting

Name of Report Recipients Frequency

Unauthorized overdraft Business units Daily

report
Excess over approved limit Business units Daily
Expiring Facilities Business units Monthly
Expired Facilities Business units Weekly
Risk Asset report Risk Management Daily
Maturing obligations report Business units Monthly
Collateral Report Policy MCC Annual

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Performance and Portfolio Reporting

Name of Report Recipients Frequency

Portfolio Review Report Policy MCC Quarterly

CRO
Collateral Review MCC Annual (or as specified in the
credit approval)

Recovery Status Report GCRO, GMD Monthly

Reserve & Write-offs BCC Annual

Note Additional reports may be introduced as required.

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10 Specialized Lending Policy.

10.1 Objective of the Policy

The objective of the document is to consolidate all existing specialized lending policies
into one document, to provide operational guidelines for extending specialized credits
such as Agricultural loans, Project finance, etc.
The policy is designed to measure the risks inherent in specialized lending. It
consequently provides a blueprint which mitigates all the intricacies that are related to
the identified specialized lending risks.
The specific objectives of this Policy are as follows:
To provide the framework upon which a credit product under specialized lending
request should be structured within the Bank (“Access Bank Plc.) with consistent
procedures for the evaluation and acceptance of such proposals from the client(s).
It provides the Bank’s credit risk function with consistent criteria for evaluating and
making recommendations on specialized lending proposals.
It seeks to provide directors and management as well as other stakeholders with clear
standards to evaluate and approve specialized lending requests.
The document seeks to assist in providing both Internal and External audit functions
with clear and consistent metrics for evaluation of the Bank’s (“Access Bank Plc")
specialized lending system.

10.2 Scope of the Policy

This policy is designed to provide the Bank with consistent procedures for evaluating
and accepting specialized financing proposals.
The document is set to provide Management and directors as well as other
stakeholders with clear standards to evaluate specialized lending requests.
It must be read in conjunction with other Access Bank Policies including Credit Risk
Management Policy Guide, Market Risk Management Policy, Environmental and Social
Risk Manual, Risk Rating Policy etc.
The document will cover the following types of specialized lending:
1. Agricultural Finance Policy
2. Project Finance

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3. Reserved Based Lending (RBL)

4. Object Finance
5. Real Estate Finance

10.3 Agricultural Finance Policy

Agricultural loans are complex and high risk, given the vulnerability to weather, pests,
disease and other uncontrollable factors. Specialist skills are required for appraisal of
such loan extensions, which must take account of the following factors:
I. Any government incentive scheme
II. Any tax benefits for Agricultural lending
III. Any regulatory requirements
An Agricultural loan shall be defined as any credit facility extended to finance any
activity within the Agricultural value chain. Agricultural loans are complex and high risk,
specialist skills and special measures are therefore required to ensure that the facilities
to this sector are appropriately initiated, reviewed and monitored.
Due to the long maturity period of certain Agricultural products, long moratorium periods
that may be imposed by regulatory authorities, and environmental risks, tenors of 8
years or more may be allowed for tree crops.
Evaluation of requirements for collateral on Agricultural loans will follow the norm for
credit extensions. However special efforts should be made to obtain acceptable
guarantees from public or private sources external to the project and independent of
the project cash flows.
The approval of Agricultural facilities shall follow the Bank’s credit approval grid as
contained in the Credit Policy Guide.
To provide operational guidelines for financing to the Agricultural sector, the following
guideline will be followed:

10.3.1 Loan Administration and Disbursement

Agricultural financing shall be available to existing customers who should have

operated an account with the bank for at least 6 months. Concessions can however be
made for reputable prospects after a positive assessment of their previous and current
banking relationships and subject to Head of Risk approval.

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1. Facilities disbursed to Agro-allied companies for financing of non-Agricultural value

chain activities such as acquisition of property shall not be considered as
Agricultural loans.
2. For financing involving the acquisition of machinery and equipment, a minimum
equity contribution of 30% of the total cost shall be required. This shall be a
condition precedent to drawdown/ disbursement.
3. All requests for Agricultural financing must be submitted alongside a detailed pre-
approval site/farm visitation reports from the Agricultural Business group to guide
the credit review officer.
4. When the bank is financing the acquisition of heavy equipment and machineries,
disbursement shall be made directly to the vendors upon presentation of relevant
invoices.
5. Disbursements must be structured in line with the project/business cycle to enable
proper monitoring. Disbursement can either be in tranches or bullet, however the
relationship officers will work with the Agricultural Business Group to understand
the business cycle and propose appropriate disbursement process. The repayment
structure proposed for Agricultural loans must consider the applicable product
lifecycle or gestation period to determine the appropriate moratorium period and
frequency of repayment.
6. The Agricultural Business Group must carry out a post-disbursement site/farm
visitation to ascertain that utilization of disbursed funds is in line with the purpose of
the facility. This should occur semi-annually, and a report should be prepared for
the attention of the Head of Risk.
7. The Agricultural Business Group should also carry out routine monitoring visitation
to financed projects and must prepare a monitoring report for the attention of the
Head of Risk. This monitoring reports must be in place for subsequent tranche
disbursements where applicable and should occur not later than six months after
the initial post-disbursement site visitation.
8. Moratoriums should be limited to principal repayments alone. Exceptions can
however be made for moratorium on interest payments if backed by sufficient
justifications and the concurrence of Head of Risk is obtained.
9. In addition to meeting Access Bank’s general collateral requirements, a
comprehensive Agricultural insurance policy stating the Bank as first loss payee
must be obtained.

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10.3.2 Target Market

The table below shows the target market required.

S/N VALUE CHAIN ACTIVITIES

1 Primary producers Crop Farmers, Livestock Farmers, fish producers,

manufacturers etc.

2 Agro Processors Feed Millers, Fruit Processors, meat processors etc.

3 Aggregators Off-takers, Distributors etc.

4 Exporters Agro processors and producers with capacities for

foreign exchange earnings.

5 Agro input dealers Agro chemical dealers, seed producers, dealers in

veterinary drugs, fertilizer manufacturers and
blenders, dealers of equipment and machinery etc.

10.3.3 Excluded Projects

The following and more are projects that the bank will not support under this policy:
1. Projects where it has been determined that specialized skills are required to execute
key tasks necessary for the success of the enterprise and that such key human
capital is unavailable/ lacking will not be considered for financing.
2. Start-ups and projects that are in the first stages of their operations or businesses
in the first cycle of their operations shall not be considered for funding.
3. Projects lacking the necessary technical support that is critical to the success of the
venture.
4. Projects proposed by loss making, or unprofitable companies.
5. Any other project that falls within the Bank’s E& S exclusion list

10.3.4 Risk Acceptance Criteria for Agricultural Financing

1. Customers must meet Access Bank’s general Risk acceptance criteria.

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2. Customers must be duly incorporated companies in the identified Agricultural value

chains.
3. Customers must have a satisfactory credit report from the CBN CRMS and two other
Credit Bureaus.
4. Customers must have verified off-taker agreement(s), contracts or at least a sales
record not lower than 200% of the requested loan amount.
5. Customers should provide evidence of membership of relevant professional and
trade organizations. They must also obtain relevant permits and regulatory approvals
for their products where required (e.g. NAFDAC, SON).
6. Customers must possess qualified management team and qualified technical
personnel specific to their line of business.
7. Customers must provide a clear business plan and a detailed projected cash flow
analysis for the entire tenor of the facility.

10.3.5 Agricultural Financing Products

[Link] Commercial Agricultural Credit Scheme (CACS)

The scheme was introduced by the Central Bank of Nigeria (CBN) in collaboration with
the Federal Ministry of Agricultural and Rural Development (FMARD) with a view to fast
track the development of the Agricultural sector in Nigeria. The focus is on five
Agricultural value chains; production, processing, storage, farm input supplies and
marketing. The SOL is set at N2bn for each project and a maximum applicable interest
rate of 9%.

[Link] Accessing Real Sector Support Fund (RSSF) via Differentiated Cash
Reserve Ratio (DCRR)
The scheme was introduced by the CBN to emphasize the need to increase the flow of
long term credit to the real sector of the economy to sustain her economic recovery
drive. The focus is on manufacturing and Agricultural sectors. Refinancing is prohibited
under this scheme and the maximum facility limit is set at N10bn, minimum tenor of
seven years, moratorium period of 2 years and an all-in interest rate/charges of 9% p.a.

Nigeria Incentive-BasedRiskSharingSystemfor Agricultural Lending(NIRSAL)

NIRSAL is an arm of CBN that focuses on de-risking Agricultural financing to
incentivize banks that extends loans to the sector. The flagship product is the Credit

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Risk Guarantee (CRG) which provides between 30-75% guarantee on bank loans to
the Agricultural sector. The CRG is obtained at a cost of 1% of the total loan amount
to be guaranteed.

Non-Oil Export Stimulation Facility (NESF)

NESF was introduced to advance the strategy of the CBN to diversify the revenue base
of the economy and promote growth of the non-oil export sector. Eligible obligors must
have verifiable export contracts. Term loans under this scheme shall not exceed 70%
of the total cost of the project to be financed. The SOL is set at N5bn and maximum
applicable interest rate is 9%.

Micro, Small and Medium Enterprises Development Fund (MSMEDF)

The CBN launched the scheme with a seed capital of N220bn enhance access of
MSMEs to low interest finance thereby increasing their productivity and creating more
jobs. Activities in the Manufacturing, Agricultural value chain, Renewable energy,
energy efficient product and Technologies and services are covered by the scheme.
The maximum loan amount is N50 million and an applicable all-in interest rate of 9%.

Accelerated Agricultural Development Scheme (AADS)

The AADS is a special scheme under the Anchor Borrowers’ Programme with the state
government acting as anchors. Loans will be disbursed at an all-in interest rate of 9%
and repayment shall be from monthly deductions through an Irrevocable Standing
Payment Order (ISPO) on the state account.

Anchor Borrowers’ Programme (ABP)

The scheme was designed by CBN to create economic linkage between smallholder
farmers and reputable large-scale processors who will act as off-takers for the
harvested produce of the farmers.

Paddy Aggregation Scheme (PAS)

The scheme is for Integrated Rice Millers and large-scale aggregators to enable them
to purchase home-grown paddy at a single digit interest rate to promote the Federal
Government of Nigeria’s National Food Security Programme. Facilities shall be for a
maximum tenor of 24 months, all-in interest rate of 5% p.a.

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Rice Distributors’ Facility (RDF)

The facility is for medium to large scale rice distributors to enable them to purchase
locally milled rice from Integrated Rice Millers at a single digit interest rate to promote
national food security. The SOL is N1 billion with a maximum tenor of 12 months and
all-in interest rate of 5% p.a.

[Link]. Export Facilitation Initiative (EFI)

The Export Facilitation Initiative (EFI) was created by CBN to compliment efforts to
engender growth in the non-oil sector of the economy. The target market include: Cocoa,
Oil Palm, Cashew, Shea, Sesame seeds. · SOL: N10billion · Interest: 9% all-inclusive·
Tenor: Depends on the gestation period of the project being financed, with maximum
being 10 years.

[Link]. Maize Aggregation Scheme (MAS)

The Scheme is for feed millers, poultry farmers, silos and warehouse operators and
confectionery companies to enable them have access to affordable credit for the
purchase of home-grown maize to promote the Federal Government of Nigeria’s National
Food Security Program. · SOL: N2billion · Interest: 9% all-inclusive · Tenor: 12 months
maximum.

Collateral/ Security/ Support

The bank shall have legal ownership of assets pledged or financed, in addition to the
following support instruments (where applicable):
1. Irrevocable Domiciliation of supply/export/contract proceeds
2. Warehousing receipt
3. Tripartite warehousing under bank’s control (where applicable)
4. Comprehensive Agricultural insurance cover noting Access Bank as first-loss
payee
5. Cross, joint and several guarantees (for co-operatives)
6. Third party individual or portfolio guarantees (NIRSAL, other Development
partners).

10.4 Project Finance Facility

Background

Project finance is a method of funding in which the lender looks primarily to the revenues
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generated by a single project, both as the source of repayment and as security for the
exposure. This type of financing is usually for large, complex and expensive installations
that might include, for example, power plants, chemical processing plants, mines,
transportation infrastructure, environment, and telecommunications infrastructure.
Project finance may take the form of financing of the construction of a new capital
installation, or refinancing of an existing installation, with or without improvements.
Project finance could also be with recourse to the parent company’s cash flow.
In a typical project finance transaction, the lender is usually paid solely or almost
exclusively out of the money generated by the contracts for the facility’s output, such as
the electricity sold by a power plant. The borrower is usually an SPV (Special Purpose
Vehicle) that is not permitted to perform any function other than developing, owning, and
operating the installation. The consequence is that repayment depends primarily on the
project’s cash flow and on the collateral value of the project’s assets. In contrast, if
repayment of the exposure depends primarily on a well-established, diversified, credit-
worthy, contractually obligated end user for repayment, it is considered a secured
exposure to that end-user.

Project Appraisal

Request should be presented using FAM detailing the following:

a) Assessment of Project Risk
The bank shall conduct a thorough credit appraisal of any project finance transaction to
identify the project risks, and to ensure that the project will be implemented as planned.
The Assessment will be in line with the bank’s credit policy on exposure development
and selection to ascertain the financial and economic viability of the project.

Access Bank shall obtain project feasibility report from the Project owner to evaluate the
risk inherent in funding the project which shall guide our lending decision. The Credit
analyst should pay particular attention to all the project-specific inherent risks. Typical
project finance risks may include;
I. Technology Risk
II. Environmental and social (subjected to the IFC project approval guidelines)
III. Completion (Construction or Cost overrun risk)
IV. Supply (This may be known as Traffic risk for infrastructure projects, Reserve
risk in resources financing and Fuel Supply Risk in a power station)
V. Market (Sales/Revenue risk)
VI. Operating (Technical, Cost and Management)
VII. Force Majeure
VIII. Performance
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IX. Political
X. Legal/Regulatory
XI. Engineering (design risk)
XII. Foreign Exchange Participant (Credit or Sponsor Risk)
XIII. Interest rate risk
The analysis of a project finance request should be subjected to the bank Risk
Acceptance Criteria and Risk Mitigants and triggers must be put in place to safeguard
the bank. The trigger structure shall depend on the risk inherent and sector-specific risk
profiles and structuring protocols must be observed. The project owner must also provide
Environmental Impact Assessment approved by the relevant authorities.
Credit Analysis with the assistance of outside consultants as necessary, will perform a
comprehensive analysis of each complete financing proposal. This process will include
an in-depth review of project risks and the financial structure of the project. Through this
analysis, Access Bank shall ensure that projects are technically, environmentally,
financially and economically sound, that project sponsors have the institutional,
managerial and structural capacity to carry out their projects.
Projects usually go through development, construction, start-up, operation stages. The
credit Analyst should, therefore, assess these stages separately for risk mitigation and
put in place additional safeguards appropriate to their risk assessment. Refer to Project
Risk Mitigating tools in the table below:
Project Risk Mitigating Tools.

Project Risks Mitigating tools

development Stage

Cost overruns The General Constructor

Agreement (preferably based on
the International Federation of
Delays Construction Engineers (FIDIC)
principles) that provides a fixed
price and a fixed delivery term. In
Finish failure case of complex industrial projects
Construction (e.g. infrastructure, energy), a
special form of Contract – called
Engineering, Procurement and
Construction (EPC) agreements -
has to be concluded.

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Guarantees/performance bonds/
insurance policies – guarantees
should cover Liquidated Damages
(LDs) clauses in the EPC contract for
delay and performance shortfalls.
EPC Delay LDs should be sufficient
to cover debt service and fixed costs
until the Long Stop Date.
Experienced Constructors that have
a demonstrated track record in the
sector and region. If the EPC
contractor is financially weak, LD’s
should be guaranteed by reputable
bank LC
Construction program / insurances
to be reviewed by technical and
insurance specialist advisors
Regular project monitoring by
specialized consultants, with Event
of Default clauses for non-
observance of consultant
recommendations.
Reputable lead sponsor with a
demonstrated track record in the
sector and region
Limited recourse on Sponsors –
sometimes a construction/
completion guarantee will be
required depending on
circumstance.
Equity contribution from sponsors in
line with industry standard and no
less than XX% of the project cost.
Early generation revenues (“EGR”s)
should not be counted as equity.
If the sponsors are financially weak,
equity contributions into the project
should be guaranteed by reputable
bank LC or injected upfront before
any debt is drawdown
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Market risk: lower revenues Pre-sale/pre-lease agreements for

than estimated the life of the projects where possible
at fixed prices for pre-agreed
Operation Lack of raw material suppliers volumes and acceptable LDs.
Offtake counterparty should be a
reliable financial risk with
demonstrated track record in the
Budgeted operational sector and region.
costs overrun If the offtaker is financially weak,
payments under the offtake
Management failures agreement should be guaranteed by
the parent company or government.
Pre-contracts concluded with
suppliers for the life of the projects,
where possible at fixed prices for
pre-agreed volumes and including
acceptable LDs.
Market price risk should be mitigated
wherever appropriate. Examples
include pass-through of variable
costs or structure where variable
costs are linked to the offtake price.
If market price risks exist, this will be
in line with realistic price
assumptions reviewed by the
lenders’ market advisor.
Management/Administration/Operati
on contracts
Financial requisites
Management / Ownership retention
clauses within the financial
documentation.
Entire project Technical Risk Experienced suppliers specialized in
duration Non performance the field
Tested/proven technology with
equipment warranties in line with
industry standard.
Equipment maintenance contracts.
Reputable Operations and
Maintenance contractor with a
demonstrated track record in the
sector and region.
DSRA of at least 6 months and
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appropriately sized Maintenance

Reserve Account.
Government support/undertaking for
political events under the key project
contracts.
Interest rate, currency and
commodity price risks should be
hedged.
Where appropriate, multilateral
development banks (i.e. IFC, AfDB
etc) “Preferred Creditor Status”
protection which mitigates transfer
and convertibility risk for B Loan
participants should be sought.
Non-observance of environmental /
Entire project safety rules Preceding condition: the receipt of all
duration necessary permits from local
authorities.
Projects should meet Equator
principles (environmental and social
risk) standards.
Breaking of environmental
standards should be an Event of
Default within the financial
documentation.
Entire project lifespan Legal risks: Security package and documentation
Changing legal should be reviewed by the lenders’
legal advisor, who will be an
environment experienced legal body that has a
track record in issuing comparable
documentation. The legal advisor’s
international and local opinions need
to specifically cover Access Bank by
reference or clear implication

Sensitivity analysis test to check the impact of changes in project variables on the base-
case (Most probable outcome scenario) must be conducted by the credit analyst.
Typically, only adverse changes are considered in sensitivity analysis. The purpose of
sensitivity analysis is to:

I. Identify the key variables that influence the project cost and benefit
streams;
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II. Investigate the consequences of possible adverse changes in these key

variables;
III. Assess whether project decisions are likely to be affected by such
changes; and
IV. Identify actions that could mitigate possible adverse effects on the project.

The bank shall review the project cost estimates table for comprehensiveness, adequacy
of structure/descriptions of base cost line items and annual/periodic expenditures
including construction where applicable.

Where applicable, the bank shall engage the services of a project consultant to provide
guidance on the technical aspects of the project and a project feasibility/viability
assessment during the credit appraisal the cost of which should be borne by the obligor.

Main Criteria of Project Selection Include:

a) Objective criteria:
I. Financial ratios (liquidity, asset management, profitability, financial efficiency,
leverage) – EBITDA (Earnings before Interest, Taxes, Depreciation and
Amortization) and EBITDA margin are at the forefront of project analysis;
II. Cash Flow forecasts (including NPV).

b) Subjective criteria:
I. Experience of the project Sponsors;
II. Project location;
III. Quality of the business plan;
IV. Project type;
V. Project budget and the financing structure (Bank loan/Own contribution ratio);
VI. Quality of the General Contractor;

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VII. Quality of the project manager.

In case of real estate development projects, the Bank shall propose a financing structure
based on several guidelines, listed below.
I. The customer may be an SPV which does not undertake any other activity
except the investment project itself, except otherwise approved by Management.
II. The Sponsors (or project developers) should have experience in similar
investment projects and display a sound financial standing.
III. Their contribution to the project should translate into the provision of initial capital
and the issue of corporate guarantees acceptable to the Bank.

The Bank shall not finance any project to 100% in an attempt to avoid moral hazard.
The Sponsor has to ensure a minimum contribution of 20% to the project.

c) Credit Rating process

A consistent rating process shall be employed for project finance differentiated by the type
of counterparty. Access Bank Master rating for project finance shall be used to assess the
obligor risk rating using already defined parameters for overall project finance risk
assessment.

Security for Project Finance Loans

The project loan typically will be secured by multiple forms of collateral, including the
following forms of collateral;
1. Mortgage on the project facilities, moveable assets and real property
2. Assignment of operating revenues.
3. Pledge of bank deposits/accounts.
4. Assignment of any letters of credit or performance or completion bonds relating
to the project under which borrower is the beneficiary.
5. Liens on the borrower's personal property (where applicable).
6. Assignment of insurance proceeds.
7. Assignment of all project agreements.

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8. Pledge of stock in Project Company or assignment of partnership interests.

9. Assignment of any patents, trademarks or other intellectual property owned by
the borrower.
In order to ensure an effective charge in the fixed assets of the company, the bank shall
register its charge with CAC or the Trustees, so that the security is not mortgaged with
any other lending institution for further financing.

Insurance

Insurance is one of the major trigger structures for Project finance credits. All insurance
documents must be in place.
Typical Insurance for Project finance shall include;

1. Technology Insurance
2. Property Damage
3. Business interruption insurance
4. Professional indemnity insurance
5. Building in the course of construction insurance
6. Terrorism

Syndication

In addition to fulfilling the terms of reference under direct project financing, the bank
may enter into syndication arrangement with other lenders.
The bank’s interest shall be protected under syndication with respect to project cash
flow and security. Its interest under cash flow and security shall be pari-passu with its
quantum of debt towards the syndication.
In situations where the bank is the major lender, the Principal collection account/Project
Escrow account shall be domiciled with the bank.
In situations when the bank is not the major lender, the bank shall open a revenue
account and receive part of the project receivables before transferring to the bank with
the Collection Account.
The bank may participate in syndications as a Senior Lender. The decision to enter into
syndication and provide a subordinated loan shall be subject to MCC approval.

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Maximum Duration of Loan:

The Bank may extend loans for infrastructure project up to a duration decided after
taking into cognizance the gestation period and peculiarities of each project. The Bank
may either enter into a sell-down financing arrangement with other banks or arrange
consortium/syndicate to effectively match their assets and liabilities.

Conditions Precedent to the Availability of the Loan

Before drawing down the loan, the borrower must satisfy the conditions precedent to
the availability of the loan specified in the loan agreement. Among such conditions, the
borrower is usually required to provide Access Bank with such documents a legal
opinion, a list of the items to be financed and a copy of the necessary authorizations,
permits from the authorities. When the borrower has complied with all these conditions,
Access Bank shall make the loan available to the borrower, in accordance with the
disbursement schedule in the loan agreement.

Loan Disbursements

Once the conditions precedent to the availability of the loan have been satisfied, the
borrower may request a disbursement. The borrower may have to satisfy additional
conditions precedent to the first disbursement of the loan, and subsequent
disbursements.
Disbursements should be done in milestone and subsequent disbursement should be
based on the completion of previous milestone.
In general, Access Bank disburses loan funds for eligible costs against project
construction invoices. A request for disbursement is accompanied by copies of invoices
and by a report by the project consultant supporting the request.

Reporting

For each project financed by Access Bank, the following financial and technical reports,
as well as others specified in the loan agreement, will be required until the loan is
repaid:

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I. audited annual financial statements with unaudited monthly or quarterly

financial statements, as appropriate;
II. annual budgets;
III. timely reports on any financial problems of a project;
IV. monthly status reports on the project’s development during construction;
V. annual operation and maintenance reports;
VI. timely reports on any significant technical problems encountered by the
project; and interim and final reports on environmental and human health
impacts of the project.

Monitoring Mechanism

The Bank shall establish a mechanism for continuous monitoring of project

implementation to ensure proper utilization of the credit disbursed. For this purpose,
proper scrutiny/audit shall be undertaken of the Project Account(s), Project Collection
Account, Project Debt Reserve Account, Project Escrow Account and any other accounts
deemed necessary for the operation of the Project. Both Project monitoring Unit of
Access Bank and appointed consultant shall monitor both project construction and
completion, and project operation and maintenance, throughout the term of a loan.

I. Monitoring for Assignment of Project Receivables and Payments for

Damages:
As the primary source of repayment is through project cash flows, Access Bank
shall secure the loan by obtaining an assignment of project receivables. The bank
may institute necessary monitoring measure so as to ensure that the assignment
of project receivables and payments on account of damages are made in its
favour.

II. Project Escrow Accounts for Monitoring Repayment of Debt:

In ‘Limited Recourse Financing’, the importance of Escrow Account increases due
to the fact that the primary security is the project receivables/cash-flows.
The bank shall institute a mechanism for repayment of project debts through an
Escrow Account, which shall be pledged in favour of the lenders.

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Legal

Documentation Requirements
Minimum acceptable documentation that will enable the project commence operation
and continue in operations for the period of the loan shall be executed and in place. All
legal agreement, undertaking and Guarantees shall be vetted by Legal Unit to ensure
the bank is protected at all times.
Project Closeout: Once a project is completed, it requires financial closure. The project
closure process consists of documenting results to formalize acceptance of a project
by the project sponsor

10.5 Reserved Based Lending (RBL)

Background

RBLs typically take the form of a borrowing base revolving credit facility whereby the
bank extend credit that is secured by liens on oil and gas mineral interests through a
share pledge which gives the bank control of the company and its rights/interest over
the oil and gas assets and related assets and rely, primarily, on the cash flow produced
by the sale of hydrocarbons and, secondarily, on the cash flow from borrowers other
business interest, sale of the underlying mineral interests for repayment taking account
of factors such as the level of reserves which are categorized into proven reserves (1P),
Possible +Proven (2P) and Probable+Possible+Proven (3P) reserves, expected oil
price; a discount rate; assumptions for operational expenditure; capital expenditure; tax
and any price hedging employed.
Typical Risk shall include;
I. Reserve Risk
II. Market Risk
III. Exploration risk (the bank shall however focus on funding projects that have
been totally de-risked of exploration risks i.e. proven reserve and near
production assets. Typically, exploration should be funded with sponsors
equity)
IV. Operating risk

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V. Community Risk
VI. Production Risk

RBL Policies

The obligor shall have both primary and secondary repayment capacity and other
reliable means of repayment.
The bank shall only finance existing producing oil field or an aggregate basket of oil
fields, which shall include OPLs and OML/Marginal fields on near term production with
verifiable flow test.
The lending shall be restricted to Proven, Developed, and Producing (PDP) reserves.
The bank shall limit lending against undeveloped reserve, proven undeveloped (PUD)
reserves. Lending against PUD must be supported by a sponsor corporate guarantee
until the field had passed a technical ‘completion’ test by Department of Petroleum
Resources at which point the loan becomes limited in recourse to the project field,
which by that time would be producing. Lending to customers who do not have proven
reserves but have alternative sources of cash flow can be considered.
The bank shall demand from the sponsor additional covenants attached on additional
indebtedness, restrictions on disposals, and potentially negative pledges so as to
maximize the benefit of such guarantee. The bank shall demand for the field
development plan, Licenses, evacuation plan and off-take agreements as a basis for
availment.
The bank shall regularly evaluate, and update as necessary, its pricing assumptions
for RBL, commonly referred to as the bank’s price deck. The price deck shall reflect
both base-case and sensitivity-case pricing scenarios.

Credit Appraisal

The bank shall conduct Sensitivity analysis in the Credit Appraisal process which
should estimate the impact that sustained changes in market conditions would have
the obligor’s repayment ability. As part of the credit appraisal process, the bank shall
prepare base case and sensitivity case analyses on the ability of the conversion of the
underlying reserve collateral into cash to repay the loan upon completion and
production. Using standard assumption scenarios, a conservative base case approach
is to discount current prices against the forward contracts. The credit analyst shall

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ascertain the cost per barrel and the break-even point at based on the forecasted
production profile.
Where the cash flow analysis indicates that the loan will not amortize over four to five
years, the obligor shall be required to provide support collateral.

Establishing the Borrowing Base

The borrowing base for E&P loans represents the lending commitment established
from the Technical valuation of the borrower’s proved Oil & Gas reserves, subject to
limitations and adjustments. The borrowing base shall be determined by analysing
previous production reports and independent engineering evaluations.
The borrowing base, as established in the loan agreement, shall govern the maximum
amount of availability under the RBL at any one time. The commodity prices, risk
adjustment factors, and cash flow discount rate used to determine reserve values and
the borrowing base.
The bank shall adjust the reserve valuation for significant price fluctuations or changes
in interest rates to reflect current conditions.

Collateral for RBL

Oil reserves in Nigeria are owned by the state. The oil companies essentially lease the
right to extract the reserves in return for paying the government taxes or sharing the
production with them. These rights cannot typically be assigned or transferred without
prior governmental approval, which, in most cases, is extremely difficult to obtain.
Security shall focus on shares pledges over the borrower or asset owning operating
companies, and negative pledges, together with security in cash proceeds and
accounts. The borrower shall provide the bank with a notice of assignment of proceeds
from the off-takers.
RBL collateral value consists of a point-in-time estimate of the present value (PV) of
future net revenue (FNR) derived from the production and sale of existing Oil & Gas
reserves, net of operating expenses, production taxes, royalties, and CAPEX,
discounted at an appropriate rate. The Competent Persons report (CPR) shall contain
sufficient information and documentation to support the assumptions and the analysis
used to derive the forecasted cash flows and discounted PV.

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Reserve - Based Loan Documentation

Documentation typically shall include standard provisions such as financial covenants

(leverage/liquidity); restrictions or prohibitions on additional indebtedness and
distributions; and a borrowing base deficiency provision.
The borrowing base deficiency shall be cured by the borrower adding additional oil and
gas properties to the collateral base or the bank shall establish monthly commitment
reductions to reduce debt to a level that will bring the loan back into compliance with
energy lending policy or covenant compliance. Additional equity injection may be
considered for companies that have other sources of income.

Hedging The Risk

The bank shall employ hedging strategies to manage commodity price volatility, ensure
stable and predictable cash flow, maintain liquidity, and manage credit risk. Hedge
instruments include forwards, futures, swaps, options, or combinations, such as collars.
Access Bank may act as a direct party to the hedge or as a collateral agent only (that
is, not as a party to the hedge).
Borrower hedge positions shall be incorporated in cash flow forecasts and reserve
valuations, which may provide increased borrowing base capacity.
Other considerations when evaluating hedges shall include;
 the bank’s right to approve the creditworthiness of any hedge counterparties.
 whether the engineered loan value reflects the impact of hedges with strike
prices below the bank’s price deck.
 limits in the credit agreement for commodity hedging to reasonably anticipate
projected production from PDP or total proved reserves.
 limits or prohibition in the credit agreement for the cancellation and
prepayment of any hedges to which value was attributed in the engineered
loan value.
 prohibition in the credit agreement for hedging subject to margin, or the bank
may enter into standard inter-creditor agreements that eliminate the
requirement to maintain a margin account with the counterparty.

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a) Reservoir Risk

As the portfolio changes, the reserve report and other engineering reports which the
bank initially analysed in making their credit assessment must be updated and re-
evaluated at periodic intervals. These periodic re-evaluations called “redeterminations”
shall be done within a reasonable time frame of first availment. The borrowing base is
normally reset every six months. The bank reviews the most recent Production reserve
report and determines the revised borrowing base commitment by applying the bank’s
borrowing base methodology to the reserve report valuation.
Per the credit agreement, borrowers should be required to cure any over-advance
within 60 days with either cash payment or pledge of additional collateral.
The revaluation of the reserves shall require an independent AB approved reserve
Audit company/Project consultant to prepare or audit the reserve reports and shall be
conducted every 4 years from the date of first availment.
The obligor shall be required to submit Monthly Crude production certificate which shall
indicate the quantity of crude lifted per oil well.

b) Market Risk
The bank shall periodically stress test the loan by subjecting the Oil & Gas reserves to
adverse external factors such as lower market prices or higher operating expenses to
ascertain the effect on loan repayment. To minimize the impact of price risk, the bank
shall insist on funding transactions with proper price hedging mechanism.
The bank shall generally reset our oil and gas price forecast every quarter which shall
be below the Brent prices (70% - 95%).

10.6 Object Finance Policy

Introduction

Section 7.1 of CBN prudential guideline requires all DMBs to develop

comprehensive policy on object financing. The policy must be approved by the
Board and could be part of the credit policy of the Bank or a separate document.
This section set out the guidelines for undertaking object financing such as vessels,
Barges and Rigs.
Object finance is an aspect of Project Finance whereby the expected cash flow
from the use of the object shall repay the loan availed for its purchase.

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There are many types of objects that may require funding. These include but not
limited to:
 Crude Oil Tankers
 Crew Vessels
 Supply Vessels
 Lift Boats
 Diving Support Vessels
 Product Tankers
 Chemical Tankers
 LNG & LPG Tankers
 Jack Up Accommodation Barges
 Tugboats
 Specialized dredgers
 Aircraft
 Satellites
 Railcars
 Fleets, etc.

OBJECT FINANCING IMPLEMENTATION TERMS

Only vessels that are in class shall be financed.

The bank shall ensure that the expiration of the certificate of class is at least 24
months and shall ensure that a concrete plan is put in place for re-classification.
Marine surveyor report from Access Bank approved Marine Surveyor shall be
obtained as condition precedent to review/analysis for vessels that are not brand
new. Only well-maintained vessels with satisfactory survey reports shall be
financed. Analyst shall take survey reports into consideration in the credit review
and structuring. The marine Survey report must state the market value of the vessel
and the date for the next special survey and next dry docking.
Vessels to be acquired must fall under any of the top reputable classification
societies listed above for both new built and used tonnage.

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Financing of vessel is strictly against executed contracts from acceptable principals

(mainly Oil Majors and established indigenous oil companies). The use of Letter of
Intent (LOI) and Letter of Commitment (LOC) is strongly discouraged. However, the
bank shall consider funding on a case by case basis, where there is strong
assurance of a firm contract within 6 months of issuance of the LOI/LOC.
Contract must be a multi-year time charter agreement – Not Spot Market/Call off.
Contract tenor must sufficiently cover the loan tenor.

It must be established that vessels to be financed meets the specification of the

contract employer.
Contract proceeds must be domiciled with the bank
Customer shall make an equity contribution of 10% to 30% depending on the risk
profile of the obligor and the transaction.
Disbursement should be through Letters of Credit (“LC”) or Agreed Escrow
Account. Where direct transfers are desirable by the supplier, this shall be in
milestones in line with the ship building contract.

Vessels acquired will be in line with the vessel maritime law in the country where
we operate, e.g. Cabotage Act.
Customer must have minimum of 5 years of proven experience in the type of
contract to be undertaken. If customer intends to engage technical partner, profile
of technical partners to be employed and technical agreement detailing terms and
payment consideration must be provided.
Second hand vessel must be free from encumbrance and fit for purpose.
The customer should make provision for routine maintenance of the vessels. A
dedicated collection/reserve account should be made for this purpose to set aside
funds from the customer’s cashflow.

i. The Loan Agreement for Offer Letter shall include a brief description of the
Object being financed.
ii. Where required and as directed by Management, Techno Economic
Viability (TEV) analysis as well as factory acceptance test shall be
carried out with all relevant quality inspection tests with issuance of
necessary certificates; and the cost shall be borne by the borrower where the
services of an external expert is engaged
iii. Objects once approved may not be varied or altered without the prior
approval of the Bank (Access Bank Plc.) Appropriate clause shall be
included in Loan Agreements for Offer Letter to give Access Bank option to
withdraw from co-financing any object where unauthorized variations in
scope or specifications could compromise object feasibility and viability;
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iv. Procurement of goods and services shall be through competitive

tendering procedures duly approved by Access Bank.
v. The borrower shall be fully responsible, directly or indirectly, for the
realization of the object, and shall furnish Access Bank with regular reports
on the financial, technical and marketing progress of the object (where
applicable)
vi. The financed object shall be properly insured and borne by the customer
using an Insurance Company acceptable to the Bank throughout the
tenor of the facility. In addition, the Bank (“Access Bank Plc.”) shall be
noted as the First Loss Payee (FLP) for the period the facility remains
unpaid;

vii. Access Bank may appoint an Independent Consultant to monitor and

provide report on the performance of the financed object. The cost of
these services shall be borne by the borrower.

Major Risks and Mitigants

Risks Mitigants

Performance Performance Bond (PB) to be obtained from the ship builder

Risk (for new vessels).
Longstanding history of performance both locally and
internationally.
Seasoned crew to man the vessel.
Evidence of foreign technical support. This can be waived for
local companies with solid track record.
The vessels should be built according to contract
specifications (for new vessels)
Up- to date class records
Registration of the vessel by any of the top classification
societies
Pre- purchase inspection of the vessel by the marine surveyor
(for used vessels)
Minimum of 2 years of cognate industry knowledge and
experience

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Detail cash flow projection analysis and sensitivity

Domiciliation of contract receivables
High vessel occupation rate due to good working condition.
Repayment
Good repayment history.
Risk
Integrity and credibility of the operator in the industry.
Integrity and credibility of counterparties/employer
Monitoring of contract receivables.

Over invoicing
Pre- purchase inspection by appointed Consultant
(used vessels)
Pre-qualification of the vessel by the selected consultant

Funds should only be released from the Escrow account/via

LC upon receipt of the necessary documents for the vessel.
Diversion risk:
Funds may also be released in milestones by direct transfers.
Customer’s undertaking to domicile the contract proceeds to
Access Bank should be in place

Tenor Review history of Obligor’s on-going contract(s) for track

Mismatch record of renewals on expiry.
There should be additional on-going contracts domiciled to the
bank to mitigate the risk of truncated contracts. Or a secondary
source of repayment.

Product Lines and Areas of Intervention

Access Bank considers applications from both public and private sector
agents for financial assistance in object financing for the acquisition of
assets.
The applications may be for the following forms of assistance:

I. Direct loans for acquisition of assets e.g. vessels, tugboats,

specialized dredges, aircraft, satellites, railcars, fleets, etc.;

II. G u a r a n t e e s to small and medium-sized organisations to enable

them source funds from offshore / local financial institutions or meet
contractual obligations. Such a guarantee shall be issued directly by
the bank as a contingent liability.

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Object Financing Proposals and Applications

 Borrowers seeking the Bank's services and loans shall submit formal
applications to the Bank as may be prescribed from time to time by
management;

 The application request must be accompanied by comprehensive

documentation on the object being financed in accordance with the Bank’s
guidelines for preparing object finance proposals, including but not limited
to information on the Background, Sector, Business and Marketing Plans
showing the cash flow analysis (with based assumptions), realistic
financial projections, as well as a detailed technical information. TEV
report shall only be required in line with the Section 5.2.12 of the CPG;

 Access Bank encourages good corporate governance in the companies

it does business with and would seek at all times to promote this through
proper constitution of management and board of directors of borrower
companies and accurate and transparent financial accounting.

Environmental and Social Policies

i. All objects financed by the Bank shall meet all statutory requirements of
local and national authorities where they are located. The objects must
therefore be approved by the relevant authorities and comply fully with
local environmental laws.

i. Object financed shall offer services that promote sound environmental

sustainability.

ii. Manufacturers and their contractors and other service providers must
ensure the safety of workers involved in the construction of objects funded
by the bank through sound safety practices on and off the construction
sites, including but not limited to provision of protective clothing, safety
equipment and gadgets, sanitation facilities, appropriate insurance and so
on.
iv. Objects must meet all standards and requirements of health and safety
during construction and when in use. They must be duly certified to be so
by licensed where necessary, appropriate insurance to protect home
buyers
v. and users of the facility against any loss during and after construction.

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vi. Contractors and developers must comply with local labour laws and shall
ensure that workers employed on their sites receive fair wages and that
child labour is not employed in the implementation of objects funded by
the bank.

vii. Access Bank shall promote equal opportunities for all irrespective of
gender or any other considerations in terms or availability of credit,
employment of workers in companies for which objects have been
financed.

Co – Financing

i. Access Bank will therefore seek to share financing with third parties (other
than object/project sponsors) on an object or transaction-specific basis
with or without formal coordination agreement among the financing
partners.

i. Co-financing could be either joint or parallel financing or any other form

that will bring in additional financing and allow risks to be shared. The
need for such co- financing should however not compromise Access
Bank’s policies or lead to delayed acquisition of objects.

iii. Co-financing sources and availability, whenever possible, should be

confirmed before completion of the appraisal process. Where delays are
anticipated on the part of the co-financier, the object should be structured to
allow for parallel financing and to ensure that progress on Access Bank’s
loan is not dependent on the co-financier’s actions or inactions.

Appraisal Procedure and Lending Process

i. All requests for loan from Access Bank must be fully documented and
approved by the management of Access Bank in line with board approved
limits.

i. Access Bank officers (or appointed consultants where applicable) are fully
responsible to the Bank and to no other institution or agency in carrying
out their duties. They must therefore apply themselves with all sense of
seriousness, professionalism and integrity and should clearly
communicate to Access Bank’s numerous clients the bank’s
requirements, expectations and processes in object selection and
appraisal processes
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ii. Access Bank’s object selection and appraisal procedures and processes are
designed to ensure that only technically feasible and financially viable
objects are recommended for funding and that borrowers and manufacturers
have the necessary capacity and resources to implement the object and
would be credible to honour their obligations under the loan agreement;

iv. Object proposals received shall go through evaluation, appraisal and

approval processes including the following:

 Internal evaluation and review;

 Proposal on and discussions of the indicative terms and
conditions
 Pre-appraisal and appraisal
 Preparation and review of the appraisal report
 Approval by management
 Loan offer and acceptance
 Final negotiations and signing of the loan agreement

Acceptable Security

As stated in the Banks Credit policy, Where the purpose of the specialized lending
exposure is to finance the acquisition of physical assets, including ships, aircraft,
so that the income generated by the assets is lease or rental payments obtained
from one or several third parties (‘object financing exposures’), institutions shall
apply the assessment criteria referred to.
The bank shall secure its object finance facilities for loan in the aviation field with
the following elements as well as other collateral under the bank’s list of acceptable
collateral;
I. A mortgage of the asset (aircraft);
II. An assignment of earnings, rights, time charter and receivables;
III. A pledge on the shares of the company, or of other receivables;
IV. Special privileges on the aircraft as applicable
V. All data, manuals and technical records, and

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VI. The airframe, all equipment, machinery and other appurtenances as

accessories belonging to the aircraft, which are on board or which have
been temporarily removed therefrom, and
VII. Any engines owned by the owner of the aircraft whether attached to the
aircraft or not, as well as any replacement engines (designated for use
on the aircraft and owned by the owner of the aircraft) but temporarily not
attached to the aircraft
VIII. Irrevocable powers of attorney.

For Aircraft finance the borrowers shall be required to deposit with the bank copies
of Log books, Manufacturers Airworthiness Directives and Service bulletins bi-
annually.

All object finance loans shall be adequately secured and the security shall be
executed in a form and manner acceptable to Access Bank.

I. In most cases, the object being financed is both the security and the
repayment cash flow generator;
II. The purpose of the security is to protect Access Bank in the event of
default by the borrower.
III. Bank loans, shall have senior or at least equal status vis-à-vis other loans
so as to make Access Bank the dominant or equal creditor in the event of
default by the borrower and to protect Access Bank from other
subordinated or junior and non-lien debts or creditors. This applies in the
case of syndicated object financing.

Loan Documents

The loan and security agreements shall be fully documented in accordance

with existing local laws. The legal and credit risks management departments
shall be responsible for ensuring that all transactions are properly
documented, and that Access Bank is protected at all times. The borrower
shall bear all legal and other costs associated with documenting the security.

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Applicable Limits On Loans and Lines of Credit

i. Financing of objects from one obligor (or a group of related obligors) shall
not be more than 20% of the Bank’s total shareholders’ funds or 70% of
the total object cost, whichever is less.

i. The borrower must have minimum of 10% equity in the object’s cost.
Exception in all other cases must be clearly documented and approved by
staff with the right credit approval limit for the proposed facility

ii. Access Bank will normally disburse its loan or equity based
on agreed disbursement schedule and progress of the object
being financed.

iv. Any foreign exchange risks, where funds are lent in foreign
currencies, shall be borne by the borrower.

v. The Bank shall engage Access Bank’s financing may not be

committed until sources of co-financing and end financing have been
confirmed.

Interest Charges

i. The interest chargeable on this facility shall be based on the Risk Based
Pricing structure which is subject to change in line with money market
variables.
i. Interest payment dates shall be monthly, quarterly, semi-annually or after
expiration of approved moratorium period.
ii. Management may however approve annual payment of interest provided
it is computed on a quarterly or semi-annual basis but paid annually.
Interests not paid shall attract penal interest rate at the default interest rate
or any other interest rate that may be set by the management.
Other Charges and expenses

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The borrower shall pay to Access Bank additional charges which are set
from time to time by Management and Board of Directors and are subject to
conformity with the Guide to Bank Charges. These fees may include: -
Appraisal fee, Management fee, Advisory fee Legal fees and other
applicable fees.

Disbursement Conditions

i. Disbursement will be made directly to the manufacturer or seller based on

procurement or contract agreement; or outright payment for readymade
object (s) to be procured. This is subject to payment recommendation duly
signed and authorized by relevant professionals supervising the
acquisition of the object (where applicable)
ii. Advance payment may be made where it is provided for in the contract
and/or supported by a Performance Guarantee or Letter of Credit
(offshore procurement) with Access Bank noted as first loss payee;
iii. An application for disbursement (the form prescribed by the Bank) must
be received from and duly signed by the borrower or its authorized agents
before any disbursement can be processed. It should be accompanied by
detailed technical and financial report on the progress if the object is under
construction.
iv. Access Bank may cancel any part of the loan outstanding once the closing
dates have elapsed or may call for renegotiation of the terms and
conditions of the loan to compensate it for additional costs incurred as a
result of the delays.
v. Access Bank shall be under no obligation to effect any disbursement
unless it is satisfied that all conditions have been met and that the money
requested shall be applied solely to the procurement of the object.
vi. The proceeds of Access Bank loan shall be used exclusively for the
acquisition of the object as provided in the loan agreement and any other
documents related to the object. In this regard, the borrower shall be
required to open a separate dedicated account into which funds for the
object shall be warehoused. Access Bank agents shall be allowed
unfettered access to the account for the purpose of monitoring and audit
(where applicable).
vii. The borrower shall provide satisfactory evidence that it could meet any
cost overruns and that it has judiciously used disbursed funds for the
stated purpose.

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viii. An indicative disbursement schedule should be agreed with and

provided by the borrower at the commencement of the loan
disbursement (Where applicable).

Loan Tenor and Repayments Terms

i. Tenor of the facility shall depend on the cash flow to be generated from
the object being financed.
ii. Repayment will normally be made in the currency of the loan except
otherwise stated and shall be received free of any charges in the
designated account on the date it is due.
iii. All Payment shall be made not later than the repayment dates set out in
the Loan Agreement. Principal repayment dates could be monthly,
quarterly or semi-annually. Bullet or annual principal repayments may be
allowed if the nature of the object and its cash flows justify them.
iv. Pre-payment of the balance of the loan will attract no penalty.
v. A moratorium period on principal amount not exceeding the manufacturing
and implementation period of the object may be granted at the discretion
of the Bank.

Reporting Process

i. During the approval of Object Finance Facility, Access Bank shall require
evidence that the obligor’s management is capable and can prepare and
issue regular financial and technical progress reports to the financiers, or
engage the services of an expert (approved by the bank) in this regard.
ii. The borrower shall maintain records and institute procedures adequate for
object implementation and for monitoring the progress on the object in
conformity with established professional practices.
iii. The bank shall ensure that a report is obtained on the object financed
prepared by the officers or appointed Consultant which provides detailed
information as it relates to the specific object financed and the industry.
iv. A progress report shall be provided periodically or as may be required by
the Bank. Where necessary, the advice of a professional shall be sought
to interpret the survey and confirm if the bank shall deal, with appropriate
justification and mitigants.
v. The obligation to report to Access Bank shall be independent of any
accounting responsibility contained in the legislation of the country.

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vi. Access Bank may, if so requested by other financiers, monitor progress

on their behalf. A fee will normally be charged for this service.
vii. The borrower shall submit to Access Bank its own audited accounts for
each fiscal year until and including the last fiscal year in which the object
repayment is complete. The accounts shall make reference to the object
financed by Access Bank as required by local laws. The auditors shall be
acceptable to Access Bank.

Inspections and Monitoring

i. Access Bank reserves the right for its officers or appointed agents to
review, audit and inspect the object at any given time during
implementation. The borrower and manufacturer shall be given
reasonable notice of such an inspection;
ii. Monitoring will ensure that:
 The credit quality of outstanding loans is maintained
 Any existing Agreement with Access Bank remains adequate to protect
Access Bank in the event of violations. Any amendments, waivers and
new conditions are negotiated and documented during the life of the
Agreement. Object implementation is as per the Loan Agreement and in
accordance with acceptable financial and technical standards and
practices.
 Funds disbursed are being adequately utilized. Works are of required
standards and that they are adequately insured and protected.
 Progress is in line with programme. Proactive actions that need to be
taken to ensure completion and loan repayment as planned.
iii. Risk Management Group and the sponsoring business unit shall be
responsible for putting in place an effective loan monitoring mechanism for
all object finance facilities.
iv. A periodic visitation report regarding the state of the object must be
submitted by a representative of the bank from the relevant business unit. A
half yearly report prepared by an independent consultant may be necessary
for very expensive, heavy duty objects such as aircrafts, vessels, etc.

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Object Audit

Access Bank reserves the right for its officers or appointed agents to audit any
activity related to its funding at any given time during the object implementation
period.

The audit will ensure that:

I. The loan agreement is being enforced;
I. The funds disbursed are being utilized according to the Loan Agreement;
II. The escrow account is in place and being used according to the Loan
Agreement;
III. Periodic reports sent to Access Bank are in conformity with the work
completed on the ground
IV. Financial situation of the Client is still in good standing.

Agreements and Loan Documentation

 The terms and conditions of each loan facility shall be clearly stated in a
loan agreement (or Offer Letter) to be signed between Access Bank and
the borrower. The borrower shall be represented by officers duly
authorized to act on its behalf. Loan agreements wherever required shall
be duly registered,
 The object being financed shall be the primary collateral on the facility.
Security shall be duly documented in accordance with laws in which the
security or company is located. Where the security involves a fixed asset,
Access Bank or its authorized agents shall keep custody of the title and the
charge documents.
 Access Bank’s external legal advocates and notaries shall be charged
with the responsibility of preparing and registering the mortgage in
accordance with the relevant laws;
 Search shall be conducted by Access Bank’s advocates to establish the
status of the assets charged to Access Bank; or at such period interval
considered appropriate by the Head of Risk Management.
 Access Bank shall sign an escrow account agreement with the borrower
and the escrow agent for the purpose of hosting and managing the escrow
account, where applicable and this shall be in advance.
 Access Bank’s Corporate Counsel G r o u p shall r e v i e w t h a t the
agreements have been duly and validly contracted and binding.

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Loan Agreement

i. Access Bank object and loan management procedures are designed to

ensure that objects are realized as planned and that loan repayments
proceed as scheduled.

ii. Disbursements and repayments shall as much as possible progress as

provided in the loan agreement. In the event that the targets could not be
met, Access Bank could consider rescheduling or varying or waiving the
relevant clauses of the loan agreement. Such waivers or variations shall
attract appropriate fees as indicated in the loan agreement.
iii. The purpose of considering and granting waiver requests is to improve the
overall performance of the loan and to bring the object to a stage where
potential default is significantly reduced.
iv. The management of Access Bank shall be responsible for
considering and approving waivers or any variations to the loan
agreement especially concerning grace period, and/or extension of
repayment periods.
v. Any rescheduling that could result in loss of income, variation or dilution
of security or additional funding shall require approval by the
management of the bank.

All variations or waivers shall be expressly reflected as an addendum to the loan

agreement duly executed by the borrower and Access Bank.

Lending Process

i. To establish reliable trends and make a realistic lending decision, the

Bank, with regard to object financing, will consider credit requests of
corporate organizations with audited accounts of between 3 and 5 years.
In addition, all applications must be supported by applicant’s cash flow
covering the tenor of the facility.
i. The total funding need of the business must be accurately estimated. To
ascertain this, the supplier’s pro forma invoice detailing the cost and
description of the object must be submitted.
ii. Depending on t h e c o m p l e x i t y of t h e o b j e c t b e i n g f i n a n c e d ,
the
iv. b a n k m a y commission a professional to conduct a feasibility study on
the object. Such report shall contain information such as the useful life

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span of the object, the state of the object, the year of manufacture and
other relevant information.
v. For specialized objects (e.g. Aircraft, Vessel, etc.), at some point in the
tenor of the facility and in line with the Bank’s CPG an independent
valuation report, prepared by the bank’s appointed consultant, will be
necessary. The said valuation cost will be fully borne by the borrower
vi. All ancillary costs associated with the acquisition and subsequent use of
the asset must be ascertained and included in the total cost.
vii. In order to achieve and maintain high quality risk assets, the bank has in
place, a robust loan administration mechanism and loan disbursement
methodology. Credit Risk Management shall ensure that all object finance
facilities are adequately and effectively administered at all times. The
Credit Administration Unit must ensure the following in the administration
and disbursement of object finance loans.
vii. The minimum Equity Contribution ratio shall be 30% of the cost of the
object being financed.
ix. To mitigate the risks of possible funds diversion, non-delivery and the
financed object not meeting up with required specification, the Bank will only
disburse by way of LC establishment. However, where it is impracticable to
establish a Letter of Credit, the bank will disburse required funds into an
account pending the receipt of a satisfactory feasibility and valuation reports
from the commissioned Professional Valuer.
x. The asset is comprehensively insured with the bank’s interest noted as
the first loss payee.
xi. The Bank shall initiate registration of a debenture legal charge over the
object being financed. The bank may also take a charge over the
borrower’s existing fixed and floating assets alongside the joint
guarantees of the directors.

Classification and Provision Requirements

The classifications and provisioning for specialized loans such as Object finance,
takes into considerations the cash flows and gestation periods of the loan.
The banks shall classify and make provisioning for object finance, income
producing real estate and commercial real estate financings as per provision
requirements in Prudential Guideline.

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10.7 Real Estate Finance Policy

Background

Real Estate Loan also known as “Income producing real estate” is a loan provided
for funding of real estate (such as, office buildings to let, retail space, multifamily
residential buildings, industrial or warehouse space, and hotels) where the
prospects for repayment and recovery on the exposure depend primarily on the cash
flows generated by the asset. The primary source of these cash flows would
generally be lease or rental payments or the sale of the asset. (According to
Prudential Guidelines July 2010)
Real Estate financing is an arm of Project Finance which is one of the services
offered by Access Bank. Section 7 of the Prudential Guidelines requires that
Banks should develop comprehensive written policy that establishes appropriate
limits and standards for all extensions of credit to the real estate construction or
made for the purpose of financing the construction of a building.
This policy document is intended to assist in the formulation and maintenance of
a real estate lending policy that engenders safe and sound lending practices in
Access Bank Group.

Objective of the Policy

This policy document is designed to achieve the objectives listed below:

I. Provide the framework upon which a credit product on real estate

financing should be structured in the Bank with consistent procedures for
evaluating and accepting project proposals.
II. Provide the Bank’s credit risk function with consistent criteria for evaluating
and making recommendations on project proposal;
III. Provide management and directors with clear standards to
evaluate and approve real estate lending requests.
IV. Provide both Internal and External audit functions with clear and
consistent metrics for the evaluation of Access Bank’s real estate
financing system.
V. Ensure that relevant risks that are inherent in real estate financing are
promptly identified, appropriately priced (Risk Based Pricing) and such
projects are closely monitored in order to limit both the frequency and
severity of loan losses.
VI. Provide a monitoring framework that ensure the bank’s real estate lending
policy is relevant in current and future market conditions

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Scope of the Policy

This policy proffers best practice aspect of real estate financing. It specifically
covers administration, disbursement and monitoring of real estate credit facilities.

An Overview of Real Estate Market in Nigeria

Real estate is in a cyclical industry that is affected by both local and national
economic conditions which, includes: growth in population and employment,
consumer spending, interest rates and inflation. While macro-economic
conditions are important factors affecting the overall state of the real estate
industry, local supply and demand conditions are by far the more important
factors affecting real estate market
Housing is one of the basic necessities of life but Nigeria is yet to develop a
vibrant mortgage market. Current housing deficits in Nigeria is very high and this
provides tremendous investment opportunities in the industry through real estate
financing. Access Bank is aware of the immense potentials in terms of the risk –
returns potentially available in this industry and is willing to take advantage of
these emerging opportunities by creating financial products and services that
meet this funding requirement based on its Risk Acceptance Criteria.

Risk Associated with Real Estate Project Finance

The generic applicable risks associated with real estate and construction lending
are already stated in section 3.5 above, other specific risk include:

Construction Risk
This is the risk that the project will fail on the triple constraints of time, quality and
cost.

Compliance Risk
Compliance risk is the risk arising from violations of, or non- conformance with
laws, rules, regulations, prescribed practices, or ethical standards. Compliance
risk also arises in situations where the laws or rules governing certain bank
products or activities of the bank’s clients may be ambiguous or untested. This
risk exposes the institution to fines, civil money penalties, payment of damages,
and the voiding of contracts. Compliance risk can lead to a diminished reputation,
reduced franchise value, limited business opportunities, lessened expansion
potential, and lack of contract enforceability.

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Environmental Risk
This is the risk that the bank may be held financially responsible for the clean- up
of hazardous waste on property that it has taken as collateral. Policies or
procedures should be in place to protect the bank from liability for any
environmental hazards associated with real estate that it holds as collateral.
Asbestos in commercial buildings, contaminated soil and underground water
supplies, or use of the property to produce or store toxic materials are only a few
examples of environmental risk that may subject a bank to potential liability.
Ideally, the bank should attempt to identify environmental risks before funding a
loan or offering any type of commitment to lend. The bank should seek the advice
of environmental risk experts if it believes the environmental problems are
serious.

Summary of Risk Associated with Real Estate Financing

S/N Stages of Risk Associated Real Estate Finance
1. Unclear government policy
Sponsors to fund this phase as
Scheme Design or planning approval for
1 the bank shall not fund project
Development construction.
development phase
2. Inadequate data.
1. Submission of Professional
1. Technical design flaws.
Indemnity Insurance by Project
Sponsor’s Consultants.
1. Submission of project Bills of
Quantities (BOQs), drawings,
2. Omission in scope leading work plans, etc.
to cost overruns
2. Provision of Adequate
Contingency Sum in the BOQs
3. Arbitrary increase in scope 1. Sponsor to increase equity
and/or quality specifications contribution as a way of
leading to cost overrun tackling resultant cost overrun
[Link] structural 1. The Bank would immediately
deviation from approved call-in the facility.
design that could lead to
2 Construction Regulatory and Government 2. The Bank would publish a
sanction disclaimer.
1. Avoid too optimistic
Programme of Work.

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2. Allow for adequate

5. Time overrun. Moratorium.

3. Submission of Performance
Bond / Advanced Payment
Guarantee by Contractors.
6. Progress payment Irrevocable Domiciliation
diversion by developer. Agreement to be executed.
7. General contractor files for
Contractor’s All Risk Insurance
bankruptcy before completing
policy provision
the project.
8. Uninsured destruction of
Contractor’s All Risk Insurance
completed work or work in
Policy provision.
progress.
1. Insertion of Penalty clause in
Contract Agreement
9. Major disputes or the
failure of a major supplier or
2. Submission of Performance
subcontractor to deliver goods
Bond / Advance Payment
and services.
Guarantee by Suppliers / Sub-
contractors.
10. Delay in 10. Insertion of Penalty clause
procurement/Importation. in Contract Agreement.
11. Change in government 11. Project viability analysis
policy. with sensitized cash flows
1. Usage of inferior materials 1. Samples of materials to be
for the construction leading to approved by Project sponsor’s
3 Operation collapse of the building. Consultants prior to usage.

2. Incomplete/ Improper 2. Legal to advise prior to

Product Lines

Access Bank considers applications from both public and private sector agents
for financial assistance in real estate, both residential and commercial, and
related infrastructure projects in pursuance of its objectives.

The applications many be for the following forms of assistance:

1. Direct loans for financing projects relating to development of new housing
estates
I. Infrastructure provision through site and services schemes
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II. Neighbourhood and housing improvements;

III. Commercial projects (office buildings, rental housing, shopping centres
and soon

2. Lines of credit to housing financial and other institutions for on-lending to

individuals and developers for:
I. New mortgages
II. Construction finance
III. Small and medium-scale building materials production
IV. Procurement of building material and equipment.
3. Guarantees to small and medium-sized developers` to enable them
source funds from offshore /local financial institutions or meet contractual
obligations. Such a guarantee shall be issued directly by the bank as a
contingent liability.

Project Proposals and Application

I. Developers/borrowers interested in the bank’s services and loans shall

submit formal applications to the Bank which will be processed in line with
the bank’s Credit Policy Guide “CPG”.
II. A p p l i c a n t s must hold a title to the land which has already been
perfected in his name for the proposed development at the time of
application and the land must be free of any encumbrances throughout
project implementation. Access Bank shall not fund land procurement.
III. Applications must be accompanied by comprehensive documentation on
the project, in accordance with the bank’s Guidelines for Preparing Project
Proposals, including but not limited to background, sector information, and
business and marketing plans showing cash flow analyses and financial
projections. Detailed technical information (such as site layouts and
architectural plans) should also be provided where applicable.
IV. Access Bank encourages good corporate governance in the companies
and developers it does business with and would seek at all times to
promote this through proper constitution of management and board of
directors of borrower companies and accurate and transparent financial
accounting.

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Environmental and Social Policies

Access Bank is committed to conducting business in an environmentally and

socially responsible manner, and will operate in accordance with the Equator
Principle, which are voluntary set of guidelines for managing environmental and
social risk issues related to the financing of development projects based on
guidelines of the World Bank and International Finance Corporation (IFC).

Also, projects funded by the Bank shall comply with the Environmental and Social
Risks Policy of the Bank e.g.

I. Real estate projects shall provide basic and acceptable infrastructure

services such as water, sanitation and storm water drainage and access
roads, amongst others. They should promote sound environmental
sustainability, harmonious development within existing neighbourhoods
and efficient use of land and other natural resources.
II. Developers and their contractors and other service providers must ensure
the safety of workers involved in the construction of projects funded by the
bank through sound safety practices on and off the construction sites,
including but not limited to provision of protective clothing, safety
equipment and gadgets, sanitation facilities, appropriate insurance and so
on.
III. Buildings must meet all standards and requirements of health and safety
during construction and after when in use. They must be duly certified to
be so by licensed professionals and municipal agencies. Developers shall
procure, where necessary, appropriate insurance to protect homebuyers
and users of the facility against any losses during and after construction.
IV. Contractors and developers must comply with local labour laws and shall
ensure that workers employed on their sites receive fair wages and that
child labour is not employed in the implementation of projects funded by
the bank.
V. Access Bank shall promote equal opportunities for all irrespective of
gender or any other considerations in terms or availability of credit,
employment of workers in funded projects during and after construction
and in sale of houses and serviced plots.
VI. Access Bank shall not participate in the funding of any projects on lands
that have been expropriated without compensation or where there has
been forceful eviction.
VII. Noncompliance with Access bank Environmental and Social Risks Policy
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may attract sanction depending on the severity of the non-compliance

Co - Financing

I. Access Bank’s main mandate is to mobilize resources for housing

development in its country of operation. It recognizes that this mandate
could best be achieved through working together with developers and other
financial institutions with a view to pooling resources to increase real estate
investments and services.
II. Access Bank will therefore seek to share financing with third parties (other
than project sponsors) on a project or transaction-specific basis with or
without formal coordination agreement among the financing partners.
III. Co-financing could be either joint or parallel financing or any other form that
will bring in additional financing and allow risks to be shared. The need for
such co- financing should however not compromise Access Bank’s policies
or lead to delayed implementation of projects.
IV. Co-financing sources and availability, whenever possible, should be
confirmed before completion of the appraisal process. Where delays are
anticipated on the part of the co-financier, the project should be structured
to allow for parallel financing and to ensure that progress on Access Bank’s
loan is not dependent on the co-financier’s actions or non-action.

Appraisal Procedures and Lending Process

I. All requests for a loan from Access Bank must be fully documented and
approved by the management of Access Bank in line with Credit Approval
limits as stated in Credit Policy Guide (section [Link].4)
II. Access Bank officers (or appointed project monitoring consultants or
professional valuer acceptable to the Bank) shall be appointed by the bank
and shall be fully responsible to the Bank while the consultation cost shall
be borne by the customer. They must therefore apply themselves with
all sense of seriousness, professionalism and integrity and should
clearly communicate to Access Bank’s numerous clients the company’s
requirements, expectations and processes in project selection and
appraisal processes.
III. Access Bank’s project selection and appraisal procedures and processes
are designed to ensure that only technically feasible and financially viable
projects are recommended for funding and that the real estate developers
must possess necessary capacity and resources to implement the project.
He must be credible enough to honour due

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obligations under the loan agreement.

IV. Project proposals received go through evaluation, appraisal and approval
processes including the following:
 Internal evaluation and review
 Proposal on and discussions of the indicative terms and conditions
 Pre-appraisal and appraisal
 Preparation and review of the appraisal report
 Approval by management
 Loan offer and acceptance
 Final negotiations and signing of the loan agreement.
V. C o m p o n e n t s of the analysis include:
 Sponsors and other counter party risks.
 Cash flow projections
 Funding and repayment mechanisms (rental or sales)
 Legal and security documentation
 Equity contribution- not less than 30%
 Project stakeholders e.g. consultants, contractors and suppliers.

Security

I. All project loans shall be adequately secured, and the security shall be
executed in a form and manner acceptable to Access Bank. The collateral
adequacy ratio must be in line with the Bank’s Credit Mitigant Policy.
II. The purpose of the security is to protect Access Bank in the event of
default by the borrower.
III. Access Bank loans shall have senior status or at least equal status vis-à-
vis other loans so as to make Access Bank the dominant or equal creditor
in the event of default by the borrower and to protect Access Bank from
other subordinated or junior and non-lien debts or creditors.
IV. Access Bank accepts both collateral and guarantees as security and may

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consider the following as credit support or enhancement:

 Prime Property
 Financial instruments such as treasury bills, bonds, share
certificates, debentures and commercial papers
 Insurance policies from acceptable institutions
 Guarantee from a prime bank or institution
 Letters of credit from acceptable
banks
 Government guarantee
 Any other acceptable security

V. Collateral
 Collateral should have unencumbered recourse to specific assets.
 It must cover the loan with no loss to the Bank.
 It must comply fully with all the collateral requirements in the Bank’s
Credit Mitigant Policy.

Loan Documents

The loan and security agreements shall be fully documented in accordance

with existing local laws and as stated in Credit Policy Guide of the Bank. The
legal and credit risks management departments shall be responsible for ensuring
that all transactions are properly documented and that Access Bank is protected
at all times. The borrower shall bear all legal and other costs associated with
perfecting the security.

Applicable Limits on Loans and Lines of Credit

I. Lending to any single project (or a group of related obligor treated as

{one obligor}) shall not be more than 20% of shareholders’ funds as

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stated in the bank’s Credit Policy Guide or 70% of the total project cost,
whichever is less.
II. Access Bank will not finance the cost of land, professional and other fees.
Lending shall be used entirely to finance construction cost component, or
any other component as may be approved by the management.
III. The borrower must have equity in the project of not less than 30% of the
total cost, including land, which must be free of any encumbrances.

 Access Bank guarantee will normally indemnify the repayment of

not more than 70% of the approved project cost.

 Access Bank will normally disburse its loan or equity based on

agreed disbursement schedule and progress of the project.

 Exception in all other cases must be clearly documented and

approved by staff with the right credit approval limit for the proposed
facility

IV. Any foreign exchange risks, where funds are lent in foreign currencies, shall
be borne by the borrower.
V. Access Bank financing may not be committed until sources of co-financing
and end financing have been confirmed. Developers may be required to
commit their funds upfront or to set them aside in an acceptable dedicated
account before the Bank loan could be disbursed.
VI. The bank shall not fund projects where the borrower is also the contractor
except where the borrower is an established real estate developer
(exception to this shall require one up approval);
VII. There shall be a clear separation of roles in the appointment of consultants
and contractors in all real estate financing to be granted by the bank.

Interest Charges

I. The interest chargeable on this facility shall anchor MPR, reflecting the
risk- based pricing model which is subject to change in line with money

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market variables.
II. Interest payment dates shall be monthly, quarterly, semi-annually or after
expiration of approved moratorium period. Interests not paid shall attract
penal interest rate at the default interest rate or any other interest rate that
may be set by the management.

Other Charges and expenses

The borrower shall pay to Access Bank the following charges which are set from
time to time by; management, board of directors and subject to banker’s tariff: the
applicable fees are: appraisal fee, management fee, project management fee,
Legal fees and other applicable fees.

Disbursement Conditions

I. Disbursement will be made based on work progress or agreed milestones

and payment certificates duly signed and authorized by appointed
professionals supervising the project.
II. Advance payment may be made where it is provided for in the contract
and/or supported by an Advance Payment Guarantee (APG) or
Performance Bond with Access Bank noted as first loss payee.
III. An application for disbursement must be received from and duly signed
by the borrower or its authorized agents before any disbursement can be
processed. The application shall be in the form prescribed by Access Bank
from time to time and accompanied by detailed technical and financial
report on the progress of the project. Access Bank shall be under no
obligation to disburse if progress is not satisfactory or where other
conditions have not been met.
IV. Access Bank may cancel any part of the loan outstanding once the closing
dates have elapsed or may call for renegotiation of the terms and
conditions of the loan to compensate it for additional costs incurred as a
result of the delays.
V. Access Bank shall be under no obligation to effect any disbursement
unless it is satisfied that all conditions have been met and that the money
requested shall be applied solely to the project.
VI. The proceeds of Access Bank loan shall be used exclusively for the
development of the project as provided in the loan agreement and any
other documents related to the project. In this regard, the borrower shall
be required to open a separate project account into which funds for the
project shall be deposited. Access Bank agents shall be allowed

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unfettered access to the account for purposes of monitoring and audit.

VII. The borrower shall provide satisfactory evidence that it could meet any
cost overruns and that it has judiciously used disbursed funds for the
stated purpose.
VIII. An indicative disbursement schedule should be agreed with and provided
by the borrower at the commencement of the project.

Loan Tenor and Repayment

I. Well-established housing developers that offer tenant purchase or limited

mortgage schemes or developers with a large portfolio of real estate
assets could also be considered for loans as stated in credit policy guide,
if they are considered to have strong balance sheet and management
Ordinarily, direct loans to developers for financing housing estates will be
for a period or tenor not exceeding five years (including any moratorium
period).
II. Short-term facilities shall be for periods not exceeding 2 years.
III. Repayment will be made in the currency of the loan and shall be received
in the designated account on the date it is due in line with agreed terms of
the loan.
IV. All repayments shall be made not later than the repayment dates set out
in the Loan Agreement. Principal repayment dates could be monthly,
quarterly or semi-annually. Bullet or annual repayments may be allowed if
the nature of the project and its cash flows justify them.
V. Unless otherwise specified, pre-payment of the balance of the loan will
attract 3 months’ interest payment on the outstanding balance.
VI. A grace period, not exceeding the implementation period of the project up
to a maximum of two years, may be granted at the discretion of Access
Bank. It shall apply only to the principal amount.
VII. Interest shall continue to accrue on any disbursed amounts and will be
paid during the grace period on or before the interest payment dates.

Project Implementation

I. The Loan Agreement shall include a brief description of the project and
the purpose of the loan.
II. Projects, once approved may not be varied or altered without the prior
approval of Access Bank. Appropriate clauses shall be included in Loan

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Agreements to give Access Bank option to withdraw from co-financing any

project where unauthorized variations in scope could compromise project
feasibility and viability.
III. Procurement of goods and services shall be through competitive
tendering procedures duly approved by Access Bank
IV. The borrower or implementing agency shall be fully responsible, directly
or indirectly, for the realization of the project, where required and as stated
in the approval document, the customer shall furnish Access Bank with
regular reports on the financial, technical and marketing progress of the
project.
V. All works shall be properly insured by the borrower throughout the Tenor
of the loan. Such insurances shall be procured from approved insurance
companies while the cost shall be borne by the customer.
VI. The contractor for the project shall procure and submit an Advance Payment
Guarantee/ Performance bond in an approved format to the bank covering
an appropriate value of the project.
VII. The interest of Access Bank shall be duly endorsed on each insurance
cover/policy.
VIII. Access Bank may appoint an independent project manager to monitor and
report on the performance of the project. The cost of these services shall
be borne by the borrower.

Reporting Procedures

I. During project appraisal, Access Bank shall require evidence that the
borrower’s management is capable and can prepare and issue regular
financial and technical progress reports to the financiers.
II. The borrower shall maintain records and institute procedures
adequate for project implementation and for monitoring the
progress of the project in conformity with established professional
practices.
III. A project progress report shall be required not later than 30 days after the
end of each quarter. Amongst others, this report will detail the technical,
financial, legal and implementation aspects of the project and any
changes effected and value of collateral.
IV. The obligation to report to Access Bank shall be independent of any
accounting responsibility contained in the legislation of the country.
V. Access Bank may, if so requested by other financiers, monitor progress
on their behalf. A fee to be paid by the obligor will normally be charged

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for this service.

VI. The borrower shall submit to Access Bank its own audited accounts for each
fiscal year until and including the last fiscal year in which the project
repayment is complete. The accounts shall make reference to the project
financed by Access Bank as required by local laws. The auditors shall be
acceptable to Access Bank

Inspection and Monitoring

I. Access Bank reserves the right for its officers or appointed agents to
review, audit and inspect the project at any time during implementation.
The developers/borrower may be given reasonable notice of such an
inspection. This is subject to the Bank’s discretion and the peculiarities of
the project.
II. Monitoring will ensure that:
 The credit quality of outstanding loans is maintained
 Any existing Agreement with Access Bank remains adequate to protect
Access Bank in the event of violations
 Any amendments, waivers and new conditions are negotiated
and documented during the life of the Agreement
 Project implementation is as per the Loan Agreement and in
accordance with acceptable financial and technical standards and
practices.
 Funds disbursed are being adequately utilized.
 Works are of required standards and that they are adequately insured
and protected.
 Progress is in line with programme.
 Proactive actions that need to be taken to ensure completion and
loan repayment as planned.

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Project Audit

Access Bank reserves the right for its officers or appointed agents to audit
any activity related to its funding at any given time during the project
implementation period.

The audit will ensure that:

 The loan agreement is being enforced;

 Financial situation of the Client is still in good standing
 The funds disbursed are being utilized according to the Loan Agreement;
 Periodical reports sent to Access Bank are in conformity with the work
completed on ground.

Agreement and Loan Documentation

I. The terms and conditions of each loan facility shall be clearly stated in a
loan agreement to be signed between Access Bank and the borrower. The
borrower shall be represented by officers duly authorized to act on its
behalf. Loan agreements wherever required shall be duly registered.
II. The security shall be duly documented in accordance with the laws of the
country in which the security or company is located. Where the security
involves a fixed asset Access Bank or its authorized agents shall keep
custody of the title and the charge documents.
III. Access Bank’s external legal advocates and notaries shall be charged
with the responsibility of preparing and registering the mortgage in
accordance with the relevant laws.
IV. An annual search shall be conducted by Access Bank advocates to
establish the status of the properties/fixed assets charged to Access
Bank.
V. Access Bank legal unit shall issue a clean legal opinion that the
agreements have been duly and validly contracted and binding.

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Loan Management

I. Access Bank project and loan management procedures are designed to

ensure that projects are realized as planned and that loan repayments
proceed as scheduled. The Bank shall therefore work closely with
developers/borrowers as partners with a view to optimizing returns for all
involved.
II. Disbursements and repayments shall as much as possible progress as
provided in the loan agreement. In the event that the targets could not be
met Access Bank could consider rescheduling or varying or waiving the
relevant clauses of the loan agreement. Such waivers or variations shall
attract appropriate fees as indicated in the loan agreement.
III. The purpose of considering and granting waiver requests is to improve the
overall performance of the loan and to bring the project to a stage where
potential default is significantly reduced.
IV. The m a n a g e m e n t of A c c e s s B a n k s h a l l be r e s p o n s i b l e for
c o n s i d e r i n g and approving waivers or any variations to the loan
agreement especially concerning grace period, and/or extension of
repayment periods.
V. Any rescheduling that could result in loss of income, variation or dilution
of security or additional funding shall be subject to approval by the
management of the bank.
VI. All variations or waivers shall be expressly reflected as an addendum to
the loan agreement duly executed by the borrower and Access Bank

Monitoring of Real Estate Market

The Project Monitoring Unit shall ensure monitoring the real estate markets’
industry outlook in order to engender proactive measures to changes in the real
market conditions. Pertinent market supply and demand factors in this market
include:
 Demographic indicators, including population and employment trends.
 Zoning requirements
 Current and projected vacancy and absorption rates
 The volume of available space, including completed, and sales prices,
including new projects approved by local building authorities but not yet
under construction.
 Current and projected lease terms, rental rates, sales prices including

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concessions and amenities.

 Current and projected operating expenses for different types of projects.
 Economic indicators, including trends and diversification of the market
Where required or feasible, this function shall be outsourced by the bank to any
reputable real estate valuer who shall provide semi-annual report to the bank. It
shall also be supported by the work and analyses provided by the Bank’s Economic
Intelligence Unit.

Classification and Provision Requirements

The classifications and provisioning for specialized loans such as Project

finance, takes into considerations the cash flows and gestation periods of the
loan.
The banks shall classify and make provisioning for object finance, income
producing real estate and commercial real estate financings as per provision
requirements in Prudential Guideline

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11. Environmental and Social Risk Management (ESRM)

11.1 Introduction

The bank is committed to conducting its business in an environmentally and socially responsible
manner. In maintaining international best practice in environmental and social risk management,
the Bank shall ensure that our customers are also fulfilling their environmental and social
responsibilities in line with the Bank's expectations.

The Bank shall insist on compliance with applicable National laws and regulations, the use of
sound environmental, health & safety, and labour practices, as these are important factors in
demonstrating effective corporate governance, ensuring commitment to loan obligations where
E&S issues are applicable and addressed in the contract documentation.

The Bank shall not provide financial services to clients and projects / activities that are on the
exclusion list of the Environmental and Social Risks Management (ESRM) Manual.

All applicable projects shall be reviewed and approved in line with credit processes as contained
in the Bank’s CPG and ESRM Manual

The roles and responsibilities of Environmental and Social Risks Management include;
 Ensure that policies, processes and procedures are developed and integrated as the
Environmental Management System with focal aim to assess, review, identify, manage,
monitor and report the potential environmental and social (“E&S”) risk issues inherent in
credit requests thereby putting in place requisite mitigation to the identified risks.
 Preparation and development of environmental and social risk management
frameworks and structures in addition to ensuring compliance with requisite regulatory,
global standards and contract specific requirements and obligations (i.e. IFC).
 Investigate inherent credit’s environmental and social factors and make
recommendation as required to the RM and Management teams.
 Conduct independent audits/due diligence on facilities with high and moderate E&S
risks.
 Timely escalation and necessary alert to senior management, committees, to take
corrective action whenever a facility breaches prescribed environmental and social
action plans and ESRM-CRM policy constraints. present and potential assets.
 Assess and confirm suitability and completeness of all E&S due diligence
documentation before sign-off for availment / disbursement of funds.

Refer to the ESRM MANUAL for more details

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12. DIGITAL LENDING

12.1 Introduction

Digital lending is the process of offering loans that are applied for, disbursed, and managed through
digital channels, in which lenders use digitized data to inform credit decisions and build intelligent
customer engagement. The central objective is to achieve the following:

 Increased operational efficiency

 Driving scale with existing customers,
 Reaching new customers, or
 Improving the customer experience
 Address the operational risk issues
 Ensure cyber security/safety

Refer to the Bank’s digital Digital Lending Framework and the Digital Risk Management Framework
for more details

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Appendices

Appendix 1: Financial Product Type List

Appendix 2: Access Bank Exclusion List

Appendix 3: Access Bank Cement Policy

Appendix 4: Access Bank Oil & Gas Policy
Appendix 5: Access Bank Power Sector Policy
Appendix 6: Access Bank Agriculture Sector Policy
Appendix 7: ESRM procedures overview

Appendix 8: Low Risk Financial Product Types

Appendix 9: New clients (without an accompanying transaction)

Appendix 11: Transactions with Known Use of Funds
Error! Bookmark not defined.
Appendix 12: Project Finance (Equator Principles)

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Appendix 1: Financial Product Type List

Access Bank’s Financial Product Types

Existing credit risk products and service offerings that the bank will continue to offer in
the market place include:
 Overdraft

 Time Loan

 Term Loans

 Retail Credit

 Project Finance

 Leasing

 Bonds and Guarantees

 Import Finance (LCs Usance, etc.) and other facilities that the Bank consider fit
to satisfy customer’s Business need

 Green Debts a

a
Green Debts, including Green Bonds, Green Funds and such other categories as may be determined by the Bank
from time to time, would be governed in conjunction with the Bank’s Green Bond Framework.

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Risk Identification Matrix

Risk Identification Matrix for Credit Products

Exchange
Interest
Traded
Credit Pre- Rate Risk
(ET)/Over Settlem Market
No. Products Risk(CR)/C Settleme in the
The ent Risk Risk
ounterparty nt Risk Banking
Counter
Book
(OTC)

Assets
I Funded Products
1. Overdraft
Against Term
a NA Yes No No No Yes
Deposit
Against Real
b NA Yes No No No Yes
Estate
c Margin Trading NA Yes No No No Yes
Custom Duty
d NA Yes No No No Yes
Payment
Suppliers
e NA Yes No No No Yes
Financing
2. Term Loans
a Real Estate Loan NA Yes No No No Yes
Equipment
b NA Yes No No No Yes
Financing
c Short Term Loans NA Yes No No No Yes
New Technology
d NA Yes No No No Yes
Capital Loan
Asset
e NA Yes No No No Yes
Replacement
Hire Purchase
f. NA Yes No No No Yes
Loans
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Risk Identification Matrix for Credit Products

Exchange
Interest
Traded
Credit Pre- Rate Risk
(ET)/Over Settlem Market
No. Products Risk(CR)/C Settleme in the
The ent Risk Risk
ounterparty nt Risk Banking
Counter
Book
(OTC)

Loans for
Purchase of
Consumer
g NA Yes No No No Yes
durables (e.g.
electronics,
furniture)
Loan for Shares
h NA Yes No No No Yes
acquisition
i. Education Loans NA Yes No No No Yes
Loans/Facilities-
3.
Revolving/Non-revolving
a Project Finance NA Yes No No No Yes
b Distributor Finance NA Yes No No No Yes
c Importer Finance NA Yes No No No Yes
Working Capital
NA Yes No No No Yes
d Loan
e Lease Financing NA Yes No No No Yes
Warehouse
NA Yes No No No Yes
f Financing
g Agricultural Loans NA Yes No No No Yes
Mortgage finance
against Real NA Yes No No No Yes
h Estate
Loan against
NA Yes No No No Yes
i Shares

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Risk Identification Matrix for Credit Products

Exchange
Interest
Traded
Credit Pre- Rate Risk
(ET)/Over Settlem Market
No. Products Risk(CR)/C Settleme in the
The ent Risk Risk
ounterparty nt Risk Banking
Counter
Book
(OTC)

Loan against
NA Yes No No No Yes
j House rent
Foreign Exchange
NA Yes No No No Yes
k Loans
Oil and Gas
NA Yes No No No Yes
l contract finance
General
NA Yes No No No Yes
m Commercial Loan
Discounting-
4. Revolving/Non-
Revolving
a PDC discounting NA Yes No No No Yes
b Invoice discounting NA Yes No No No Yes
Import LC
Acceptance NA Yes No No No Yes
c discounting
Export LC
Acceptance NA Yes No No No Yes
d discounting
Avalized Bill
NA Yes No No No Yes
e discounting
Advance Against
5. NA Yes No No No Yes
documents
Risk Participation-
6. NA Yes No No No Yes
Loans/Discounting

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Risk Identification Matrix for Credit Products

Exchange
Interest
Traded
Credit Pre- Rate Risk
(ET)/Over Settlem Market
No. Products Risk(CR)/C Settleme in the
The ent Risk Risk
ounterparty nt Risk Banking
Counter
Book
(OTC)

Factoring-Loans against
7 NA Yes No No No Yes
Receivables
Placements With Banks-
8 NA Yes No No No Yes
Demand/Term
9 Structured Notes NA Yes No No No Yes
10 Investments

ET Yes No No No Yes
Quoted Equities-
a
Local/International
OTC Yes Yes Yes No Yes

ET Yes No No No Yes
b Private Equities
OTC Yes Yes Yes No Yes

c Hedge Funds OTC Yes Yes Yes No Yes

ET Yes No No No Yes
d Bonds
OTC Yes Yes Yes No Yes

ET Yes No No No Yes
e Fixed Rate Notes
OTC Yes Yes Yes No Yes

11 Leveraged Finance NA Yes No No No Yes

12 Syndicated lending NA Yes No No No Yes
II Non-Funded Products
Import letters of credit-
1. Unsecured/Foreign
Revolving/Non-revolving

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Risk Identification Matrix for Credit Products

Exchange
Interest
Traded
Credit Pre- Rate Risk
(ET)/Over Settlem Market
No. Products Risk(CR)/C Settleme in the
The ent Risk Risk
ounterparty nt Risk Banking
Counter
Book
(OTC)

Sight LC's-First
Port, Third Port,
a NA Yes No No No No
Standby ,Back-to-
Back
Usance /Deferred
Payment LC's-First
b NA Yes No No No No
Port, Third Port,
Back-to-Back
Mixed Payment
LC's-First Port,
c NA Yes No No No No
Third Port, Back-
to-Back

2. Import LC Acceptances NA Yes No No No No

Confirmed Export LC
3. NA Yes No No No No
Acceptances
Avalized Inward Bills for
4. NA Yes No No No No
Collection

5. Letters of Guarantee's

a Bid Guarantee’s NA Yes No No No No

Performance
NA Yes No No No No
b Guarantee’s
Advance Payment
NA Yes No No No No
c Guarantee's
Retention
NA Yes No No No No
d Guarantee’s

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Risk Identification Matrix for Credit Products

Exchange
Interest
Traded
Credit Pre- Rate Risk
(ET)/Over Settlem Market
No. Products Risk(CR)/C Settleme in the
The ent Risk Risk
ounterparty nt Risk Banking
Counter
Book
(OTC)

Maintenance
NA Yes No No No No
e Guarantee’s
Financial
NA Yes No No No No
f. Guarantee’s
Bonds &
NA Yes No No No No
g Guarantees
Shipping
NA Yes No No No No
h Guarantee’s

6. Export LC Confirmations NA Yes No No No No

ET No No No No Yes
7. FX Contracts-
Spot/Forward/Swaps OTC Yes Yes Yes No Yes

Interest Rates WAPS/

8. OTC
Structures &FRA's
Range Accrual
Yes Yes Yes No Yes
a Swaps
Plain Vanilla
Yes Yes Yes No Yes
b Swaps

c Inverse Floaters Yes Yes Yes No Yes

d Asset Swaps Yes Yes Yes No Yes

e Step-ups Yes Yes Yes No Yes

Options & Futures-

9. Index/Equities/Commodi
ties

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Risk Identification Matrix for Credit Products

Exchange
Interest
Traded
Credit Pre- Rate Risk
(ET)/Over Settlem Market
No. Products Risk(CR)/C Settleme in the
The ent Risk Risk
ounterparty nt Risk Banking
Counter
Book
(OTC)

ET No No No No Yes
a Call/Put
OTC Yes Yes Yes No Yes

ET No No No No Yes
b Exotic
OTC Yes Yes Yes No Yes

ET No No No No Yes
Barrier/Path
c
dependent
OTC Yes Yes Yes No Yes

Foreign Exchange Risk (including gold) - All assets and liabilities of the bank (on and
off balance sheet) that are denominated in currencies other than reporting currency are
Note exposed to foreign exchange risk in addition to the risks identified above.
Country Risk - Exposures falling under the definition of country risk as given in section
3.3.13are exposed to Country Risk in addition to the risks identified above.

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Risk Based Pricing

Risk Based Pricing

Risk Based Pricing

[Link]

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Setting of Exposure and Risk Limits

Setting Exposure and Risk Limits is an important segment of Credit and Market Risk
policies. This note aims at explaining the process of setting Exposure and Risk Limits
through defining Risk Appetite at bank level both across risks and for each stream of risk
by the Board of Directors (BOD) and senior management.

Exposure Limit

Exposure Limit (EL) reflects ceiling on a bank’s exposure across banking and trading
books on any dimension such as industry, geography, sector, counterparty etc. to avoid
risk of concentration. Excessive concentration has been identified as the single most
important reason for failure of a number of banks worldwide. Defining, setting and
managing EL is one of the important tasks of risk management function in any bank.

Risk Limit

With the development of tools for risk measurement for various streams of risk, Risk
Limits (RL) gained prominence in the recent past. While EL is helpful in managing
concentration risk in a traditional sense, they do not address explicitly risk of accepting
an exposure. Two exposures of the same size might have totally different risk in terms
of potential losses on a bank. This is because RL considers sensitivity and volatility of
risk factors that are important for risk measurement apart from merely considering
exposures. This necessitates use of EL & RL for limit management.

Basis for setting Exposure & Risk Limits

EL & RL could be set either on an absolute basis, in monetary terms, (say millions of
dollars) or relative basis (as a percentage of capital or total assets or on any other base).
Typically, they are set for one year, though they could be changed depending on the
requirements of a bank.

Risk Appetite

Risk Appetite of the bank is the single most important factor in setting EL & RL for various
dimensions and levels across streams of risk. Once Risk Appetite is set at the bank level,
it can be translated into EL & RL at lower levels for various risks. In this sense, an
important aspect of Enterprise wide Risk Management (ERM) is the process of defining
risk appetite to keep risk and potential losses within the tolerances set in advance by
banks. The robustness and integrity of ERM practices hinge to a great extent on

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articulation of Exposure & Risk Limits by carrying out the process of defining risk appetite
both in quantitative and qualitative terms.

Defining Risk Appetite

The Risk Appetite process aims at balancing positive (sizeable improvement in returns)
and negative (large losses) aspects of risk-taking by a bank. Risk Appetite involves
definition by a bank, the extent to which risks should be acceptable to it in pursuance of
its business strategies. As there cannot be any business that does not involve risk-taking
by the bank, it is essential that risk appetite is defined in as clear terms as possible to
avoid ambiguities. Risk appetite defined must be consistent with business strategy and
risk culture of the bank. Important processes in setting risk appetite are:
5.2.18 Identification of adverse outcomes & events beyond the tolerance of the
BOD: This would involve identification & definition of adverse outcomes that
the bank intends to avoid at any cost by managing risk. For example, loss of
reputation due to unethical business practices that is likely to cause significant
losses. If the existing business practices of a bank expose it to such loss of
reputation, then the bank must act to correct the practices.
5.2.19 Defining the amount of money, the bank is prepared to lose in a given
period due to risk taking: This involves defining the limit on the amount of
money (either in absolute terms or relative terms) the bank is prepared to lose
in a given period as a result of risk taking. Losses beyond the defined limit
should not be acceptable under any circumstances.
5.2.20 Setting of risk preferences such as minimum targets that are key to
defining the risks the bank is unwilling to take: This involves definition of
risk tolerances in terms of targets such as Solvency, Ratings, Earnings
volatility, Ability to pay dividend to stockholders, Minimum capital requirements
etc. For example, a solvency based theme could be not risking more than 25%
of regulatory capital. A rating based theme could be not allowing external rating
to fall by more than 2 notches. Depending on the bank’s choice, one of the
targets can be considered to be the top priority and others can be made
supplementary to it.

Factors influencing Risk Appetite

5.2.21 Type of Risk: Some types of risks are avoided at any cost such as reputation
risk, risk of non-compliance with regulatory requirements etc.

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5.2.22 Maturity of risk management system: Higher the level of maturity of risk
management system, higher would be the risk tolerance and appetite to more
risks.
5.2.23 Complexity of products: Higher the complexity of products, lower would be
the ability to measure risks arising out of them due to model risks. This has an
implication for limiting risk tolerance.
5.2.24 Liquidity / Tradability of Risks: Higher the liquidity of instruments used for
risk transfer in the markets, better would be the ability of a bank to tolerate
more risks. In the absence of such markets, risk transfer would be affected,
forcing banks to reduce their risk appetite.
5.2.25 Correlation among risks: Higher the possibility of concurrent losses from
various types of risks, viz. credit, market & operational, lower would be the risk
tolerance. The same applies to intra risk correlation within a risk type. For
example, lower the correlation between corporate and retail credit risks, higher
would be the risk appetite for credit risk.

Acceptable Standards in Setting Risk Appetite

5.2.26 Risk Appetite should be established through a dialogue between risk taking
and business functions after a careful consideration of risk-return trade-off.
Unilaterally set risk appetite is unlikely to be useful as it is likely to be biased
either in favour of business (more risk taking) or risk (less risk taking).
5.2.27 Risk Appetite defined at bank level is the basis for exposure and risk limits for
various risk streams viz. credit, market, operational, business etc.
5.2.28 Expression of Risk Appetite in the form of clearly understandable metrics such
as earnings volatility, loss of capital etc.

Risk Appetite to Exposure & Risk Limits

As indicated elsewhere, once Risk Appetite is set at the bank level, Exposure and Risk
Limits for various risks involve allocation of risk appetite to various risks viz. credit,
market, operational, business etc. based on existing exposure and risk limits, profitability,
growth in revenue, market share etc. In the same manner, Exposure and Risk Limits for
dimensions of risk such as industry, geography, sector, etc. are defined.

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List of Abbreviations

S. No Abbreviation Expansion

1 AIRB Advanced Internal Rating Based

2 ALM Asset & Liability Management

3 BBD Business Banking Division

4 BCC Board Credit Committee

5 BOD Board of Directors

6 BOFIA Banks & Other Financial Institutions Act, 1991

7 CAC Criticized Assets Committee

8 CBN Central Bank of Nigeria

9 CBD Commercial Banking Division

10 CCR Counterparty Credit Risk

11 CEO Chief Executive Officer

12 CIBD Corporate and Investment Banking Division

13 CP Commercial Paper

14 CRA Client Risk Assessment

15 CRM Credit Risk Mitigation

16 CSR Corporate Social Responsibility

17 DAUD Drawings Against Uncleared Drafts

18 DAUE Drawings Against Uncleared Effects

19 DFI Development Finance Institution

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S. No Abbreviation Expansion

20 DPG Deferred Payment Guarantee

21 EAD Exposure at Default

22 ED Executive Director

23 EFSV Expected Forced Sale Value

24 EOL Excess Over Limit

25 ERM Enterprise Risk Management

26 E&S Environmental &Social

27 ESIA Environmental and Social Impact Assessment

28 ESRM Environmental and Social Risk Management.

29 FAM Facility Approval Memo

30 FIRB Foundation Internal Rating Based

31 FTP Funds Transfer Pricing

32 GDMD Group Deputy Managing Director

33 GMD Group Managing Director

34 HNI High Net worth Individual

35 IFC International Finance Corporation

36 IRB Internal Rating Based

37 IT Information Technology

38 KYC Know Your Customer

39 LC Letter of Credit

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S. No Abbreviation Expansion

40 LGD Loss Given Default

41 MCC Management Credit Committee

42 MIS Management Information System

43 NGO Non-Governmental Organisation

44 NPL Non-Performing Loan

45 NPV Net Present Value

46 OSUC Outstanding and Unused Commitments

47 PD Probability of Default

48 PF Provident Fund

49 PSR Pre-settlement Risk

50 RBP Risk Based Pricing

51 RDS Reference Data Set

52 RRLE Risk Rating Limit Exceptions

53 RRS Rapid Risk Screen

54 RWA Risk Weighted Assets

55 S&P Standard and Poor

56 SA Sustainability Assessment

57 SBU Strategic Business Unit

58 SEDOL Stock Exchange Daily Official List

59 SME Small and Medium Enterprises

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S. No Abbreviation Expansion

60 TCC Tax Clearance Certificate

61 TEV Study Techno - Economic Viability Study

62 TOD Temporary Overdrafts

63 WLA Watch List Accounts

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Acronyms

CBD Commercial Banking Division

CRA Client Risk Assessment

CSR Corporate Social Responsibility

DFI Development Finance Institution

E&S Environmental and Social

ESIA Environmental and Social Impact Assessment

ESRM Environmental and Social Risk Management

CIBD Corporate and Investment Banking Division

BBD Business Banking Division

MCC Management Credit Committee

NGO Non-Governmental Organisation

RRS Rapid Risk Screen

SA Sustainability Assessment

SBU Strategic Business Unit

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