The Role of Financial Institutions in the Management of Loan Syndication in Nigeria Economy

The Role of Financial Institutions in the Management of Loan Syndication in Nigeria Economy

FEATURES OF LOAN SYNDICATION

Large bank loans are made by syndicates of commercial and Merchant banks as a result of restrictions imposed upon the banks through the Banking Acts and Monetary policy Guidelines.

The following are the prominent features of a syndicated loan or credit.

  1. The numbers of participants are substantial. A minimum of two banks is the standard in Nigeria.
  2. Large amounts of debts are raised, Mitchel and Wall (1980) consider this an advantage, as according to them “a major advantage of syndicated loans for borrowers is the large size of financing available, their flexibility and the fact that they are relatively cheaper to arrange.
  3. Prepayment is customarily permitted
  4. The lending is governed by single common loan documentation
  5. Draw down can be flexible
  6. Syndicated loans are usually structured as term locus with floating interest rates.
  7. Syndicated loans are arranged by lead bank. The lead bank negotiates terms and conditions.  The lead bank could be a commercial bank providing loan funds or either a merchant bank or a commercial bank, which acts solely as the manager to the loan.

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