New Regulatory Frameworks To Govern Electronic Payments & Collections And Issuance Of Bankers Acceptances & Commercial Papers In Nigeria

In like manner, there are conditions which a CP must meet under the Guidelines, which include the following:

• In order for a CP to qualify as a financing vehicle in the Nigerian money market, the issuer must have a three (3) years audited financial statements the most current of which must not exceed eighteen (18) months from the last financial year end. Also, where the CP is guaranteed by the bank, the issuer must have an approved credit line with a Nigerian bank acting as an issuing and payment agent (“IPA”); 

• The identity of the issuer of a CP must be disclosed to the investors; 

• Unlike a BA, a CP cannot be accepted but can only be guaranteed by a bank; 

• When a bank disburses its own funds to invest in a CP, the transaction is required to be reported on the balance sheet and treated as a loan but where the bank merely guarantees the instrument, the transaction is required to be shown off-balance sheet as a contingent liability; and 

• Resale of CPs by banks and discount houses is required to be accompanied by adequate documentation, which Examiners are to be provided with on request.

DOCUMENTATION REQUIREMENTS

Under the Guidelines, creation of a BA requires the presentation of a complete set of documents evidenced by:

• Drawer’s declaration that no other source of finance has/is/would be entered into in respect of the trade transaction; 

• Full set of commercial and/or financial documents in respect of the trade transaction, and 

• A receipt or other documentary evidence of payment (where the drawer-purchaser has already made payment to the supplier prior to the creation of the BA.

The Guidelines require that original copies of the commercial and/or financial documents are to be presented to the accepting bank. In the event that the original documents are not available (either immediately or on the acceptance date), copies of such documents which are produced by reprographic or automated/computerized systems as well as second/carbon copies may be accepted by a bank; provided that such secondary copies contain a serial number and are authenticated by authorized signatories, where applicable.

The Guidelines also provide alternative documentation requirements for the creation of a BA, where the full set of commercial and/or financial documents may not yet be available on the drawing date or where the transaction is only evidenced by a single document. 

Similarly, the standard documentation requirements for a CP transaction in Nigeria is prescribed in the Guidelines to include the following:

• CP raising mandate

• Board Resolution to borrow

• Issuing, placing and paying agency agreement

• Commercial Paper Note

• Bank Guarantee, where applicable

• Investment Instruction/Investment Mandate

• Investment Advice

• Custodial Agreement

• Information memorandum on the issuer in the case of clean CPs

• Latest rating report from the credit rating agency

• Backstop loan request for guaranteed CPs.

PROCEDURE FOR ISSUANCE OF BAs AND CPs

The general procedure to be followed in creating a BA is provided for in the Guidelines. Accordingly, the following steps are required to be followed sequentially:

1. Arrange an acceptance credit line with a bank; 

2. Present the required documentary evidence of trade to the bank, for the purpose of drawing a BA on the bank; and 

3. The bank accepts the BA, upon satisfactory evidence that: the documents presented are in order; the BA complies with the terms of the acceptance of a normal credit facility; and all the applicable conditions for the creation of BA have been complied with, as specified in the Guidelines.