Question

a) Outline single obligor limits/large exposure provisions in the Banks and Specialised Deposit-Taking Institutions Act 2016, Act 930. (10 marks)
b) Mention three (3) sanctions the central bank may impose on a bank that breached the single obligor limits? (5 marks)

Answer 1

A. Single obligor limit under Banks and Specialised Deposit-Taking Institutions Act 2016, Act 930 refers to the maximum amount that a bank is allowed to lend an individual or a single borrower in relation to the total shareholders fund of the bank.

Under this a legal limit in the most of banks can lend to a single borrower is 15% of the bank capital as set by federal deposit insurance corporation and office of the comptroller of the currency. If the loan is secure the limit can be extended to 25%.

An obligor risk, based on the risk borrower default and representing the probability of default by borrower.

Some loans are not subject to loan limits such loan secured by US obligations, banker's, acceptance, or certain type of commercial paper and other.