Regulatory Alerts2010-07-06 | BSD/DIR/GEN/CIR/04/015The Need for Banks to Develop and Implement a Risk-Based Pricing Model
The Central Bank of Nigeria (CBN) has directed banks to develop risk-based pricing models and disclose them publicly to improve transparency in the industry. Banks must quote their lending rates as fixed spreads over the Monetary Policy Rate (MPR) or any reference rate specified by CBN. They are required to provide monthly returns detailing their prime and maximum lending rates, along with how these relate to the MPR. The pricing model should also account for factors like direct cost of funds, indirect costs/overheads, statutory costs (NDIC premium and Cash Reserve Requirement), opportunity costs of holding liquid assets in excess of minimum requirements, costs of holding non-earning assets, target return on equity, and aggregate flat lending fees. These details will be sent to the CBN following a specified reporting format."