Debt Management Office (DMO) has warned all banks operating in the country that further contravention on the requirement for lending to all tiers of government will be met with full sanctions.
All banks are expected to be conversant with the provisions of Section 24 of the Debt Management Office (Establishment, Etc.) Act 2003, which states that: “All banks and financial institutions requiring to lend money to the Federal, State and Local Governments or any of their agencies shall obtain the prior approval of the Minister (of Finance)”, the DMO said.
In a statement, the DMO said having observed that some banks were contravening this law took the extra step in June 2013 to advertise in major national newspapers to remind banks of this legal requirement.
“In spite of this extra effort by the DMO, we observe that some banks are still not complying with the law as it relates to lending to all tiers of Government and their agencies.
“This public notice serves as the last reminder and warning to all banks that any further contravention will be responded to, with the full sanctions applicable by the Federal Ministry of Finance”, the statement said.
It said, DMO would advise the relevant regulatory authorities, including, but not limited to, the Central Bank of Nigeria and the Fiscal Responsibility Commission, to apply the necessary sanctions, in accordance with the relevant laws.
Although, the DMO did not mention the specific aspects of infringement of the laws by the banks, many state governments are known to have embarked on spending spree, using funds borrowed from the banks while paying little or no attention to the purpose for which the funds were lent.
Earlier in the year, a governor of a top oil producing state was warned by the DMO over the dangerous debt profile of the state.
It was gathered that the State which has continued to retain its number one position as the state with the highest allocation from the federal government is heavily indebted to many financial institutions.
The affected state governor was said to have borrowed N80 billion from Standard Chartered Bank last year after obtaining a loan of N50 billion from the UBA Plc “for execution of infrastructure in the state” in 2012.