I have an fgn bond of 5m and a complimentary 1m treasury bill. Is it enough collateral for a loan application in any of the nigerian banks?
Fokona Latest Questions
Please briefly explain why you feel this question should be reported.
Please briefly explain why you feel this answer should be reported.
Please briefly explain why you feel this user should be reported.
I have an fgn bond of 5m and a complimentary 1m treasury bill. Is it enough collateral for a loan application in any of the nigerian banks?
Yes, an FGN bond and a Nigerian Treasury bill can be accepted as collateral by Nigerian banks. But your ₦5 million bond and ₦1 million Treasury bill do not automatically qualify you for a ₦6 million loan, and not every bank will accept them on the same terms. Whether they are enough depends on how mRead more
Yes, an FGN bond and a Nigerian Treasury bill can be accepted as collateral by Nigerian banks. But your ₦5 million bond and ₦1 million Treasury bill do not automatically qualify you for a ₦6 million loan, and not every bank will accept them on the same terms.
Whether they are enough depends on how much you want to borrow, the bank’s lending rules, the value it places on the investments and your ability to repay.
Imagine Mama Ngozi owns these investments but needs money to restock her shop. Instead of selling them, she asks a bank for a loan and offers them as security. She is saying, “If I do not repay as agreed, you can recover your money from these investments.”
That is what using them as collateral means. She still owes the loan, including interest and charges. The investments are the bank’s backup, not a replacement for a repayment plan.
Now, the bank will check a few things.
First, what are the investments worth today? If ₦5 million is the amount your bond will repay at maturity, its selling price today may be higher or lower. The bank may use its current market value rather than the amount you originally invested.
Second, how much will the bank lend against that value? Banks may leave a safety margin, called a “haircut”, rather than lend the full value.
For illustration only, if a bank values both investments at ₦6 million and agrees to lend 70% of that value, the possible loan would be ₦4.2 million. That is not a quoted bank rate or lending limit. Your bank must give you its actual terms.
Third, can the investments be formally pledged? The bank will need to confirm that you own them, that they are not already pledged elsewhere, and that it can enforce its claim if you fail to repay. This may require coordination with the bank, broker or institution holding them. Simply showing an investment balance is not enough.
The maturity dates also matter. If your Treasury bill matures before the loan ends, the bank will need an agreed arrangement for the proceeds, such as holding them as security or using them to reduce the loan.
Your next step is to approach your bank’s relationship manager or loans desk with your investment statements, the exact bond and Treasury bill details, their maturity dates, your requested loan amount and your repayment plan. Ask:
1. Do you accept these particular securities as collateral, including investments held with another institution? 2. What value will you assign to them, and what percentage can I borrow? 3. What documents and pledge arrangements are required? 4. What are the total interest, fees and other charges? 5. What happens to my bond interest and Treasury bill proceeds during the loan?
Also compare the total borrowing cost with selling part of the investment. Keeping an investment while paying a more expensive loan is not automatically a better deal.
So yes, your holdings may provide useful collateral. But without knowing the loan amount and the bank’s terms, nobody can honestly say they are enough. How much do you want to borrow, and for how long?
See less8m for one year. Also note that the sum mentioned are investment cost and not proceed at maturation.
8m for one year. Also note that the sum mentioned are investment cost and not proceed at maturation.
See lessFor an ₦8 million loan over one year, I would not assume these two investments alone will be enough. Thank you for clarifying: the ₦5 million and ₦1 million are what you paid for the investments, not what you will receive at maturity. That distinction matters. The bank will want to know their currenRead more
For an ₦8 million loan over one year, I would not assume these two investments alone will be enough.
Thank you for clarifying: the ₦5 million and ₦1 million are what you paid for the investments, not what you will receive at maturity. That distinction matters.
The bank will want to know their current acceptable value as collateral. Your purchase cost, their value today and the amount repayable at maturity can be different figures.
For your Treasury bill, the maturity payment is normally higher than the purchase cost because you buy it at a discount. But we need the actual maturity amount and date, not an assumed return. For your bond, we need the face value, meaning the principal repayable at maturity, its current market value and its maturity date. Bond interest payments are separate from that principal.
Now, let us put your ₦8 million request beside the security.
If the bank values both investments at ₦6 million today, your requested loan would be about 133% of their value. That means you would be borrowing more than the security is worth, even before loan interest and charges.
If, purely for illustration, the bank lends 80% of the value it accepts, ₦6 million would support ₦4.8 million. To support an ₦8 million loan at that same percentage, you would need ₦10 million in accepted collateral value. These are examples, not a bank’s quoted terms.
So the answer is: these investments may support your application, but an ₦8 million loan is unlikely to be fully secured by them alone unless their accepted value is substantially above your purchase cost. The bank might consider additional collateral or assess part of the loan based on your income or business cash flow. That depends on its lending policy.
The one-year period also needs careful matching. If your Treasury bill matures before the loan ends, ask whether its proceeds must remain with the bank or go towards repaying the loan. Do not assume you can spend those proceeds while they are securing the borrowing.
Your next move is to get a current statement from the institution holding each investment, showing the face value, maturity date and current valuation where available. Then ask the bank:
“Against these exact holdings, how much can you lend me for 12 months? If it is below ₦8 million, what additional security or income evidence would you require?”
Also request the full repayment schedule, total interest and fees, and whether a fall in the bond’s value could make you provide extra collateral.
The key point is not simply that you spent ₦6 million. It is how much security the bank recognises today, and how you will repay the ₦8 million plus borrowing costs within one year.
See lessHere is another concern, my stock broker is different from the lending bank. Is it possible to get the loan even if the sock broking firm is different from the lending bank?
Here is another concern, my stock broker is different from the lending bank. Is it possible to get the loan even if the sock broking firm is different from the lending bank?
See lessYes, Mr Greg. Your stockbroker and lending bank can be different. That alone does not stop you from getting the loan. The main issue is whether the bank accepts investments held through another institution and can put a legally effective restriction on them as security for your loan. Think of Mama NRead more
Yes, Mr Greg. Your stockbroker and lending bank can be different. That alone does not stop you from getting the loan.
The main issue is whether the bank accepts investments held through another institution and can put a legally effective restriction on them as security for your loan.
Think of Mama Ngozi keeping valuable goods in a warehouse owned by someone else. A lender may accept those goods as security, but simply seeing her receipt is not enough. The lender needs confirmation that the goods belong to her and that she cannot collect or sell them freely while they are securing the loan.
For your bond and Treasury bill, that arrangement is commonly called a pledge or lien. In simple terms, the investments are set aside as security. You remain the owner, but your ability to sell, transfer or withdraw them is restricted under the agreement.
Your broker may have arranged the purchase without being the institution actually holding the securities. So the bank will need to establish where each investment is held and who must record that restriction.
The bank may accept a pledge through the existing holding arrangement. Alternatively, it may require the securities to be transferred to a custody arrangement it accepts. Some banks may not accept externally held investments at all. The exact process needs confirmation from your bank and broker.
Here is the practical next step:
1. Ask the lending bank: “Do you accept FGN bonds and Treasury bills purchased through another stockbroker? Can they remain where they are under a pledge, or must they be transferred?”
2. Ask your broker: “Where exactly are my bond and Treasury bill held? Can you help arrange a pledge in favour of my lending bank, and what documents, fees and processing time would apply?”
3. Before signing, confirm what happens to your bond interest and Treasury bill maturity proceeds, what the bank can do if you fail to repay, and how the restriction will be removed after you settle the loan.
Do not sell or move the investments merely because the institutions are different. Get the bank’s requirements first.
Also, this resolves only the holding arrangement. Whether the bank will approve your ₦8 million request for one year still depends on its valuation of the investments, any additional security and your repayment capacity.
See less