₦airaland Forum

correctguy101:
Dear OP. I appreciate your selflessness in addressing the matter of loans.
I've learnt a lot personally. I don't want to Google it but from a banker's perspective, what are OD loans?

I believe you know about DBN. but
I would like to contact you privately for a little financial advice. Eyes only.

Like I've been doing something all wrong.
Saw on the thread earlier that you don't have the password to the mail connected to this moniker. Have you been able to resolve it?

I really need to hear from you on my own matters. Eyes only

First, I should apologize for using abbreviations when I've not written the word in full previously. I apologize. You owe me an apology too for thinking I should just know what DBN is by looking at the word even outside banking context

Overdraft (OD) is a short term loan (usually not more than 12 months). Of all forms of lending available to individual borrowers, I prefer overdraft facility more. It's always useful in cases where borrowers need to augment working capital, that is meet urgent need for cash. In overdraft, banks allow borrowers to draw money in excess of the credit balance in their current account. When I look at a customer's overdraft account balance it is usually in negative (debit) except the customer (he/she) has paid off.

For small business owners who sell on credit, they can use this line to make up for the financing gap that occurs between payment of staff salaries and when their debtors pay back. That you sold goods on credit doesn't mean your staff should be owed salaries, the business owner can draw from his account in zero to meet other financing needs.

I know Development Bank of Nigeria (DBN) has commenced on lending activities like BOI is doing. The thought of on lending just made me smile. So, I'm guessing the microfinance banks that they have signed on to disburse these funds through will have to provide Guarantee lines for their customers. Let's hope they agree to, otherwise they will use the money for other business activities and I don't blame them because bank guarantees are just as risky as any other form of lending available.

About my password, it hasn't been reset yet but I'll strive to get it sorted out this weekend. A lot of things taking my attention this weekend sha but my concentration will be restored soon

LyfeJennings:
Yes, u will have the first loss payee being the lender with the highest exposure. There is no way a bank with lesser exposure claim superiority over a security in the case of enforcement. If GT has 500million and first bank has 100 million, it is common sense for first bank to know GT has a higher claim should the case of enforcement ever comes to play.
Sharing of asset is not a biggie, as I've learned all U need is a good trustees and sides, once the lender is willing to share an asset, the KYC documents are complete, I see no reason why the trustee won't issue a letter of adequacy for disbursement.

Lol. Your posts always make me laugh
No be only common sense. My bank has been in court for over 18 months with another bank over a property pledged as security by a customer. The Forced Sale Value (FSV) by valuators covers both banks exposure but the issue has been which bank should sell. Something as simple as ABC but Legal Department doesn't see it that way and the other bank has refused to budge too.

As the case lingers in court, in our books here, we are busy making provision for the bad loan instead of doing the commonsensical thing.

44chux:
Am not a banker but as I type, I have various loan agreements and offer letters from Zenith bank and GTbank before me (from 2012 to 2016).

Let me categorically state that there is no where any one of them mentioned in writing that the bank has a duty to pre-notify the customer in writing before interest rate reviews. They write you when its convenient for them and there is nothing you can do about it when they don't pre-inform you before the effective start date. Infact, the whole terms of the loan agreement are designed to make you have zero locus standi

I was about to respond to correctguy's post when I saw your mention. Yours is pretty straight forward so let me address it first.

No offer letter or loan agreement will carry that information. However, all banks are mandated by CBN to notify their customers of interest rate review 10 days before. When we reviewed our rates in the not so distant past, Credit risk management penalized relationship managers who didn't present for filing acknowledgement copies of their letters to customers. It's that serious.

What your offer letters should carry is the information that interest rates are subject to market conditions. If there ever will be an upward or downward review, you'll be notified at least 10 days before the effective date.

govmentson:
I think the interest rate to service the loan is too high..how do u expect an SME to make such profit and pay

I don't understand when people say interest rate to service loans are high. They are not.

SME right?
Instead of term loans, why don't they request for an OD line? There's what we call borrowing cause and borrowing purpose, they are both different. You sit with young business owners and ask them what they want and they go LOAN!

I met one today. 'Young man open an account with us'. His reply, "Will your bank give me loan?" and in my head I don't understand, loan? what for? Yes, an overdraft is a loan too but when you guys say loan you want the bank to give you one million naira for a full year! Lol. Do you know what that means? Lol.

1mn is nothing, you can get it under 24 hours but what for? When a small business owner is given more than is required, he squanders the money. That's when he comes back to complain about high interest rate. There are lines open for them to enjoy, they should ask their account officers. I'll share some here when next I can.

MT:
I am more interested in the risk management process that banks undertake. It seems straight jacket to me.....to me it is just about looking for the worth of collateral that matches the loan being sourced . That sounds so simplistic. Trying to determine if a bank should finance a business idea in a country like Nigeria that lacks empirical , reliable data can not be considered as part of the risk management process. I stand to be corrected if you do have a contrary opinion.

Another thing is not every one can produce physical collateral. Why cant bank evolve a kind of credit rating as obtainable abroad where loan can be given without necessarily asking for physical collateral ?. And we all know that once the credit rating is ruined, the person wont be eligible to any credit from any banks again.

Then i am certain the high interest rate charged on the loan will kill the business faster than the loan itself. Just my 2 cents.

Hi, we have credit bureaus in Nigeria. Customers are rated by these credit agencies. From what I know, at least two independent credit bureau will conduct a search including CBN before we proceed with the transaction. We've had instances where a customer with a bad loan is told that they leave us no choice but to give their details to CBN and that's not good because once they have a reported bad loan, automatically they are unable to access loans from other bank's until they are cleared.

Another thing, collateral must not always be a physical thing. There are many other things people use. Some even offer share certificates as collateral.
The way you see it is not how it is. Don't think once you can afford to give a bank some plots of land somewhere they will grant your request. It's more complicated than that.

Credit Risk Management though is interesting.

Rainmaker69:
Well said!
That example is not meant to serve as a general rule. I agree with you that there are a million-and-one ways a facility can be structured, however, you will also agree with me that the banks always structure these transactions to retain the upper hand. This includes deducting fees and charges upfront from the principal before releasing it to the customer.
A Moratorium is a period of delay. The reason behind the demand for collecting the interest first is because in the event of a disagreement, the interest is always the first casualty. You rarely find disputes over the principal. And as you are aware, in ALL LOAN TRANSACTIONS, the Banks always reserve the right to vary the interest rate without recourse to the customer. There is some sanity in the microfinance sector but with an upper limit of 3.5m, its a needle in a haystack.
Ps: You are also correct on the issue of calculations. Banks use a zigzag form of compound interest to arrive at higher figures while most customers use simple interest for their calculations. That's why our bank loans are only suited for short-term, high-risk, high-return transactions. Anyone thinking long term should look for funding elsewhere.

When I first got this mention, I took time to digest it and couldn't help but sense some suspicions around your career. It is possible you've had a stint in the financial services industry or are still very much in the industry. For that reason, I didn't want to rush my response because there must be something new we can learn from each other.

Let's go over that your "in all loan transactions" banks have the right to vary interest rate without recourse to the borrower... I don't know about other banks and I've not seen their offer letters but I've written CAM and I've done a few offer letters, I know that when it comes to pricing we always state it clearly that "it is subject to market conditions" so the customer is aware and if anything happens, we notify them in writing.

That's informing them beforehand.

LyfeJennings:
I understand the third party collateral, corporate guarantee and all might be a bit difficult to get bank loan these days but that's not to say if U can't get other lenders on a collateral that covers over 150% of ur total exposure. For instance, I am owing Access bank 300million and my collateral is worth 850 million and I need 300million more. Gtbank is willing to give me 150 and Standard Chartered is also offering 150. To get both banks on my security, all I need do is employ the service of a trustee. It is only normal for Access bank to refuse my request in my individual capacity but with the service of a trustee, they CANNOT REJECT MY REQUEST & not just that, I'd bring in additional lender if I need more more based on the value of the security

Oh! I know about this very well. But what's with the upper case 'cannot reject my request' , Lol. Don't be too sure. That's all I will say.

There's something called 'First Loss Payee' and 'Superior charge', by my association with guys in Legal department I understand these things. We have no problem with sharing asset with another bank but it is not as easy as you have written it. There's more to it than meet the eye. I won't accept such collateral except I will have Superior charge over the asset and mind you, it must be perfected!

Lol. You need to see how serious I was reading this true life love story

I have smiled broadly just by reading. Such sweet love. People really find love in strange places sha
Nairaland too... lol. I will leave it at that. They say the internet never forgets.

Happy married life Bibijay. May your union be blessed with beautiful children around your table. May you both live happily.

Cheers!

dayod247:
So much talk talk talk. I'm sorry I'm among those people who are really bitter/angry with banks. I have carefully gone through the article.

I can feel your anger straight from here. I'm sorry about it. Thanks for going through the post carefully.

Banks can't epp!!!!! Maybe in the past they were, but right now!!! Nahhh. They are all looking for business themselves, looking for one individual who is already established to scam!!!

We are yes looking for business as well but not for individuals to scam. We get scammed too. I'm going to respond to someone who asked about warehousing facility later on. One of our customers set his warehouse ablaze because he wanted to play smart. We have seen different things. Even banks cry.

My advice, never deal with bank: it's better you just raise money through cooperatives societies, it might be slow but at least you know you are save to some extent and no bank will come and steal your idea.

Never deal with bank That's not a very good advice. For those who can, raise money through cooperatives, I concur. Wait o! Bank steal your idea? Lol. That's a joke right? If your idea is to start up a printing press business inside UNILAG, is that the one bank will steal? ... Nah. Banks don't steal business ideas. I'm yet to see a bank that has a poultry farm or another of such business.

In fact, for our corporate customers with very big business ideas, before they start discussing their business with us and their vision, we sign a Non Disclosure Agreement with them first. That's the bedrock of trust. So relax! There's no business idea that is peculiar to one brain alone. Trust me. It's all about innovation.

Moreover, how do you expect an employed bank staff earning say 300k monthly, who has no skills and can be sacked anytime, he can never see where you are coming from when you go to him with an idea, they will only see their own job security... I don't blame them... na Nigeria cause am. They now say they are doing SME's... nonsense!!!! They will rather help a big politician or the likes of dangote that has incurred so much debt.

Lol. I take this as an insult though. You mean bankers don't have any skill!? Bro, check yourself o.

So finally you raise the money and business starts making sense, you register the company and then you decide to open a cooperate account. First of all the form is too long, then they say they will do some verification which you will pay money for. The annoying part now is that they will be charging a certain ridiculous amount on every 1000 naira you exchange through the account... and the bank did absolutely nothing to help at the start of the business, yet they want to eat out of it.

Uncle, ask for concessions. We give concessionary rate approval to corporate customers who ask for it. The verification we do is simply legal search and it is for a paltry sum. And your reasoning is funny. We want to eat from it bawo. Are we your village people?

My point is, majority of those bank guys can't understand your idea, therefore they can't see any light anywhere. They only know how to balance account... which is actually their primary job. If the account doesn't balance then it cannot work...

Entrepreneurs need to think outside the box. Thank God for the foundations coming to our aid these days. God bless you guys.

SMH. Your point is flawed. Leave me in my department for 10 years and I won't balance one account.

Rainmaker69:
An interesting read, although it seems you may not have answered his question. There are many ways a bank can partner with such an endeavor.Unless the partnership your friend referred to meant strictly a loan (in that case, he should run far because commercial banks in Nigeria are a liability to the creative sector).
In reality, banks actually make money under our current financial system. Its a little complicated but imagine that with only 1m in cash, a bank can give out 10 facilities of 1m each. The credit alert into the customer's account with the bank is merely an electronic iou. By the time charges and fees are deducted, the real figure has been discounted. Then the bank informs you that although your account has been credited, the money can only be withdrawn in tranches of 100k, and you are required to service the interest before paying back the principal... The bank has created debt-value from thin air.

I agree with you on the electronic IOU system you mentioned but saying the money can only be withdrawn in tranches of 100k after crediting customer's account with 1mn is dependent on the facility structure. We can disburse 1mn at once and we can disburse also in tranches, you should look at the dynamics of the transaction, very important! that's what informs disbursement.

And servicing the interest before paying back the principal is the bank giving the customer moratorium on principal which is not a bad thing. Like I said before , no two credits are the same. When I look at a customer's cash flow, I see different things, and my calculations are very different from the borrower's calculations. Our thinking different as well. So, if from a borrower's cash flow I deduce that he won't be able to service the principal portion of the loan from the first month, it's only wise I give him that 'grace' . It is called moratorium. That's all. It makes business sense.

stuffs4me:
The OP conveniently forgot to respond to this post. That's what a typical banker would do anyway.

You might also want to respond to dayod247's post


cc amicable09

Lol. I didn't conveniently leave out his post. I was not directly mentioned and most responses were done in between work so you understand it's never convenient whichever way you look at it. I'll try to respond anyway.

You bolded the part where he talked about banks not offering businesses other forms of assistance and most bankers not trained as bankers, I'll still find time to take his post bit by bit so I don't miss out on anything.

The bank is an institution not one person just the same way government is. Your account officer should be armed with requisite knowledge to help you. I don't expect a teller to advise you on investments neither do I expect that you'll rely on customer service officers for the latest CBN intervention fund available. Their knowledge won't be indepth and that's not because they are not trained but their training focus is not in those areas.

I know for a fact that every year, we are mandated to take some online courses as directed by CBN and that's because it is a subject that concerns all. Staff training is on need basis and my training will be different from a teller's training because I don't post transactions so overage and shortages won't concern me, it's at the surface level I can only speak about those issues.

GreatManBee:
So then why does banks charge neck breaking interest rates about 25% when you take a loan from them? This is one major discouragement.

For different reasons my friend. Before I continue, let me inform you that interest rates are negotiable. No two facilities are priced the same. What we have is what we can't do below and above like nobody should charge you above 30% for any facility.

That said, interest rates pegged at 25% is usually for corporate customers not retail customer however, it's not as though it is as low as 10-15% and that's because the funds we receive most of the time are high priced. Take for instance, a customer gives us a 100 million naira deposit for 90 days at 18%. You want 100 million naira for 90 days too, what do you advice we charge?

You'll pay management fee. Maintenance fee. small small 1% or 0.50% fee like that so that we too earn small thing on it. You get?

That's just how it is. If the funds were free like intervention funds and so on, the interest rate won't be high at all.

TheDokita:
I really need to learn more about bank loans

It's quite interesting. You can read up or ask questions.

LyfeJennings:
Having a security that covers at least 150% still doesn't change anything. I can easily get 2 other banks on that same security with the help of a trustee and the bank can't object to them

Nah! I beg to disagree.

Before now, a bank I know used to accept personal and corporate guarantees as part of security but now they don't. Forget the whole third party thing, I personally won't accept third party collateral. It's as simple as that. Your trustees notarized statement of net worth sef is nothing.

You must at the very least provide adequate collateral cover before you can drawdown.

jerryadigun:
Yes please. It's personal and I would appreciate any other alternative.

Thanks.

OK, message me. I'll request for password reset or something tomorrow or Saturday.

christok1:
No, just take amicable's savings and give to Kabiru, and it continues that way.

Lol. I sense you know more about this on a deeper level but I hope you understand the process flow well enough . It goes beyond money changing hands, that's why we have treasury department.

Igyeseh:
Can bank accept degree and NYSC certificates as collateral for a loan of six months, to be paid with any interest rate of the bank choice?
A very business opportunity is shining right here but no means to finance it.

I don't know of any commercial bank that will accept degree and NYSC certificate as collateral for loan request.

One thing we look out for in pledged collateral is how easily realizable is it! That's key. If you default, can the bank trade your certificate on NSE

of what use is it then to the bank if it can't be traded? That's the problem. Government can accept it but commercial banks won't.

To finance your bright business idea, I suggest you try private placement as an option.

jerryadigun:
This is quite educative.

Please I need clarification on something personal.
I hope you don't mind if I send you a private message.

Thanks.

OK... but I'm afraid I have lost password to the email linked to my NL account. Except it is very personal and for one ear alone, I can improvise.

Thanks.

AHCB:
jolly good.

romeorailss:
Amicable. Will u marry me

Romeo, for real!??
Lol. What will life be like being married to a nairalander sef?
I will need a new moniker - Juliet2017 or something close, don't you think?

AHCB:
Okay. I'm well aware "patience is a virtue" sometimes, that is. But still, it's all good.

P.S: I know you must have relished this public holiday.

Lol. Glad to see a virtuous man in a virtual world

Holiday ke!?
Been responding to mails at home, writing letters and will be in the office tomorrow to have them signed and dispatched. Let's not just talk about work. Nothing can spoil my mood more than that right now.

AHCB:
lmao. Nice one. That might happen in another life, you know. Lol.

You're still being elusive. I wonder why.

Lolz. Truth is, I can't help it. Bear with me.

One day, which will be soon, all this will be over.

AHCB:
I believe you.
If you'll attend, I will.

Lol. Let's meet at the closest bus stop We'll enter the hall together, hand in hand

AHCB:
Like you'd attend.
Good morning.

Lol. Everything is possible
Good morning Boss

AHCB:
Like you'd attend.
Good morning.

Lol. Everything is possible
Good morning Boss

bibijay123:
Amen to your prayers sis the wedding will be in Lagos and you are invited

Thanks for the invite sweetie
Is it tomorrow Let me start now to shine my shoe

I won't forgive myself if I don't drop this now.

Congrats Bibi, Happy married life as you get married. God bless your union and make you fruitful.
Hope we will see the lucky man soon?

Ehen! the wedding is going to be in Togo
I want to have a taste of Togolese Jollof rice.

chyima:
Pls I want to confirm,when recruited by Work force ,is it like a contract job (you are under the mgt of workforce)or are there possible ways their only function is to recruit for the organization and then hand over the staff to the organization.
I have heard lots about recruiting firm,and wouldn't want to be under their scope.
Got the below invite from them
and will like to have details before attending.

Hello, you're invited for an interview for the role of a EXPERIENCE CUSTOMER SERVICE OFFICER at WORKFORCE, Gbagada, Lagos on WED 29th Nov 2017 by 9AM. Come with a CV and Dress Corporate[b]

Hi Chyima, workforce recruitment can take shape in the two forms you mentioned. Just like dragnet, they sometimes are contracted to handle the first stage of a company's recruitment exercise - Assessment. In such cases, they send qualified candidates invites for test, could be online, as was the case with their graduate trainee recruitment of 2015 for Sterling Bank or offline.

After the assessments, they forward the results to the contractor and the contractor takes it up from there with interviews and final selection. If you're successful in this arrangement, you are not under Workforce Solution's purview, your employer is the contractor.

However, there are some roles in an organization that employers prefer outsourcing staff to handle because of the cost implication. Notable examples are janitors, receptionists, office assistants etc. sometimes sales and customer service rep. If you're an outsourced staff, your employer is the outsourcing company, your letter of employment comes from them and your pay too is from them.

The invite I see here looks like one workforce is to provide their client with an experienced customer service personnel which is not bad. If you just graduated, I'll advice you attend the interview and possibly take the job. It will prepare you for the next big role. I've seen a couple of contract staff being converted. It happens. Some after a while leave for something bigger and better elsewhere. I encourage you to attend bearing in mind that it is for a short term.

Good luck.

Babacele:
hmmm despite busy schedules, you have never been really far away as I follow yr posts here on NL. Since you don't have the time ,those who have created time to blend smoothies need to keep body n soul together too beyond smoothies abi na smooches self, and that service dear is what you are paying for ma and I know you know. I suspect your culinary fingers go get sugar, pepper,ginger, and crayfish all blend together.

Babacele:
chai! you just dashed me hot home made corn biscuits and chilled honey sweetened soy coladas ( soy+coconut milk , fresh unfermented palmy n a lil red wine). Will munch the ' familiar stranger' package till evening. How is you?

Uncle Cele!

Is this your eye?
You have turned yourself into a familiar stranger to me abi?

These things I see up there is making me crave for smoothies right now even though I hate to pay for smoothies because there is a blender at home. I can't seem to understand why someone will tie apron, wear a cap in an air conditioned space and blend a mix of fruits while I part with my money.

Business ideas, innovations in the kitchen and monetizing culinary skills is making most of us lazy. Chai! I Don talk plenty!

Been a while. How are you doing? I'm fine BTW.