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A Credit Policy sets the rules and standards for how an organization handles lending decisions and manages credit risk. In Nigerian banks and financial institutions, it outlines who can receive credit, under what conditions, and how to evaluate creditworthiness - all while following Central Bank of Nigeria guidelines.

These policies protect lenders by establishing clear procedures for loan approvals, collateral requirements, and debt collection. They also help businesses comply with key regulations like the Banks and Other Financial Institutions Act (BOFIA) while maintaining healthy cash flow. Good credit policies balance risk management with business growth opportunities.

Banks and financial institutions need a Credit Policy when starting lending operations or expanding their credit offerings. This becomes especially crucial when dealing with new market segments or responding to Central Bank of Nigeria directives about lending practices.

Time to update your Credit Policy when market conditions shift, default rates increase, or regulators introduce new requirements under BOFIA. Nigerian businesses also benefit from reviewing their policy after significant losses, before entering new markets, or when competitive pressures demand faster credit decisions while maintaining risk controls.

• Credit Note Policy: Specialized Credit Policy focused on managing credit notes and refunds for B2B transactions, often used by Nigerian retail and wholesale businesses to standardize how they handle returns, price adjustments, and payment corrections while complying with tax regulations.

• Financial Institutions: Banks, microfinance companies, and lending institutions use Credit Policies to guide their lending decisions and risk management practices
• Board Members: Review and approve Credit Policy changes, ensuring alignment with corporate strategy and risk appetite
• Credit Officers: Apply these policies daily when evaluating loan applications and managing existing credit relationships
• Risk Managers: Monitor policy compliance and recommend updates based on market conditions and Central Bank regulations
• Compliance Teams: Ensure the policy meets CBN guidelines and other Nigerian banking regulations

• Risk Assessment: Document your organization's risk appetite, target markets, and acceptable collateral types
• Regulatory Review: Gather current CBN guidelines and BOFIA requirements for credit operations
• Industry Research: Analyze default rates and lending practices in your market segment
• Internal Process Mapping: Document your credit approval workflow, authority levels, and monitoring procedures
• Documentation Standards: List required documents for different loan types and borrower categories
• Technology Integration: Consider how the policy will work with your existing credit management systems

• Policy Objectives: Clear statement of credit risk appetite and lending goals aligned with CBN guidelines
• Credit Evaluation Criteria: Detailed borrower assessment parameters and scoring methods
• Authority Matrix: Approval limits and decision-making hierarchy for different credit amounts
• Collateral Requirements: Acceptable security types and valuation methods as per BOFIA standards
• Monitoring Procedures: Portfolio review frequency and early warning indicators
• Recovery Protocols: Default management steps and collection procedures
• Compliance Framework: References to relevant Nigerian banking laws and reporting requirements

A Credit Policy differs significantly from a Credit Agreement in both scope and purpose. While both documents deal with credit relationships, they serve distinct functions in Nigerian banking and finance.

• Purpose and Scope: Credit Policies provide internal guidelines for managing all lending activities, while Credit Agreements are specific contracts between lender and borrower for individual loans
• Legal Standing: Credit Policies serve as institutional governance documents, while Credit Agreements are legally binding contracts enforceable under Nigerian contract law
• Usage Timeline: Credit Policies guide decision-making before and during credit relationships, while Credit Agreements come into play only after credit approval
• Regulatory Context: Credit Policies must align with CBN directives for overall risk management, while Credit Agreements focus on specific transaction terms and conditions