With the emerging market opportunities, there is need to look beyond the conventional/ traditional products of the bank as the market is deepening and customers are demanding for tailored made products and services.
Banker’s Acceptance and Commercial Papers are liability generation products which must be properly matched by Assets.
These products are available for our various customers to invest, however there is a need to understand the fundamental principles, features, presentation and the packaging of the product. This will enable the Bank to derive the maximum benefit from it without contravening regulatory provisions and if there is a need to develop alternative product having similar features all with the aim of satisfying customer’s needs.
Features of the product
- Customers are exempted from withholding tax.
- The Bank is the primary obligor but not liable until maturity.
- It is usually of high volume.
- The bank gives its guarantee to the transaction based on the underlying Trade transaction.
- An acceptance must be represented by a physical instrument signed by the drawer and accepted by the bank; which is now sold to the investor at a discount.
- Pricing: the pricing of this product is subject to prevailing money market rate. Customers only demand for this because of the withholding tax exemption which invariably increases effective yield. Usually the liability rate if lower than the asset rate.
- Minimum amount. Because this transaction is eventually a matching one, we therefore suggest that the minimum amount that can be invested in BAS be put at N30M. This will enable proper matching of the BAS collected with the pool of risk assets available.
- Pre maturity termination: Because interest is collected upfront, strict compliance is expected be placed as regards maturity and termination.
- Part termination or pre termination is to be discouraged as much as possible. In the event that the customer must terminate due to cash flow distortion, a pre- termination penalty will be applied.