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No Collateral, No Loan In Nigerian Banks Effective 2018

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Many bank customers shall not be able secure a loan (no matter how small or short tenured) without a tangible collateral due to the new and mandatory International Financial Reporting Standards all Nigerian banks must adopt in 2018.

The new policy only enforces the provision that makes it illegal for a banker to advance a loan above N50,000 to a customer without collateral.

Even though some bankers use to do it, that didn’t not make it legal. Many bank managers were pushed by the pressure to make profit to flout the law by giving unauthorized overdrafts especially in the market branches.

If the law is applied, the banker will be jailed if the loan given without collateral is not repaid.

Going forward, any loan which is not covered by over 100% of the value of a tangible collateral must be recognised in the books of the banks as a potential loss. This must be deducted from the profit of the bank which if not sufficient shall be subtracted from the bank’s capital.

Therefore, smart bank customers intent on increasing their working capital through bank loans should quickly begin to acquire suitable assets they can pledge as collateral for bank loans assuming that they have met all other loan criteria.

Borrowing from a bank is not an impromptu act like going to the convenience; smart customers plan for it.

Most banks in Nigeria feel very comfortable with landed property as a collateral; so, acquire one.

Note that land alone is not very acceptable until there is a building, with an approved plan, on it. An undeveloped land could be repossessed by the government. It has happened several times.

The property that will most certainly appeal to a lender must pass the following tests:

  1. The property that can be easily sold off is the best suited for loan security. The whole idea is for the banker to sell off your property so easily if you are unable to repay your loan. The location of the property is very key. Those situated at city centres are most appealing.
  2. A property without a legal title (e.g. C of O or Deed of Assignment or Conveyance with governor’s consent) is no title. You should ensure that you obtain the relevant title on your land to enable you unlock the treasure it holds.
  3. The property must have an approved building plan even though the land has a C of O. Governments had in the past, demolished unapproved buildings hence reducing the value of the property. You can get an approved plan even if you have already developed the land by paying penalty. Visit the ministry of lands to make an enquiry.
  4. Do not bury the dead in the compound. A visible grave or tombstone inside the compound of a beautiful property has reduced the commercial value of that property. What if the grave houses a notorious native doctor? Bury your dead in another place. That’s why the western world invented cemetery.
  5. The banker is not interested in the property in your village or town if the place is not a city. He won’t accept a palace or property housing a shrine. He can’t easily sell those ones.

Borrowering against their fixed deposits and treasury bills are still allowed. In a stable economy, shares of blue chip companies can be used to secure a loan.

Please note that a bank can only lend you a maximum of 75% of the amount realizable when your property is sold in a hurry which is known as the forced sale value (FSV). It is the possible price at which an uninterested person would buy your property because of lowered price.

Forced Sale Value can also be determined by discounting the open market value by about 25-30% of the market value of your property.

If you require loan this year and beyond, you must act fast. Use a portion of your profit to buy land in a city and build a house (even if it is a boys’ quarter) on it. Then, ask an estate valuer to give you the market value and the forced sale value of the property. That will give you and idea of how much loan you can get from the bank.

Another bad news is that most banks now accept property located in Lagos, Port Harcourt and Abuja as collaterals notwithstanding the location of the customer. From experience, property located outside the aforementioned cities are difficult to sell at the point of loan default.

Do not dissipate energy in cursing or blaming the banks. Just acquire a property with an acceptable title to back up your loan application.

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