cibn_Past_Questions[1].pdf

2
Professional Certification Training
Program (PCTP)
THE CHARTERED INSTITUTE OF BANKERS OF
NIGERIA October, 2017 Examinations
BANK LENDING AND CREDIT ADMINISTRATION
2017/CB/B/02
SECTION A
Question 1
(a) A Company’s Credit Policy should be in a formal document approved by the Board of
Directors. Whether the Policy is expressed formally or informally, there should be basic
factors addressed in the Policy document.
Required:
State five components (factors) of a bank’s Lending Policy. (10 marks)
(b) For all customers, historically and theoretically, bankers are only willing and prepared to
lend if the proposition stands up on its own without the support of security.
Required:

3
Give five cogent reasons why bankers, on many occasions, insist upon a sufficient margin
of security before granting an advance. (5 marks)
(c) In order to control/minimize credit risks, it is imperative that appropriate standard process
and procedures are developed and implemented.
Required:
Analyse five major ways a bank can adopt to control credit risks. (5 marks)
(Total = 20 marks)
Question 2
(a) The bank, on one hand as a lender, and the borrower on the other hand usually,
negotiate and agree on restrictive covenants as part of the terms and conditions
precedent to the approval of a loan application.
Required:
(i) Briefly explain the two types of loan covenants that are common to most credit
agreements. (6 marks)
(ii) Give three examples each of the restrictions that are related to the two types of
covenants. (6 marks)
(b) Overtrading is essentially a problem of growth in business operations. It happens when
business expands too quickly without having the financial resources to support such a
quick and poorly planned expansion.
Required:
State four important steps that a Lender will advise a borrower to take to avoid risks
of overtrading. (8 marks)
(Total = 20 marks)

4
2017/CB/B/02
Question 3
(a) As part of the overall loan agreement and documentation, it is conventional for a bank to
state the conditions that a borrower must fulfill prior to draw-down or disbursement of an
approved facility.
Required:
Highlight five (5) of the general conditions precedent that must be satisfied by a borrower
before drawing an approved facility. (10 marks)
(b) In an Estate Development project, the builder’s major problem is that a lot of fund has to
be tied down in work-in-progress before the houses/apartments can be completed and
ready for sale.
Consequently, the source of repayment for the loan will be the income from the sale of
the property. Lending to builders requires the same principles of good lending, but
additionally, however, there are several features of building advances that make them
distinctive and worthy of separate considerations.
Required:
Mention/explain five precautions that a lender should take in order to properly monitor
utilization and ensure control of a facility to a builder. (10 marks)
(Total = 20 marks)
Question 4

5
SECTION B
AROD TAPEL LIMITED
BALANCE SHEET AS AT 31 DECEMBER
Lease
Fixtures & Fittings
Stock
Debtors
Cash
Bank O/D
Creditors
Net Current Assets
7,200
800
200
8,200
1,900
4,100
6,000
2014
N’000
29,000
2,800
31,800
5,900
600
100
6,600
2,100
3,800
5,900
2015
N’000
29,000
2,400
31,400
4,900
300
100
5,300
2,800
3,600
6,400
2016
N’000
29,000
2,000
31,000
2,200 700 (1,100)
34,000 32,100 29,900
Bank Loan (4,000) ( 3,000) (2,000)
30,000 29,100 27,900
Financed by
Share Capital 30,000 29,100 27,900
2017/CB/B/02
PROFIT AND LOSS ACCOUNT
2014 2015 2016
N’000 N’000 N’000
Sales - 49,000 52,000
Purchases - 45,000 48,000
Net Profits - 3,100 2,800

6
Drawings - 4,000 4,000
Depreciation - 400 400
Mr. Arod Tapel is a retired director of Port Authority who has banked with you for 20 years.
He received a lump sum of N30m on his retirement, which he used to purchase a general
store which has living accommodation on the first floor in a small town.
He paid N34m for the store/business premises with the help of a loan of N4m from your bank,
payable over 4 years. You have also agreed to an overdraft facility of N3m, to cover seasonal
stock purchases. Your security is a mortgage over the property and an assignment of a life
policy with surrender value of N2m. Mr. Tapel plans to buy a rival store that has been
competing with him, which has affected his business in the past two years. He tells you that
he has opportunity to buy it at N17m; and he has decided to transfer all the stocks to his own
store and turn it into a drinking bar/restaurant because it is close to a major bus stop and
railway station.
The customer has requested for a four (4) year loan of N10m to help him to purchase the
competitive business, and he offers a mortgage over its lease with (10 years to run) in
addition to existing security.
The business he would like to purchase apparently had sales turnover of N50m in its recent
year, purchases of N40m and drawings of N8m.
Required:
(a) Comment on the state of his current business based on the information provided.
(6 marks)
(b) In general, would you be willing to recommend acceptance of Mr. Tapel’s proposition?
Explain your views. (14 marks)
(Total = 20 marks)
Question 5

7
HERBAL PRODUCT LTD, a manufacturer of herbal mixtures has maintained account with your
bank for over 5 years.
The Company’s factory is located in Lagos, the commercial capital of the country with many
sales outlets in major cities in the South Western States. In anticipation of boosting the
business sales turnover, the company’s management, after a rigorous marketing survey,
decided to expand their sales outlets by opening shops in other selected cities in the country.
After the Company’s Annual General Meeting last month, the Directors agreed to apply for
an overdraft facility of N15.05 million to pay for rents and other incidental expenses for the
proposed outlets. The audited accounts of the Company for the last two years are shown
below:
2017/CB/B/02
HERBAL PRODUCT LTD
BALANCE SHEET AS AT 31ST DECEMBER
YEAR 1 YEAR 2
Asset Employed
N’000 N’000 N’000 N’000
Fixed Assets
Current Assets
77,000 66,000
Stocks 23,000 27,000
Debtor 21,000 13,000
Bank & Cash 20,000 30,000
Current Liabilities
64,000 70,000
Creditors (70,000) (57,000)
(6,000) 13,000

8
Funds Employed
71,000 79,000
Capital 20,500 20,500
Share Premium 6,500 6,500
General Reserves
Long-Term Liabilities
40,000 47,000
Debenture 4,000 5,000
71,000 79,000
PROFIT AND LOSS
YR1 YR2
N’000 N’000
Turnover 211,000 154,000
Cost of Sales (176,000) (106,000)
Gross Profit 35,000 48,000
Net Operating Expenses ( 17,000) ( 29,000)
Interest Payable (500) (600)
Profit Before Taxation 17,500 18,400
Taxation (6,200) (6,400)
Net Profit 11,300 12,000
Required:
Prepare a good analysis of the financial position of the company with a view to making a
decision on the request.
(20 marks)
2017/CB/B/02

9
Question 6
(a) Credit Scoring and Credit Ratings are tools used by lending banks and other financial
institutions for evaluation and appraisal of credit/loan applications.
Required:
Briefly explain the basic elements of the two methods of measuring a borrower’s financial
capability and their importance during credit appraisal process. (8 marks)
Debtors are current assets of a business and they have to be financed. Most companies are
able to finance their debtors with a mix of long term funds and current liabilities as indicated
in any balance sheet. Sometimes companies might have difficulties in financing their debtors
when there is no bank support available to them.
Required:
(i) Mention
four (4) occasions when factoring can be suggested to a bank customer.
(4 marks)
(ii) Outline
the advantages of factoring finance to a client (8 marks)
(Total = 20 marks)
SECTION C
Question 7

10
Analysing balance sheet and other accounting statements provides information about the
strength or financial vulnerability of a business. If they are reasonably up-to-date, they might
help a banker to identify warning signs that the customer’s business is getting into trouble.
Required:
(a) Identify signs of financial trouble that financial accounts (or management accounts) would
show when a business falls into a financial crisis. (14 marks)
(b) What are the other non-financial factors that might make Small and Medium Enterprises
(SME) business vulnerable to sudden collapse without any financial limitations?
(6 marks)
(Total = 20 marks)
Question 8
An important function of credit management is credit control. This is primarily a process of
deciding how much credit should be given to borrowers and ensuring compliance with the
credit terms that are set.
Required:
(a) What are the consequences of poor credit control? (6 marks)
(b) Credit control is a continual process, list six critical elements of an effective credit control
process/guidelines (14 marks)
(Total = 20 marks)
ONLY approved examination documents and writing materials i.e. ball point pen, pencil, ruler etc.
may be brought in.
-
SECTION 2

11
Question 2
(a) Mr. James Adefola is a newly employed staff and recently deployed to your unit for
branch orientation as part of his training programme. While he was reviewing
documents in a customer’s file, he asked you to explain the use of ‘Memorandum and
Articles of Association’ in credit appraisal.
What would be your response? (5 marks)
(b) As a result of the volatile economic situation which has affected individuals and
business organizations, generally, security consideration for bank lending has come to
the fore.
(i) What do you understand to be the purposes of Security, generally and
Security
Margin in lending? (10 marks)
(ii) Why is security considered essentially as a factor for fallback position in
lending? (5 marks)
(Total = 20 marks)
Question 2
Bankole Limited has banked with BOD Bank Plc for about 18 years. The company wishes your
bank to take over as its bankers.
Mr. Barnes, the Managing Director/Chief Executive Officer has asked for a N30 million
overdraft for trading. The facility is to be secured with the company’s property, valued at
N20 million and his own property valued N25 million.
Required:

12
What information do you require for a comprehensive and objective review of this request?
(20 marks)
Question 3
Banks and other financial institutions are required by regulatory authorities to adopt good
lending principles in conjunction with other risk policies, processes and procedures in order
to ensure commitment to responsible lending practices.
Required:
(a) Enumerate lending principles that a bank should adopt to ensure safe and sound bank
credit portfolio. (10 marks)
(b) What are the crucial and ethical issues that must be considered in order to ensure that
marketing of credit/loan products is done in line with best banking practices?
(10 marks)
(Total = 20 marks)
SECTION B
Question 4
Songodara Enterprises Limited is a brick making business in Ijebu-ode owned and managed
by sole proprietor, Mr. Songodara. The enterprise has had account with your branch for
about six (6) years. He has borrowed money from your bank using overdraft facility and has
repaid as at when due. He wants to expand his brick factory and estimated he will need N20
million. Out of this, his total financial requirements, he indicated he has resources in cash
and materials to raise N15,000,000 and he has requested your financial support to raise the
balance of N5.0million. He presents your branch with the 2013 financial statements as set
out below.

13
Songodara Enterprises Limited
Balance Sheet as at 31st December, 2013
N N
Capital Goodwill 140,000
Ordinary Shares 160,000 Fixed Assets 550,000
Reserves 280,000 Stocks 420,000
Preference Shares 280,000 Debtors 360,000
Debentures 340,000 Cash
90,000
Accrued Taxation 100,000
Bills Payable 180,000
Creditors 220,000
1,560,000 1,560,000
Profit and Loss Account for the Year Ended 31st December, 2013
N N
Sales: Credit 1,100,000
Cash 400,000
Less Expenses:
Cost of goods sold 950,000
Selling and Admin. Expenses 130,000
1,500,000

14
Interest on Debentures 40,000
1,120,000
Profit Before Tax 40,000
Tax (5,000)
Profit After Tax 35,000
Debenture Interest 3,000
Profit After Tax 32,000
Preference Dividend 8,000
24,000
Ordinary Shares Dividend 5,000
Undistributed Profit
Required:
19,000
Using relevant financial ratios, appraise and assess this request. (20 marks)
Question 5
A major problem facing a growing company is the difficulty in raising overdraft finance from
its bank to fund further growth. Once a bank has lent up to what it considers prudent, the
branch manager is usually unable to go any further, even if the businessman has firm orders
he needs to finance.
(a) Under which circumstances would a branch manager suggest the possible advantages
of using a factoring to his business customers? (5 marks)
(b) Identify those problems a company would be hoping to overcome by employing a
factoring service. (5 marks)
(c) List five benefits of factoring for a business customer. (10 marks)
(Total =20 marks)

15
2015/CB/A/02
Question 6
Unique Builders and Construction Company Plc is a multibillion naira civil engineering outfit
with solid reputation for building dams, bridges, housing estates, airports and other big
projects.
They are preferred bidders for a US$5 billion 2nd Lagos Free Trade Zone at Badagry. They
enjoy overdraft, loans, bonds and guarantees with local banks and US$400 million credit line
with the parent company in Germany.
They have approached your bank to raise US$2 billion locally as the lead-bank of a consortium
of banks.
Required:
(a) What is your explanation of consortium/syndication lending? (3 marks)
(b) What are the roles of the lead bank? (7 marks)
(c) List out necessary documentation for a syndicated loan and the information you would
require to appraise the proposal. (10 marks)
(Total =20 marks)
SECTION C
Question 7

16
You have just resumed as the Manager of a busy branch located in one of the big markets in
Lagos. Head Office has mandated you to specifically improve the poor quality of lending
portfolio as reflected in the CBN examiners’ report during their last examination of the branch.
Required:
List and briefly explain the information and data you will require to facilitate the review of
the credit portfolio of the branch. (20 marks)
2015/CB/A/02
Question 8
(a) In addition to analysis of the periodical reports and financial statements received from
borrowing customers, pre and post disbursement visits to customers’ premises are
essential for effective monitoring and control of credit facilities.
Required:
What are the critical control/monitoring issues that a banker should verify during a visit
to the business premises of a customer? (14 marks)
(b) Bad debt recovery could be undertaken in any of the following ways:
(i) Realisation of the security
(ii) Appointment of a debt collector
(iii) Institution of legal action
Briefly discuss.
(6 marks)
(Total = 20 marks)

17
2017/CB/A/02 SECTION A
Question 1
(a) Each lending proposal has to be treated on its merits, though there are general principles
which may be applicable in all cases. There will always be some risks that the customer will be
unable to repay, and it is in assessing these risks that the lender needs to demonstrate both skill
and judgment.
What are the critical factors a lending banker must bear in mind when analyzing a proposal from
a business customer that has recently transferred his account from a competitor? (16 marks)
(b) Loan proposals for certain purposes would normally be turned down even where they
met other required lending considerations.
Required:
State and explain two instances when a credit request would be turned down because of the
purpose of the proposal. (4 marks)
(Total = 20 marks)
Question 2
(a) In order to check the likely ability of the borrower to repay a credit facility, the banker must
look for evidence that the source of repayment is likely to be sufficient, and the source of
repayment must be clear from the outset.
Required:
State and explain purposes of five financial ratios from the borrower’s financial statements that
a credit officer may require for assessment of a customer’s ability to repay. (10 marks) (b) A
bank lending policy manual provides a banker with useful rules, procedures and guidelines
that make lending process consistent and practical.
Required:
Briefly explain the stages involved in processing a lending proposition from a borrowing
customer. (10 marks)
(Total = 20 marks) 3

2017/CB/A/02
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Question 3
(a) The internal business environment provides factors within the organisation that impact
the approach to and success of lending operations.
Required:
Identify and explain five (5) internal factors that limit the size of a bank’s loan portfolio. (10
marks)
(b) Ideally, the cannons of leading should be satisfied irrespective of available security, but
security is often considered necessary in case the payment proposals fail to materialize.
Mention five (5) essential features of a good security for bank credit. (10 marks)
(Total = 20 marks)
SECTION B
Question 4
(a) The ultimate goal of a credit investigation is to help a bank in ensuring loan repayment and
to minimize losses.
(i) What do you understand by the term Credit Investigation? (3 marks)
(ii) State five (5) means of information verification during credit investigation
process. (5 marks)
(iii)State four (4) important information a credit officer would require from a credit reference
agent. (4 marks)
(b) Discuss the elements of credit risk management procedures. (8 marks)
(Total = 20 marks)
Question 5
Marvelus Products Ltd, a manufacturing company has had a banking relationship with your
bank for over 10 years. The company directors approached you to assist in the purchase of
land adjoining their factory on which to build additional storage accommodation. They intend to
increase their turnover and will need the additional room to carry heavier stocks of raw
material and finished products.
The cost of the land and building will amount to N35 million, out of which the directors will
provide N10 million by subscription of additional cash capital, and you are asked to lend the
balance of N25 million. The directors also told you that sales and purchases

2017/CB/A/02
20
during the year ended 31st December, 2015 amounted to N220 million and N150 million
respectively. 4

2017/CB/A/02
21
Detail of the account submitted is set out below;
MARVELUS PRODUCTS LTD Balance Sheet as at 31st December, 2015 N’000 N’000
N’000
FIXED ASSETS
Land and Buildings 40,000
Plant and Machinery 15,000
Motors etc 4,000
59,000
CURRENT ASSET
Stocks:
Raw materials 8,000
Finished Goods 12,000
Debtors 35,000
Cash at Bank 9,000
64,000
CURRENT LIABILITIES
Creditors 24,000
Tax 5,000
Dividend 3,000
(32,000) 32,000
91,000
CAPITAL
Authorized Shares (N50m) 40,000
Reserves 15,000
Profit and Loss A/C 6,000
LONG TERM LIABILITIES
Debenture 30,000
91,000
Required:
(a) What are the major points you will consider in appraising this request? (15 marks)
(b) State with reasons, any other information/documents you would request from the
customer. (5 marks)
(Total = 20 marks)

2017/CB/A/02
22
Question 6
ALIMAX MERCHANTILE CO LTD., imports and markets wears. The company has established an
account relationship with your branch for over 8 years and did not have any commitment until
last year when it was granted an overdraft of N40 million which was included in the figures for
current liabilities in the balance sheet. 5
The audited accounts of the company for the past three years are stated below:
ALIMAX MERCHANTILE CO. LTD Balance Sheet as at 31st December 2013 2014
2015 N’000 N’000 N’000
ASSET EMPLOYED
Fixed Assets 83,000 78,800 87,000
Current Assets 230,000 271,200 314,800
Current Liabilities (46,000) (52,000) (105,000)
Long/term Liabilities (unsecured) (17,000) (23,000) (27,000)
Short term Liabilities (25,000) (35,000) (24,800) 225,000 240,000 245,000
FUNDS EMPLOYED
Share Capital 102,000 102,000 102,000
Revaluation Reserve 13,000 13,000 13,000
General Reserve 57,000 72,000 77,000
Debenture 53,000 53,000 53,000
225,000 240,000 245,000
Turnover 266,200 316,000 368,600
Gross Profit 32,200 42,100 50,000
Net Profit 22,680 29,220 30,140
Dividend per Share N1.2 N1.50 N2.00
NB
Your bank is interested in using the financials for the purpose of monitoring the facility.
Required:
(a) As a credit analyst, you are to analyze and comment on the following items:
(i) Working Capital
(ii) Debenture
(iii) Gross Profit Margin
(iv) Net Profit Margin
(v) Turnover

2017/CB/A/02
23
(15 marks)
(b) Mention two (2) uses and three (3) limitations of financial ratios to a lending banker. (5
marks)
SECTION C
Question 7
The loan provisioning guidelines which form part of the Central Bank Prudential guidelines
provide guidance to all banks on recognition and establishment of loan loss provision. (a)
Explain what you understand by loan loss provision in line with prudential guidelines. (2
marks)
(b) Briefly analyse the provision requirements for the following non-performing project
financing debts:
(i) Watch list
(ii) Substandard
(iii) Doubtful
(iv) Very doubtful
(v) Lost (10 marks)
(c) What are the Prudential Guidelines on policies and procedures for write-off of fully provided
lost credit facilities? (8 marks)
(Total = 20 marks)
Question 8
(a) When a borrower is having problems in meeting up with the loan repayment program as
originally envisaged, the customer may request for a loan work out.
What is a loan workout agreement and what are the benefits to both the borrower and lender.
(5 marks)

2017/CB/A/02
24
(b) It is worthy of note that one of the major factors for the failure of banks in Nigeria in recent
time was as a result of the continual deterioration of the quality of credit portfolio of the
banks.
Required:
Identify ten (10) internal weaknesses that could lead to poor credit portfolio in a bank. (10
marks)
(c) State the importance and functions of a bank credit committee. (5 marks)
(Total = 20 marks)

2017/CB/A/02
25
SECTION A
Question 1
(a) Each lending proposal has to be treated on its merits, though there are general
principles which may be applicable in all cases. There will always be some risks that the
customer will be unable to repay, and it is in assessing these risks that the lender needs to
demonstrate both skill and judgment.
What are the critical factors a lending banker must bear in mind when analyzing a proposal
from a business customer that has recently transferred his account from a competitor? (16
marks)
(b) Loan proposals for certain purposes would normally be turned down even where they
met other required lending considerations.
Required:
State and explain two instances when a credit request would be turned down because of the
purpose of the proposal. (4 marks)
(Total = 20 marks)
Question 2
(a) In order to check the likely ability of the borrower to repay a credit facility, the banker must
look for evidence that the source of repayment is likely to be sufficient, and the source of
repayment must be clear from the outset.
Required:
State and explain purposes of five financial ratios from the borrower’s financial statements
that a credit officer may require for assessment of a customer’s ability to repay. (10 marks)
(b) A bank lending policy manual provides a banker with useful rules, procedures and
guidelines that make lending process consistent and practical.
Required:
Briefly explain the stages involved in processing a lending proposition from a borrowing
customer. (10 marks)

26
Question 3
(a) The internal business environment provides factors within the organisation that impact
the approach to and success of lending operations.
Required:
Identify and explain five (5) internal factors that limit the size of a bank’s loan portfolio. (10
marks)
(b) Ideally, the cannons of leading should be satisfied irrespective of available security, but
security is often considered necessary in case the payment proposals fail to materialize.
Mention five (5) essential features of a good security for bank credit. (10 marks)
(Total = 20 marks)
SECTION B
Question 4
(a) The ultimate goal of a credit investigation is to help a bank in ensuring loan repayment and
to minimize losses.
(i) What do you understand by the term Credit Investigation? (3 marks)
(ii) State five (5) means of information verification during credit investigation
process. (5 marks)
(iii)State four (4) important information a credit officer would require from a credit reference
agent. (4 marks)
(b) Discuss the elements of credit risk management procedures. (8 marks)
(Total = 20 marks)
Question 5
Marvelus Products Ltd, a manufacturing company has had a banking relationship with your
bank for over 10 years. The company directors approached you to assist in the purchase of
land adjoining their factory on which to build additional storage accommodation. They intend to
increase their turnover and will need the additional room to carry heavier stocks of raw
material and finished products.
The cost of the land and building will amount to N35 million, out of which the directors will
provide N10 million by subscription of additional cash capital, and you are asked to lend the
balance of N25 million. The directors also told you that sales and purchases

27
during the year ended 31st December, 2015 amounted to N220 million and N150 million
respectively. 4
Detail of the account submitted is set out below;
MARVELUS PRODUCTS LTD Balance Sheet as at 31st December, 2015 N’000 N’000
N’000
FIXED ASSETS
Land and Buildings 40,000
Motors etc 4,000
59,000
CURRENT ASSET
Stocks:
Raw materials 8,000
Finished Goods 12,000
Debtors 35,000
Cash at Bank 9,000
64,000
CURRENT LIABILITIES
Creditors 24,000
Tax 5,000
Dividend 3,000
(32,000) 32,000
91,000
CAPITAL
Authorized Shares (N50m) 40,000
Reserves 15,000
Profit and Loss A/C 6,000
LONG TERM LIABILITIES
Debenture 30,000
91,000
Required:
(a) What are the major points you will consider in appraising this request? (15 marks)

28
(b) State with reasons, any other information/documents you would request from the
customer. (5 marks)
(Total = 20 marks)
Question 6
ALIMAX MERCHANTILE CO LTD., imports and markets wears. The company has established an
account relationship with your branch for over 8 years and did not have any commitment until
last year when it was granted an overdraft of N40 million which was included in the figures for
current liabilities in the balance sheet. 5

29
The audited accounts of the company for the past three years are stated below:
ALIMAX MERCHANTILE CO. LTD Balance Sheet as at 31st December 2013 2014
2015 N’000 N’000 N’000
ASSET EMPLOYED
Fixed Assets 83,000 78,800 87,000
Current Assets 230,000 271,200 314,800
Current Liabilities (46,000) (52,000) (105,000)
Long/term Liabilities (unsecured) (17,000) (23,000) (27,000)
Short term Liabilities (25,000) (35,000) (24,800) 225,000 240,000 245,000
FUNDS EMPLOYED
Share Capital 102,000 102,000 102,000
Revaluation Reserve 13,000 13,000 13,000
General Reserve 57,000 72,000 77,000
Debenture 53,000 53,000 53,000
225,000 240,000 245,000
Turnover 266,200 316,000 368,600
Gross Profit 32,200 42,100 50,000
Net Profit 22,680 29,220 30,140
Dividend per Share N1.2 N1.50 N2.00
NB
Your bank is interested in using the financials for the purpose of monitoring the facility.
Required:
(a) As a credit analyst, you are to analyze and comment on the following items:
(i) Working Capital
(ii) Debenture
(iii) Gross Profit Margin
(iv) Net Profit Margin
(v) Turnover
(15 marks)
(b) Mention two (2) uses and three (3) limitations of financial ratios to a lending banker. (5
marks)

2017/CB/A/02 SECTION C
Question 7
The loan provisioning guidelines which form part of the Central Bank Prudential guidelines
provide guidance to all banks on recognition and establishment of loan loss provision. (a)
Explain what you understand by loan loss provision in line with prudential guidelines. (2
marks)
(b) Briefly analyse the provision requirements for the following non-performing project
financing debts:
(i) Watch list
(ii) Substandard
(iii) Doubtful
(iv) Very doubtful
(v) Lost (10 marks)
(c) What are the Prudential Guidelines on policies and procedures for write-off of fully provided
lost credit facilities? (8 marks)
(Total = 20 marks)
Question 8
(a) When a borrower is having problems in meeting up with the loan repayment program as
originally envisaged, the customer may request for a loan work out.
What is a loan workout agreement and what are the benefits to both the borrower and lender.
(5 marks)
(b) It is worthy of note that one of the major factors for the failure of banks in Nigeria in recent
time was as a result of the continual deterioration of the quality of credit portfolio of the
banks.
Required:
Identify ten (10) internal weaknesses that could lead to poor credit portfolio in a bank. (10
marks)

32
(c) State the importance and functions of a bank credit committee. (5 marks)
(Total = 20 marks)

33
SECTION A
Question 1
Lending policy, if properly articulated, should provide a guide for safe, sound and profitable
activity to banks.
Required:
(a) What are the three (3) main sections of lending policy? (6 marks)
(b) Briefly explain three (3) major steps a bank must take in implementing its lending policy. (6
marks)
(c) State four (4) advantages of lending policy to banks. (8 marks)
(Total = 20 marks)
Question 2
(a) A good credit culture must exist in the heart and minds of the people involved, rather
than through tangible evidence such as manuals, memos and systems.
Required:
Identify five (5) acceptable behaviours and attitude that bank’s staff should exhibit to ensure a
strong credit culture. (10 marks)
(b) Owing to the prevailing economic difficulty in the country, your customer, Self-Reliance
Enterprises considers it necessary to borrow. Chief James Ojuolape, the Chief Executive Officer
of the enterprise calls this morning for a credit facility.
As the Credit Officer who has the responsibility of interviewing prospective borrowers, what
points must you consider in assessing his proposal? (10 marks)
Question 3
(a) Discuss, in outline, the credit management process. (12 marks)
(b) Customers of banks find it difficult in the recent past to repay the credit facilities granted
to them as promised because banks did not appropriately market the credit/loan products
in line with best practices.
Identify eight relevant factors in marketing of credit/loan products. (8 marks) (Total
= 20marks) 3

2016/CB/B/02
34
SECTION B
Question 4
Dr. Bath Oloye, one of three directors in Rainbow Ltd, a firm of civil engineers, calls into your
branch to tell you he is getting divorced and requests you to increase his mortgage (which is
already with your bank) so that he can “pay off” his wife. Your records on Dr. and Mrs. Oloye
reveal the following position:
N’000
- Salary of Dr. Oloye 15,000
- Value of Property 55,000 (owned jointly)
- Mortgage Outstanding 36,000
Dr. Oloye tells you that:
(a) It has been agreed he will pay N16million to his wife when the divorce is finalised.
(b) He wishes to replace several window frames and other fittings at a cost of N8million.
(c) The value of his property is now N75million.
(d) His income is now N20million and as evidence of this, he hands you an extract of his firm’s
up to date profit and loss account, together with a letter from the accountants for the firm.
(e) There are no children of the marriage.
(f) He wishes to increase the mortgage to N60million.
Required:
Set out, in detail, your response to the request in (f) above. State all conditions that must be
met by the customers if facility is to be granted. (See Profit & Loss account below) 4
Extract from Rainbow Ltd Profit & Loss Accounts 31/03/2013 31/03/2014 N’000
N’000 N’000 N’000
Sales and Work Done 235,000 384,000
Cost of Sales (110,000) (201,000)
Gross Profit 125,000 183,000

2016/CB/B/02
35
Selling/Distribution Cost 29,000 51,000
Other Expenses 12,000 23,000
Admin Expenses 37,000 45,000
Depreciation 2,000 80,000 3,000 122,000
Directors Remuneration 38,000 44,000
Pension Contribution - 38,000 10,000 54,000
Net Profit 7,000 7,000
(20 marks)
Question 5
(a) Grey Plc. and Kend Plc trade in the same industry but in different geographical locations.
The following data are taken from their 2013 annual accounts.
Grey Plc Kend Plc
N’000 N’000
Turnover 40,000 60,000
Total Operating Expenses 36,000 55,000
Average Total Assets (2013) 30.000 25,000
Required:
(i) Calculate the rate of return on total assets (profit as a percentage of total assets) for each
company.
(ii) Analyse the net profit percentage and ratio of turnover to total assets.
(iii)Comment on the relative performances of the two companies in so far as the information
permits. 5
(iv)Indicate what additional clarification you would need to decide which company is the better
proposition from the viewpoint of potential borrower.
NB: Ignore taxation. (12 marks)
(b) Give brief explanation of the following Prudential Guidelines provisions:
(i) Single Obligor limits
(ii) Concentration credit limit (8 marks)

2016/CB/B/02
36
(Total = 20 marks)
Question 6
(a) The Central Bank of Nigeria (CBN) has in its guidelines for the Licensing,
Operations and Regulation of Credit Bureau and Credit Bureau Related Transactions in Nigeria
issued in 2013, provided for the establishment of private Credit Bureau.
Required:
(i) Explain what a Credit Bureau is and mention three (3) benefits of the organization to a
lending banker. (5 marks)
(ii) Distinguish between a Credit Bureau and a Credit Registry. (10 marks)
(b) What are the objectives of a lender when pricing a loan? (5 marks)
(Total = 20 marks)
SECTION C
Question 7
(a) Credit card fraud is commonly perpetrated through identity theft in many countries
including Nigeria.
Required:
(i) What is identity theft? (2 marks)
(ii)List and briefly explain two (2) major classifications of identity theft. (6 marks) 6
(b) Briefly explain the following concepts and discuss how each is related to credit card
fraud:
(i) Debit/credit card skimming
(ii) Debit/credit card checker
(iii) Debit/credit card phishing (12 marks)
(Total = 20 marks)
Question 8
(a) You are a member of your bank loan committee and in a recent meeting of the
committee, another member of the committee observed that some of the credit Officers are

2016/CB/B/02
37
not taking the issue of loan review seriously. He opined that this has resulted in the increasing
state of non-performing loan in the bank’s loan portfolio.
What are the important issues to be covered in a loan review? (10 marks)
(b) Causes of problem loans are human, financial management and macro-economic.
Identify both interim and final remedial actions that bank should take to protect the bank’s
interest. (10 marks)
(Total = 20 marks)

2015/CB/B/02
38
SECTION A
Question 1
Mr. Shola Ajaga, has been in account with your bank for many years. For the first time, he
called with a loan proposal worth N20million to execute a contract awarded to his company,
NEW ERA VENTURE, by the Federal Ministry of Works, Abuja, Nigeria.
The Head Office had shown interest based on your earlier telephone conversation but asked
that the Branch intimate it with all matters to consider the request.
Required:
State the elements of the general principles of good lending that would guide you in your
appraisal of the request. (20 marks)
Question 2
Marketing should begin with potential customers needs, not with the production process.
(i) Explain what you understand by Credit Marketing. (5 marks)
(ii) Identify the imperatives for a successful Credit Marketing. (6 marks)
(iii) Profer practical guide to effective Credit Marketing. (9 marks)
(Total = 20 marks)
Question 3
One of the major elements of credit management in a bank is establishing a written loan policy
which gives loan officers and the bank’s management specific guidelines in making individual
loan decisions.
Required:
List and explain some of the elements of a good bank loan policy. (20 marks) 3
SECTION B Question 4
PRISM LTD manufactures wooden furniture and sheds. It maintains a well conducted account
with overdraft facilities of N40million, which are used mainly to cover purchases of timber
when supplies become available in the dry season.
Last month, the company was offered a contract by a well known store, which resulted in a
50% increase in sales. To produce the additional goods, it will need to build an extension at
the back of the existing factory. The land is owned by the company.
The directors ask for a loan of N60million in addition to the of N40million overdraft facility, to
cover the extension. Details of the account submitted are set below:

2015/CB/B/02
39
Required:
What considerations would you have in mind in dealing with this request, and what action
would you take? (20 marks)
PRISM LTD Balance Sheet as at 30th September, 2013 N’000 N’000 FIXED ASSET
Land and Building 80,000
Motor Vehicle 10,000
Fixture and Fittings 2,400
114,400
CURRENT ASSET
Advance Corporate RefundTax Receivable 5,000
Cash at Bank 9,200
Debtors 51,600
Stocks 28,400
94,200
LESS CURRENT LIABILITIES
Creditors 33,400
Tax Due 12,600 4
Dividend 10,000
Advance Corporate 5,000 33,200
147,600
ISSUED SHARE
Capital 80,000
Reserves 50,000
Profit and Loss 17,600
147,600
Turnover 310,000
Net Profit 33,400
After: Depreciation 10,700
Directors Remuneration 15,000
Tax 12,600

2015/CB/B/02
40
Question 5
Chief Tony Adex and his wife are directors of a private limited company operating a bakery and
confectionary shop, which they purchased some five years ago at an overall cost of N9million,
towards which they contributed N5million. Your branch granted a mortgage of N4million over
the leasehold shop premises, which include a flat for their own occupation, and against their
personal joint and several guarantee. The borrowing has been reduced steadily as arranged at
the rate of N800,000 per annum. They now have the opportunity to purchase additional, very
similar, business in a neighbouring town about two kilometers away. They seek your help in
providing N4million towards the purchase price of N9million inclusive of stocks, fixtures etc.
They assure you that they can clear this borrowing at the rate of N1million per annum over
four years.
Extract from the accounts of their existing business are set out below. 5
CHIEF TONY ALEX
Balance Sheet as at 31st Oct. 2012
October, 2012 Oct. 2011
Oct. 2013
Fixed N’000 N’000 N’000 N’000 N’000 N’000 N’000 N’000 N’000
Asset
Lease & Goodwill at cost 6,530 6,530 6,530
Fixtures & Fittings at
cost
677 721 681
7,207
Current Assets
7,251 7,211
Stock 2,025 1,690 1,528
Debtors 423 312 388
Cash 331
Current Liabilities
2,779 10 2,012 140 2,062
Creditors 1,582 1,598 1,902
Bank Overdraft - 34 -
Taxation 310 180 175

2015/CB/B/02
41
Bank Loan 2,400 4,292 1,600 3,412 800 2,877
Liquid Deficiency (1,513) (1,400) (815)
5,694 5,851 6,396
Less Loan by Directors 5,405 5,505 6,025
289 346 371
CAPITAL 100 100 100
Profit & Loss 189 246 271
289 346 371
Purchases 21,185 20,046 23,896
Sales 24,515 24,021 28,336
Profit (Before Directors
Fees, depreciation and
taxation)
719 675 1,252
Directors Fee 402 402
1002

2016/CB/A/02
43
SECTION A
Question1
In formulating lending policies, various factors are usually considered.
(a) Discuss five (5) basic/underlining factors that banks usually consider when formulating
bank lending policy. (10 marks)
(b) List five (5) specific factors that should be included in a bank lending policy. (10 marks)
(Total = 20 marks)
Question 2
(a) In their lending operations, banks must prudently focus on liquidity, profitability, costs and
convenience. Discuss. (10 marks)
(b) Credit standards derive from credit culture. Discuss. (10 marks)
(Total = 20 marks)
Question 3
The (i) technological
(ii) economic
(iii) political
(iv) regulatory, and
(v) institutional environments of banks impact decisively on their lending operations.
Discuss succinctly but comprehensively. (4 marks each)
SECTION B
Question 4
Engineer Sunday Okoye, the Chief Executive Officer (CEO) of Westend Metal Works Limited,
paid you a visit to discuss the possibility of transfer to your bank of his company’s account
presently with a competitor.
In the course of discussion, he produced the company’s audited accounts for the past two
years to 31st May, 2015 which are reproduced below. In addition, Engineer Okoye informed you
that the company is in the business of carpets and tiles and operates from two separate

2016/CB/A/02
44
locations in Nigeria. At the moment, there is an overdraft limit of N2 million for the day-to-day
working capital facilities and this is supported by a debenture over the company’s assets.
Required:
(a) An assessment of the company’s credit worthiness using Balance Sheet and Profit and Loss
Account ratios and trends. (15 marks)
(b) Comment on any other relevant issues including any point on which you will be seeking
further information. (5 marks)
(Total = 20 marks)
WESTEND METAL WORKS LIMITED
Balance Sheet as at 31st May.
2014 2015 N’000 N’000 FIXED ASSETS
Land and Building (including Lease) 74,400 74,400
Shop Improvement 28,000 23,000
Fixtures/Fittings 22,800 29,000
Motor Vehicles 3,400 4,400
128,600 130,800 4
CURRENT ASSETS
Debtors 42,000 40,000
Stocks 92,000 156,000 134,000 196,000
Less Current Liabilities
Creditors 115,800 157,000
Bank 39,000 63,000
Directors’ Loan 2,000 2,000
156,800 (22,800) 222,000 (26,000)
105,800 104,800 FINANCED BY
Share Capital 1,000 1,000
Capital Reserve 65,000 65,000
Profit and Loss Account 39,800 38,800
105,800 104,800 2014 2015
Sales 556,000 640,000
Purchases 343,000 446,000

2016/CB/A/02
45
Gross Profit 243,000 261,000
Question 5
(a) Dr. Peter Johnson, a medical lecturer with a private University, is your customer and
wishes to purchase a freehold house with registered title for N9.5 million and settlement is due
on June 13.
He presently owns his house where he is living with his family, and there is an outstanding
mortgage loan of N3 million on it. This house has been sold by him for N8 million, but
settlement is due on June 30, when the buyer would have secured a mortgage loan.
Dr. Johnson asks you to bridge the period between the purchase and sale, assuring you that
he will raise another mortgage loan from Atlantic Mortgage Bank to cover the borrowing
outstanding after completion of the two transactions. 5
Required:
Describe how you would handle the request and how you would safeguard the bank’s position
throughout. (12 marks)
(b) Listed companies usually come out with their annual reports highlighting their position
and performance to investors and other stakeholders. State four (4) important information in
the report that are relevant for credit appraisal.
(8 marks)
(Total = 20 marks)
Question 6
(a) Your long standing customer, Chief Mowowa Jacob who is the Managing Director of MOJAS
Nigeria Limited calls to tell you that he has been advised by the company’s Finance Director
that since the company is earning only modest profits, they should require an equipment
leasing facility to finance the company’s equipment.
Required:
(i) Explain to Chief Mowowa Jacob the meaning of equipment leasing and types, and why it is
recommended for the company. (10 marks)
(ii) State four (4) characteristics of a Lease Finance. (4 marks)
(b) State four (4) reasons why banks engage in Loan Syndication. (6 marks)
(Total = 20 marks)

2016/CB/A/02
46
SECTION C
Question 7
All licensed banks are required to review their credit portfolios continuously with a view to
recognizing any deterioration in credit quality. Based on the perceived risks of defaults, credit
facilities and other loss contingencies connected with a bank’s credit risks are, therefore,
expected to be classified as either “performing” or “non-performing”.
Required:
(i) Define “performing and non-performing” credits in line with provision of the Central
Bank of Nigeria Prudential Guidelines, 1990. (6 marks) 6
(ii) Explain, in details, the criteria (both objective and subjective) used to identify and
classify all classes of non-performing credits, i.e. Substandard, Doubtful and Lost (12 marks)
(iii) Under what conditions can a credit facility already classified as “non-performing” be
reclassified as “performing”? (2 marks)
(Total = 20 marks)
Question 8
(a) Where the lender agrees with the customer for a longer period to pay the loan, the
bank will reschedule the debt.
What are the steps to be taken by a lender when rescheduling a debt? (10 marks)
(b) When a bank has tried all remedial actions to reverse the fortunes of a project related
loan fails, what actions should it take to salvage what it can from the borrower? (10 marks)
(Total = 20 marks)

47
2014/CB/A/02 SECTION A
Question1
Banks that were taken over by the Central Bank of Nigeria (CBN) in 2009 Banking Sector
Reform were alleged to have weak credit culture and widespread breaches of their Credit
Policies by the executive management.
Required:
a) What is credit culture? State and explain four (4) major types of credit culture.
(10 Marks)
b) What is credit standard in relation to credit culture. (10 Marks)
(Total 20 Marks)
Question 2
Discuss the various points/issues that must be examined and agreed with the borrowing
customer by the bank before lending decision is reached. (20 Marks)
Question 3
a) You are the credit officer of your bank and were invited to the symposium of the
Banking and Finance Students Association of the Success University to talk on ‘‘the
general principles of good lending’’ also known as cannons of good lending. You are
required to state and explain five (5) general or cannons of good bank lending. (15
Marks)
b) Explain how bankers reconcile the banking concepts of liquidity and profitability.
(5 Marks)
(Total 20 marks)
SECTION B
Question 4
Yesterday you met the Chief Executive Officer (CEO) of Victor Supplies Ltd. at the Club
House. He informed you of a new business opportunity requiring bank support. Borno
State Government has approved a ₦10 billion contract for execution over three (3)
years period. The purpose is to supply drugs and medical equipment to hospitals in
major cities and towns in the state. Part payments will be made in advance for each
tranche of the contract.
Government will pay the monies through your bank provided the bank provides

48
Advance Payment Guarantee. The first tranche of payment is the sum of ₦2.5 billion.
Currently, the company enjoys an overdraft limit of ₦0.5 billion (₦500m) which will
expire on 31st of March, 2014. The term loan of ₦1.9 billion is due for payment finally on
31st July, 2016.
They want their facilities renewed.
Victors Supplies Ltd.
Profit and Loss Account for the period ended 31st December 2013
2013 2012
₦‘000 ₦‘000
Turnover 2,736,191 2,047,983
Cost of Sales (1,111,239) (1,060,889)
Gross Profit 1,624,952 987,094
Other Operating Income 3,335 1,109
Marketing Expenses (423,477) (442,936)
Admin Expenses (854,638) (459,553)
Operating Profit /Loss 350,172 85,714
Exceptional item (549,886) -
Operating Profit (Loss After Exceptional item) (199,714) 85,714
Finance Costs (292,055) (322,469)
Loss Before Income Tax (491,769) (236,755)
Taxation (114,447) (60,422)
Loss for the year (606,216) (297,177)
2014/CB/A/02
VICTOR SUPPLIES LTD BALANCE SHEET AS AT 31ST DECEMBER, 2013
2013 2012
₦ ‘000 ₦‘000
Properties, Plant and Equipment 1,680,648 1,546,153
Investment in Subsidiaries 10,001 10,001
Current Assets:
Inventories 1,010,376 1,079,299
Receivables 1,502,375 1,447,351
Bank and Cash balance 171,160 299,945

49
2,683,911 2,826,595
Current Liabilities:
Trade and Other Creditors 704,889 456,704
Taxation 11,115 30,245
Borrowings 2,400,476 2,080,639
3,116,480 2,567,588
Net Current (Liabilities)/Assets (432,569) 259,007
Total Current Assets less Current Liabilities 1,258,080 1,815,161 Non-current
Liabilities:
Borrowings 77,434 107,835
Deferred Tax 76,600 8,698
Retirement Benefit obligations 204,637 193,003
358,671 309,536
Net Assets 899,409 1,505,625
Capital and Reserves
Revaluation Surplus 1,000,000 1,000,000
Retained Loss (684,003) (77,787)
Total Equity 899,409 1,505,625
Note to the Account
2013 2012
₦‘000 ₦‘000
Borrowings: Short term 1,890,793 758,795
Bank Loans 373,179 1,238,964
Bank overdraft 136,504 82,880
2,400,476 2,080,639
INVENTORIES:
Raw Materials 486,169 424,406
Finished Goods 107,233 361,837
Work In Progress 85,521 71,676
Goods in Transit 272,002 180,012
Engineering stock 59,451 41,368

50
1,010,376 1,079,299
2013 2012
₦‘000 ₦‘000
Receivables Requirement:
Trade Receivables 546,774 303,683
Prepayments & Others 114,079 49,609
Due from Associated Companies 841,522 1,094,059
1,502,375 1,447,351
2013 2012
₦‘000 ₦‘000
Depreciation charged 156,970 161,194
Required:
a) Analyse the financial performance of this company in 2013 using the following
ratios: i) Liquidity iv) Gross Profit Margin ii) Debt to Asset v) Asset utilization or
Activity iii) Interest coverage and explain whether the financial performance justify
the credit request.
(15 Marks)
b) What are the credit risk issues involved in the appraisal of the company’s request for the
advance payment. (5 Marks)
(Total = 20 Marks)

51
Question 5
Chief Owonikoko, the proprietor of RAINBOW Furniture Enterprises calls at the branch with
the latest sets of accounts as detailed below. He indicates that it is his intention to double his
turnover of ₦150million made at the end of last financial year in the forthcoming year. He
therefore request that the existing overdraft facility be increased from ₦90million to
₦180million.
RAINBOW FURNITURE ENTERPRISES BALANCE SHEET AS AT 31ST DECEMBER,
2013
₦‘000 ₦‘000 ₦‘000
Fixed Assets 60,000
Stock 220,000
Debtors 200,000
Total current Assets 420,000
Current Liabilities
Creditors 250,000
Tax 15,000
Bank 80,000
Total current Liabilities 345,000
Net current Assets 75,000
135,000
Capital 90,000
Profit and Loss Account 45,000
135,000
Required:
Set out, in note form, the points you would raise indicating whether you will agree to the
request and if not state your reasons. (20 Marks)

2014/CB/A/02
52
Question 6
a) What are the pre-conditions for effective risk management in Deposit Money Banks? (9
Marks)
b) Both Equipment Leasing and Hire-Purchase are means of acquiring certain types of fixed
assets. Enumerate four (4) benefits of each facility to a bank customer.
(8 Marks)
c) State three (3) factors that determine the choice of these credit facilities.
(3 Marks)
(Total 20 Marks)
SECTION C Question 7
a) Jackson Bank Plc is concerned that income has dwindled inspite of the increase in loan
portfolio. Management of the Bank has traced this to the poor loan pricing methods.
Required:
State other factors that can reduce income in the scenario painted above.
(9 Marks)
b) Abubakar Enterprises is a company registered as industrial caterers and events managers.
They operate an account with the Kano (main) Branch of your bank. Today you received a
proposal for a ₦400 million term loan to establish a 5-star hotel in Sabon Gari Area, Kano.
Required:
Itemize the contents and highlight key issues you would expect to find in the feasibility report
backing the credit request. (11 Marks)
(Total 20 Marks)
Question 8
a) Define credit fraud and identify eight (8) examples of credit fraud commonly
recorded in banks. (10 Marks)
b) How can credit fraud be reduced or eliminated in banks? (10 Marks) (Total 20
Marks)

2014/CB/A/02
53
SECTION A
Question1
Banks that were taken over by the Central Bank of Nigeria (CBN) in 2009 Banking Sector
Reform were alleged to have weak credit culture and widespread breaches of their Credit
Policies by the executive management.
Required:
a) What is credit culture? State and explain four (4) major types of credit culture.
(10 Marks)
b) What is credit standard in relation to credit culture. (10 Marks)
(Total 20 Marks)
Question 2
Discuss the various points/issues that must be examined and agreed with the borrowing
customer by the bank before lending decision is reached. (20 Marks)
Question 3
a) You are the credit officer of your bank and were invited to the symposium of the
Banking and Finance Students Association of the Success University to talk on ‘‘the
general principles of good lending’’ also known as cannons of good lending. You are
required to state and explain five (5) general or cannons of good bank lending. (15
Marks)
b) Explain how bankers reconcile the banking concepts of liquidity and profitability.
(5 Marks)
(Total 20 marks)
SECTION B
Question 4
Yesterday you met the Chief Executive Officer (CEO) of Victor Supplies Ltd. at the Club
House. He informed you of a new business opportunity requiring bank support. Borno
State Government has approved a ₦10 billion contract for execution over three (3)
years period. The purpose is to supply drugs and medical equipment to hospitals in
major cities and towns in the state. Part payments will be made in advance for each
tranche of the contract.
Government will pay the monies through your bank provided the bank provides

2014/CB/A/02
54
Advance Payment Guarantee. The first tranche of payment is the sum of ₦2.5 billion.
Currently, the company enjoys an overdraft limit of ₦0.5 billion (₦500m) which will
expire on 31st of March, 2014. The term loan of ₦1.9 billion is due for payment finally on
31st July, 2016.
They want their facilities renewed.
Victors Supplies Ltd.
Profit and Loss Account for the period ended 31st December 2013
2013 2012
₦‘000 ₦‘000
Turnover 2,736,191 2,047,983
Cost of Sales (1,111,239) (1,060,889)
Gross Profit 1,624,952 987,094
Other Operating Income 3,335 1,109
Marketing Expenses (423,477) (442,936)
Admin Expenses (854,638) (459,553)
Operating Profit /Loss 350,172 85,714
Exceptional item (549,886) -
Operating Profit (Loss After Exceptional item) (199,714) 85,714
Finance Costs (292,055) (322,469)
Loss Before Income Tax (491,769) (236,755)
Taxation (114,447) (60,422)
Loss for the year (606,216) (297,177)
VICTOR SUPPLIES LTD BALANCE SHEET AS AT 31ST DECEMBER, 2013
2013 2012
₦ ‘000 ₦‘000
Properties, Plant and Equipment 1,680,648 1,546,153
Investment in Subsidiaries 10,001 10,001
Current Assets:
Inventories 1,010,376 1,079,299
Receivables 1,502,375 1,447,351
Bank and Cash balance 171,160 299,945

2014/CB/A/02
55
2,683,911 2,826,595
Current Liabilities:
Trade and Other Creditors 704,889 456,704
Taxation 11,115 30,245
Borrowings 2,400,476 2,080,639
3,116,480 2,567,588
Net Current (Liabilities)/Assets (432,569) 259,007
Total Current Assets less Current Liabilities 1,258,080 1,815,161 Non-current
Liabilities:
Borrowings 77,434 107,835
Deferred Tax 76,600 8,698
Retirement Benefit obligations 204,637 193,003
358,671 309,536
Net Assets 899,409 1,505,625
Revaluation Surplus 1,000,000 1,000,000
Retained Loss (684,003) (77,787)
Total Equity 899,409 1,505,625
Note to the Account
2013 2012
₦‘000 ₦‘000
Borrowings: Short term 1,890,793 758,795
Bank Loans 373,179 1,238,964
Bank overdraft 136,504 82,880
2,400,476 2,080,639
INVENTORIES:
Raw Materials 486,169 424,406
Finished Goods 107,233 361,837
Work In Progress 85,521 71,676

2014/CB/A/02
56
Goods in Transit 272,002 180,012
Engineering stock 59,451 41,368
1,010,376 1,079,299
2013 2012
₦‘000 ₦‘000
Receivables Requirement:
Trade Receivables 546,774 303,683
Prepayments & Others 114,079 49,609
Due from Associated Companies 841,522 1,094,059
1,502,375 1,447,351
2013 2012
₦‘000 ₦‘000
Depreciation charged 156,970 161,194
Required:
a) Analyse the financial performance of this company in 2013 using the following
ratios: i) Liquidity iv) Gross Profit Margin ii) Debt to Asset v) Asset utilization or
Activity iii) Interest coverage and explain whether the financial performance justify
the credit request.
(15 Marks)

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b) What are the credit risk issues involved in the appraisal of the company’s request for the
advance payment. (5 Marks)
(Total = 20 Marks)

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2014/CB/A/02
Question 5
Chief Owonikoko, the proprietor of RAINBOW Furniture Enterprises calls at the branch with the
latest sets of accounts as detailed below. He indicates that it is his intention to double his
turnover of ₦150million made at the end of last financial year in the forthcoming year. He
therefore request that the existing overdraft facility be increased from ₦90million to
₦180million.
RAINBOW FURNITURE ENTERPRISES BALANCE SHEET AS AT 31ST DECEMBER, 2013
₦‘000 ₦‘000 ₦‘000
Fixed Assets 60,000
Stock 220,000
Debtors 200,000
Total current Assets 420,000
Current Liabilities
Creditors 250,000
Tax 15,000
Bank 80,000
Total current Liabilities 345,000
Net current Assets 75,000
135,000
Capital 90,000
Profit and Loss Account 45,000
135,000
Required:
Set out, in note form, the points you would raise indicating whether you will agree to the request
and if not state your reasons. (20 Marks)
2014/CB/A/02
Question 6
a) What are the pre-conditions for effective risk management in Deposit Money Banks? (9
Marks)
b) Both Equipment Leasing and Hire-Purchase are means of acquiring certain types of fixed assets.
Enumerate four (4) benefits of each facility to a bank customer.

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(8 Marks)
c) State three (3) factors that determine the choice of these credit facilities.
(3 Marks)
(Total 20 Marks)
SECTION C Question 7
a) Jackson Bank Plc is concerned that income has dwindled inspite of the increase in loan portfolio.
Management of the Bank has traced this to the poor loan pricing methods.
Required:
State other factors that can reduce income in the scenario painted above.
(9 Marks)
b) Abubakar Enterprises is a company registered as industrial caterers and events managers.
They operate an account with the Kano (main) Branch of your bank. Today you received a
proposal for a ₦400 million term loan to establish a 5-star hotel in Sabon Gari Area, Kano.
Required:
Itemize the contents and highlight key issues you would expect to find in the feasibility report backing
the credit request. (11 Marks)
(Total 20 Marks)
Question 8
a) Define credit fraud and identify eight (8) examples of credit fraud commonly
recorded in banks. (10 Marks)
b) How can credit fraud be reduced or eliminated in banks? (10 Marks) (Total 20
Marks)
2017/CB/A/01 SECTION A: BANKING LAW
Question 1
S.13(I) of The Chartered Institute of Bankers, Act 1990 provides that “there shall be a Tribunal
to be known as the Chartered Institute of Bankers Disciplinary Tribunal (CIBDT) which shall be
charged with the duty of considering and determining any case referred to it by the
investigating panel established under the Act”.
(a) What is the composition of the Disciplinary Tribunal? (3 marks)
(b) What are the circumstances specified by the Act under which a banker may have his or her name
struck off from the Register of Bankers? (10 marks)

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(c) Apart from ordering the Registrar of CIBN to strike off the name of a banker from the register,
what other step could be taken by the tribunal? (3 marks)
(d) Mention two (2) professional misconduct of a banker known to you. (4 marks)
(Total = 20 marks)
Question 2
(a) Chief Sharpman has recently approached Ethical Bank Plc for a loan on the strength of a
Certificate of Occupancy which he has procured in respect of a landed property which he
inherited from his father. The land is situated at Ikorodu, Lagos State.
This vast land which is yet to be developed, has been confirmed to belong to Chief Sharpman
following search conducted at the appropriate offices. Chief Sharpman is indeed the owner of
the land.
However, the land has been uncultivated with no development on it whatsoever. Chief Sharpman
has also been in peaceful ownership for more than 10 years and now desires a loan from Ethical
Bank, while staking his Certificate of Occupancy and the interest on the land as security for the
loan of Thirty Million Naira Only (N30,000,000.00). The land is valued at One
Hundred Million Naira Only (N100,000,000.00)
Advise the Bank, based on the provisions of the Land Use Act 2004 on the propriety or otherwise
of acceding to the loan request. (12 marks)
(b) Distinguish between a second mortgage and a sub-mortgage. (8 marks)

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2017/CB/A/01
Question 3
Mr. Michael is a customer of Reliance Bank Plc. He was recently adjudicated bankrupt and the
Branch Manager seeks your advice on the following:
(a) Whether cheques presented for payment from the account should be honoured? (5 marks)
(b) What the bank can do in respect of the title documents deposited with it as collateral for the
overdraft facility granted to Mr. Michael. (5 marks)
(c) What are the Assets of Mr. Michael that cannot be realized under the bankruptcy proceeding?
(5 marks)
(d) How can Mr. Michael be discharged? (5 marks)
(Total = 20 marks)
SECTION B: ETHICS
Question 4
(a) Discuss how a breach of duty to honour the cheque of a customer may lead to ethical
problems for the banks. (8 marks)
(b) Mention any remedy or remedies for an unjustified breach of the important duty by banks.
(6 marks)
(c) Are there circumstances when the bank may be justified when the duty is breached? State
the circumstances (if any). (6 marks)
(Total = 20 marks)
Question 5
(a) What is the role of Choice in the concept of Ethics? (5 marks)
(b) Write short notes on the following as important determinants of ethical behaviour:
(i) Greed

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(ii) Contentment
(iii) Altruism (15 marks)

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2017/CB/A/01
Question 6
The main reason for the establishment of economic institutions in a free market system is the
maximisation of profit, healthy competition and possible monopoly of the market. Therefore,
the only parameter for the measurement of success of such institutions is profit at the expense
of ethics and social responsibility.
(a) Do you agree or disagree with this statement? (5 marks)
(b) Discuss the parameters fully and give your opinion on what
should be the attitude. (15 marks)
(Total = 20 marks)
SECTION C: CORPORATE GOVERNANCE
Question 7
(a) Identify the main recommendations of the Cadbury Report regarding non-executive
directors and elaborate on the recommendation that “Control of a Company should be
exercised by the board of directors as a whole”.
(10 marks)
(b) How can good Corporate Governance improve the stock market performance of a listed company?
(10 marks)
(Total = 20 marks)
Question 8
(a) Write short notes on the following:
(i) The meaning of a director within the context of the Companies and Allied Matters Act CAP C20
LFN 2004. (6 marks)
(ii) The duties of directors in a company. (8 marks)
(b) Highlight the salient landmarks of sound corporate governance practices and articulate the
role of supervisors in corporate performance of banks. (6 marks)

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(Total = 20 marks)
2017/CB/B/01
SECTION A: BANKING LAW
Question 1
S.2 of the Banks and other Financial Institutions Act (as amended) provides that “No person
shall carry out any banking business in Nigeria except if it is a company duly incorporated in
Nigeria and holds a banking licence issued under the Act by virtue of Companies and Allied
Matters Act. One of the documents a Company requires for incorporation is the Memorandum
of Association.
(a) State clearly the items that must be stated in the Memorandum of Association
(10 marks)
(b) Itemise the practical importance of the content of the Memorandum of Association to the
business of a bank?
(10 marks)
(Total = 20 marks)
Question 2
Discuss the following under the Bills of Exchange Act.
(i) Define Bill of Exchange
(ii) The Drawer of a Bill
(iii) The Drawee of a Bill
(iv) Negotiations of a Bill
(v) A bill payable at a determinable future time (4 marks each)

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(Total = 20 marks) Question 3
(a) State what you understand as “Security” in a banker/customer relationship?
(b) State the various ways by which a contract of guarantee can be determined.
(c) What do you understand by “Adjudication Order” in Bankruptcy?
(d) What is First Meeting of Creditors under the Bankruptcy Act and of what significance is it?
(5 marks each)
(Total = 20 marks)
2017/CB/B/01
SECTION B: ETHICS
Question 4
Write short notes on each of the following:
(i) Conflict of interest
(ii) Actual and potential conflicts of interest
(iii) Insider Trading
(iv) Unfair competition
(5 marks each)
(Total = 20 marks)

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Question 5
(a) In order to promote high and sustainable ethical standards in an organisation, the Board of
Directors must provide an Ethics Programme. What do you understand by “Ethics
Programme”? (5 marks)
(b) What are the benefits of an Ethics Programme? (15 marks)
(Total = 20 marks)
Question 6
Ifeoma is a charming damsel employed by Josco Bank with a 3rd class degree in Physical
Education. Josco Bank is under the radar of the Central Bank of Nigeria as one of the
distressed and failing banks with the ultimatum to recapitalise within six months or have its
licence revoked. During the competitive interview, Ifeoma came last but was given the job
because of Mr. Johnson, the Executive Director, Human Resources, who was interested in
having her as his girlfriend. After her employment, she was deployed to the Marketing
Department to solicit for customers with huge deposit potential. Ifeoma was able to convince
Collins, a drug baron, to deposit N50, 000,000 in fixed deposit with the bank to the knowledge
of Mr. Shau, the Executive Director, Operations. When the Managing Director was informed,
he jubilated and approved payment of commission to Ifeoma as one of the “saviours” of the
bank.
Examine the ethical issues involved. (Total = 20 marks)
2017/CB/B/01

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Question 7
(a) Identify the duties of Directors as stated under S.279 of the Companies and Allied Matters
Act.
(10 marks)
(b) In what circumstances will a Director have to vacate his office under the Companies and
Allied Matters Act? (10 marks)
(Total = 20 marks)
Question 8
(a) Explain the term “Self-Regulation” as it relates to the financial services industry.
(10 marks)
(b) Itemise five (5) Self-Regulatory Institutions in the financial services industry.
(10 marks)
(Total = 20 marks)

2014/CB/A/01
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SECTION A: BANKING LAW
Question 1
(a) What is the mandatory disclosure required of financial institutions under Section 10(1)
of Money Laundering Prohibition Act 2011 and what is the penalty for contravention of the
provision? (10 marks)
(b) Dr. Wisdom recently issued a cheque for the sum of N1,000,000 in favour of the Medical
and Dental Council being arrears of payment for his practice licence. The cheque was
presented by the Council and it was dishonoured. The Council reported the matter to the police
and the latter have decided to charge the Doctor under the Dishonoured Cheque Offences Act.
(i) In the circumstance of the above, state the facts of the offence under the Act. (4 marks)
(ii) What is the prescribed penalty under the Dishonoured Cheques (Offences) Act 3? (3
marks)
(iii) State any defence to the offence stated in the Act. (3 marks)
Total = (20 marks)
Question 2
(a) What do you understand as Acts of Bankruptcy under the Bankruptcy Act 2004? (10 marks)
(b) Outline in details the adverse effect of adjudication of a debtor as a bankrupt under Section
126 of the Bankruptcy Act. (10 marks)
Total = (20 marks)
Question 3
(a) Briefly distinguish between ownership and possession. (6 marks)
(b) i Explain what you understand as “Bill of Lading” stating its functions and how it can be
utilized as a security for bankers’ advance to importers.
(8 marks)
ii. Define the words, “Premium”, “Surrender Value” and insurable interest as used in life policies
as security for bankers’ advance. (6 marks)
Total = (20 marks)
SECTION B: ETHICS
Question 4
Discuss briefly each of the following basic principles of ethics:
(i) Virtues

2014/CB/A/01
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(ii) Vices
(iii) Greed
(iv) Satisfaction
(v) Reward
(vi) Integrity
(vii)Freewill (viii) Loyalty
(ix) Justice
(x) Discipline
(2 marks each = 20 marks)
Question 5
(i) Write a comprehensive statement on the requirement of disclosure by Directors of
companies having interest in contracts with the company.
(8 marks)
(ii) State fully the legal position of Directors under Section 283 of the Companies and Allied
Matters Act (as amended). (12 marks)
Total = (20 marks)
Question 6
(a) (i) Who are stakeholders? (4 marks)
(ii) Explain what needs to be done for the benefit of each stakeholder.
(8 marks)
(b) What are the rights of shareholders of a company? (8 marks)
Total = (20 marks)
Question 7
(a) What is self-regulation in the financial services industry in Nigeria? (5 marks)
(b) Mention 5 self-regulatory bodies or institutions within the financial services industry in
Nigeria. (10 marks)
(c) What are the roles of the Chartered Institute of Bankers Disciplinary Committee? (5 marks)
Total = (20 marks)
Question 8
Explain the roles and responsibilities of:

2014/CB/A/01
70
(a) the Board of Directors; and
(b) the Shareholders in promoting and sustaining sound corporate governance in
banking institutions. (20 marks)
2015/IP/A/04
SECTION A
Question 1
(i) Theory of comparative advantage demonstrates that mutually advantageous trade
cannot occur when one trading partner has an absolute advantage.
True or False.
(ii) All but one factor out of the following influences the price of an option:
(a) Volatility
(b) Intrinsic value
(c) Locations
(d) Length of period
(iii) Which country uses the currency ‘KRONA’

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(iv) _________________ is an arrangement by which two parties exchange one currency
for another and agree that the exchange will be revised at a stipulated date in the
future.
(a) Arbitrage
(b) Swap
(c) Option
(d) Hedge
(v) The law of one price simply states that in the presence of a competitive market,
structure and the absence of transport costs and other barriers to trade, identical
products which are sold in different markets will ___________
(a) Sell at the same price when expressed in terms of a common currency
(b) Sell at a floating rate when expressed in terms of a common currency
(c) Sell at a different price when expressed in terms of a common currency
(d) Sell at a cross rate when expressed in terms of a common economy
(vi) __________________ is the sensitivity of the real domestic currency value of assets
and liabilities appearing in the financial statements to unanticipated changes in
exchange rates.
(a) Translation Exposure
(b) Transaction Exposure
(c) Economic Exposure
(d) Option Exposure

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2015/IP/A/04
(vii) If an SME has an exceptionally large transaction which had been quoted in foreign
currency, and/or there exists a significant time period between quote and acceptance
of the offer, _________________________ will be worth considering:
(a) Fx Option
(b) Fx Transaction
(c) Fx Cross Rate
(d) Fx Forward
(viii) The relationship between the exchange rate and the prices of tradable goods is known
as:
(a) Purchasing Power Parity theory
(b) Asset-markets theory
(c) Monetary theory
(d) Balance of payment theory
(ix) UNCTAD is a United Nation Institution that:
(a) Makes loans to poor countries only
(b) Represents the interests of developing countries
(c) Enforces intellectual property rights
(d) Administers international treaties regarding labour standards and rights

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(x) In URC Publication No. 522, ________________ states that all banks must act in good
faith and exercise reasonable level of care.
(xi) Jane Nigeria Ltd instructed your bank to purchase US$10,000 through CBN Retail
Dutch Auction system at N155 per dollar. Determine the All-in rate at which the
customer’s account will be debited bearing in mind the CBN commission and the bank
spread of 50 kobo.
(a) N157.05
(b) N156.50
(c) N158.05
(d) N155.50
(xii) A Yen bond issued by a British company in the Japanese market is known as:
(a) Matadors (b) Yankee
(c) Samurais
(d) Bulldogs
2015/IP/A/04
(xiii) A trading strategy based on the purchase of commodity, including foreign exchange
in one market at one price while simultaneously selling it in another market at a more
advantageous price in order to obtain a more free profit on the price differential is
known as ____________________________________
(xiv) A situation in which foreign currency assets of a firm exceed foreign currency liabilities
is referred to as __________________________________________
(a) Short position

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(b) Medium position
(c) Long position
(d) Weak position
(xv) From the exporter’s point of view, the most favourable incoterm is:
(a) FCA (b) CPT
(c) CIP
(d) DAT
(xvi) Discounting of long-term financial instruments particularly for capital goods in the
importer’s country but for the benefit of the exporter is known as ______
(xvii) The risk bearing services of Nigeria Export-Import Bank are all but one of the
following:
(a) Export credit guarantee
(b) Rediscounting and refinancing facility
(c) Export credit insurance facility
(d) Investment guarantee and investment insurance
(xviii) Unutilised RDA funds must be repatriated to CBN within ________________
(a) 7 working days
(b) 5 working days
(c) 10 working days
(d) 2 working days
(xix) _____________ is a letter of credit which provides for the amount of credit to be
reinstated without the need to renew the credit or open a new credit.
(xx) The platform through which authorised dealers electronically registered Form ‘M’ for
approval is called __________________________________________
(40 marks)

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2015/IP/A/04
SECTION B
PART I
Question 2
The Central Bank of Nigeria (CBN) report of its regulatory functions has the ‘Import
Guidelines, Procedures and Documentation Requirements” under the Destination Inspection
Scheme of Nigeria.
Required:
(a) List the Documentation Requirements for Import Payment under the Destination
Inspection Scheme. (10 marks)
(b) List the documents to be submitted by the Importer to the processing bank after
clearance of goods. (5 marks)
(Total = 15 marks)
Question 3
Emmyk Produce Limited is one of your premium customers who is into export operations to
countries in Asia and East Europe. You called at their newly opened corporate office to
discuss a new contract which the company is about to start with a Ukrainian firm.
Investigations show that the company is to sell coal, wood and ginger to a major Ukrainian
firm.
The Chief Executive Officer, Mr. Emeka Ikem explained that the Ukrainian buyer will arrange
undertaking in favour of Emmyk Produce Limited and requested your bank to arrange
predelivery finance for the contract value of N25 million. The net margin for the company is
25% and short term credit for 3 months is required.
Required:
(a) Write brief notes on the arrangement which is available outside normal bank lending
and which will not have a significant adverse effect on the balance sheet.
(10 marks)

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(b) What are the advantages and disadvantages of such arrangement? (5 marks)
(Total = 15 marks)
2015/IP/A/04
Question 4
(a) An exporter, who is a customer of your bank hands you a documentary collection. What
is your bank’s liability regarding examination of the documents, and what other points
would the bank check for in practice?
(10 marks)
(b) List at least five (5) inoperative amendment clauses to a documentary letter of credit.
(5 marks)
(Total = 15 marks)
PART II
Question 5
As reported by one of the financial papers in Nigeria on March 1, 2014, “crude oil price
climbed on Monday on workers’ strike in Nigeria and a typical storm expected to disrupt the
United States crude oil market”.
The price of reference Brent North sea crude oil for May delivery climbed to $89 per barrel
thereby affecting forward markets cost which now stands at 11.65%.
Required:
(a) What is the March 1, 2014 exchange rate (spot market rate)? (8 marks)

77
(b) Rationalise the relative forward margin per month for the period of the contract
mentioned assuming all economic indices remain constant throughout the period.
(2 marks)
(c) What are the implications of the market situation between March 1 and May 30 on
crude oil market in Nigeria? (5 marks)
(Total = 15 marks)
Question 6
(a) Exchange rate in Yen/Naira (Y/N) in the interbank market is given as
26.8967/9.2335.
An exporter requests his bank to purchase a bill for Y350,000.
(i) What rate should the bank quote to the exporter if the bank requires an
exchange margin of 0.20%.? (5 marks)
(ii) What is the interest on export finance to be recovered from the exporter if the
transaction period of the export bill is 25 days and the rate of interest is 8%?
(5 marks)
2015/IP/A/04
(b) Briefly explain the four methods of translation exposure in international finance.
(5 marks)
(Total = 15 marks)
Question 7
Write short notes on the following:

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(i) International Finance Corporation (5 marks)
(ii) Multilateral Investment Guarantee Agency (5 marks)
(iii) Islamic Development Bank (5 marks)
(Total = 15 marks)
2017/IP/B/04
SECTION
A
This section contains Multiple Choice Question(s) (MCQ) and Short Answer Questions (SAQ).
Indicate the correct alphabet as answer to the MCQ and provide the answer(s) to the SAQ.
(All Questions carry equal marks – 2 marks each, Total = 40 marks)
Question 1
(vi) The US$/Japanese Yen exchange rate is $0.97/Yen, while the US$/Indian Rupee rate
is $0.25/INR. Determine the Yen/INR exchange rate.
(a) Yen 0.2577/INR
(b) Yen 3.8800/INR
(c) Yen 2.1071/INR (d) Yen 0.2742/INR
(vii) A financial contract giving the owner the right, but not an obligation to buy or sell a
given quantity of an asset at a specified price sometime in the future is: (a) Option
(b) Put
(c) Call
(d) Straddle

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(viii) When banks establish branches and subsidiaries abroad, it is referred to as:
(a) International Banking
(b) Multinational Banking
(c) Correspondent Banking
(d) Agency Banking
(ix) A bond issue that is simultaneously sold and consequently traded in major Financial
Markets is:
(a) Global bond
(b) Foreign bond
(c) Worldwide bond
(d) International bond
(x) What is the Forward rate if the discount on the US$ narrowed further and for three
(3) months settled at N6 or 5.50% to affect all periods up to a year as an indication
of unwinding leads and lags?
(a) 75.2135
(b) 82.7011
(c) 72.7272
(d) 73.3224
(xi) All but ONE of the following assumptions does not agree with Heckscher – Ohlin
Model:
(a) There are only two countries but similar in factor endowments quantity.
(b) There are only two factors of production i.e. Labour and Capital.
(c) There are only two commodities.
(d) There are only two countries but differ in factor endowments quantity, that is, one
country possesses more of one than other interchangeably.

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2017/IP/B/04
(xii) Exchange rate risk can better be described under one of the following classifications:
a. Economic Risk, Translation Risk and Transaction Risk.
b. Economic risk, Liquidity Risk and Transaction Risk.
c. Economic Risk, Liquidity Risk and Credit Risk.
d. Translation Risk, Transaction Risk and Liquidity Risk.
(xiii) All but ONE of the following are features of Global Depository Receipt (GDR): a. It is
a secured security
b. It is listed and traded on the stock exchange
c. It is an unsecured security
d. It may be converted into shares
(xiv) All but ONE of the following are causes of Exchange Rate fluctuations:
a. Trade movement, capital movement and stock exchange movement.
b. Capital movement, labour movement and stock exchange operations.
c. Speculative transaction, Trade movement and Banking Operations.
d. Political conditions, Monetary Policy and Speculative Transaction.
(xv) The international organisation established to promote exchange rate stability and
provide temporary financing for countries experiencing balance of payments
difficulties is _________________.
(xvi) The most favoured clause of the World Trade Organisation requires that each member
must:
a. Offer to all member countries the same trade concessions offered to any member
country.
b. Offer to all member countries concessions as may be determined by the home
country to any member country.
c. Chose one foreign member as its most favoured trading nation and give that
country its generous trade concession.

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d. Offer some trade concession to any other member country offering it a trade
concession.
(xvii) A perfect hedge (full range) on transaction exposure can usually be achieved when:
a. Using the money market hedge.
b. Using the forward hedge.
c. Using the futures hedge.
d. None of the options since a perfect hedge is nearly impossible.
(xviii) With floating exchange rate, a monetary contraction causes:
a. Capital inflow
b. Exchange rate to depreciate
c. The interest rate to fall
d. None of the options
2017/IP/B/04
(xix) Which of the following is not an incentive available to operators in the Free Trade
Zones in Nigeria?
(a) Up to 50% of the products may be sold in the domestic market.
(b) Foreign ownership allowed is not more than 50%.
(c) Repatriation of Foreign Capital Investment allowed anytime.
(d) No import or export licence is required.
(xx) A type of international trade financing where long-term financial instruments such as
Bill of Exchange or Promissory notes are discounted for capital goods in the importer’s
country but for the benefit of the exporter is known as ______.
(xxi) A letter of credit that allows the seller to receive a part of the documentary credit
amount as an advance payment before the fulfillment of all the conditions stated in
the documentary credit is known as ________________.

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(xxii) The rate of inflation in France over the next one year is estimated to grow at 8% and
in Nigeria over the same period at 12%, while the spot rate is Euro/N235.7250 in the
parallel foreign exchange market. What is the expected Forward Rate on one (1) year
Forward Market?
(a) N240.4468
(b) N244.4468
(c) N245.4468
(d) N242.4468
(xxiii) Where the price quoted on the invoice by the exporter include all cost under the Cost
Insurance and Freight (CIF) contract but additional responsibilities up to the importer’s
warehouse are inserted is found in:
(a) CPI
(b) CIP
(c) DDP
(d) DAP
(xxiv) A quotation in which the home currency unit is expressed in variable units of Foreign
currency is called:
(a) Direct Rate
(b) Spot Rate
(c) Indirect Rate
(d) Forward Rate
(xxv) The economic theory that links exchange rates, price levels and interest rate is called:
a. Law of one price
b. Nominal effective Exchange rate
c. International parity condition
d. Fisher Effect

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(Total = 40 marks)
2017/IP/B/04
SECTION B
PART I
Question 2
Mr. Goriola, the Import Manager of one of your valued customers called at your office today
and complained about the features of the document received from your bank under the
confirmed irrevocable documentary letters of credit opened in favour of their foreign
suppliers.
The document comprised of copies made by carbonized facsimile and other reprographic
means EXCEPT for the Bill of Lading. He also observed that some of the documents were
not signed by the foreign exporter and therefore not properly drawn in accordance with the
terms and conditions of the documentary letters of credit.
Required:
(a) Justify your actions in accepting these documents with reference to the relevant
provisions of UCP 600. (10 marks)
(b) What protection, if any that are available to the bank? (3 marks)
(c) What would be the bank’s position if some of these documents were dated before the
due date on the letters of credit? (2 marks)
(Total = 15 marks)

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Question 3
Capital Market is concerned primarily with the provision of international liquidity.
Required:
(a) (i) What is International Liquidity? (2 marks)
(ii) List four (4) purposes of International Liquidity (4 marks)
(b) Succinctly explain the markets of operations involved in International Capital Market.
(9 marks)
(Total = 15 marks)
2017/IP/B/04
Question 4
The Managing Director of Ayox Nigeria Limited, a company that operates in the local markets
has large export orders from foreign buyers as a direct effect of their participation in a Trade
Fair which they attended recently in USA. The Managing Director called in your office today
and informed you of the breakthrough into the Exports Market and would require your expert
advice on this issue.
Required:
(i) Briefly advise your customer on Export Trade in Nigeria. State six (6) points.

85
(6 marks)
(ii) What are the services that are available to this type of customer who breaks into the
export market for the first time (state six points to include three banking and three non-
bank services). (6 marks)
(iii)State conditions precedent to export activities by a Nigeria company under the relevant
exchange control regulations. (3 marks)
(Total = 15 marks)
PART II
Question 5
You have called your favourite Bureau De Change operators and required a quotation on the
Naira/US dollar exchange rate for spot, one month, three months and six months forward
rates. The dealer subsequently responded with the following SWAP quotation N/$ 166/8, ¾,
7/5, 9/7.
Required:
(a) Express the above quotation in the outright way:
(i) If you wanted to buy $1000 spot, how much would you have to pay in Naira.
(5 marks)
(ii) If you wanted to invest N9,420,000 in US dollars, six months forward, how much
would that cost you in dollars at the quoted rate. (5 marks)
(b) Calculate the premium/discount in annual percentage for the one month and three
months forward quotations.
(Assuming you are a buying client). (5 marks)

86
2017/IP/B/04
Question 6
Your customer Frank-Derese Limited, on 1st April informed you they were expecting currency
receipts and payments during the next three months. They seek your professional advice as
to the protection against possible fluctuations in rates of exchange.
Suggest what action will be taken regarding the following transactions.
Receipts:
(i) Japanese Yen 200,000 is expected within the next two months.
(ii) Bank accepted bill US$ 75,000 due on 4th May covering supply made to Yankee & Co
of New York.
(iii) Euro 90,000 on 13th May from Germany for goods shipped from United Kingdom. (iv)
SwFr 10,000 on the 5th June for goods dispatched from France to Switzerland.
(8 marks)
Payments:
(v) The equivalent in Pounds Sterling of Euro 90,000 received from Germany to United
Kingdom supplier.
(vi) Japanese Yen 1,500,000 to Japanese supplier due 30th April.
(vii) SwFr 10,000 on 10th April to France for goods dispatched to Switzerland
(7 marks)
(Total = 15 marks)
Question 7
The SEPA aims to harmonize the process of paying for goods and services in Europe so that
business and consumers can make a cross-border purchase within the region the same way
as domestic transactions.

87
Required:
(a) What is SEPA and what are its benefits? (9 marks)
(b) Briefly explain the EU Regulations defining mandatory deadlines for migration to SEPA.
(6 marks)
(Total = 15 marks)
2017/IP/B/04
SECTION
A
This section contains Multiple Choice Question(s) (MCQ) and Short Answer Questions (SAQ).
Indicate the correct alphabet as answer to the MCQ and provide the answer(s) to the SAQ.
(All Questions carry equal marks – 2 marks each, Total = 40 marks)
Question 1
(xxvi) The US$/Japanese Yen exchange rate is $0.97/Yen, while the US$/Indian Rupee rate
is $0.25/INR. Determine the Yen/INR exchange rate.
(e) Yen 0.2577/INR
(f) Yen 3.8800/INR
(g) Yen 2.1071/INR (h) Yen 0.2742/INR
(xxvii) A financial contract giving the owner the right, but not an obligation to buy or sell a
given quantity of an asset at a specified price sometime in the future is: (e) Option
(f) Put
(g) Call
(h) Straddle
(xxviii)When banks establish branches and subsidiaries abroad, it is referred to as:

88
(e) International Banking
(f) Multinational Banking
(g) Correspondent Banking
(h) Agency Banking
(xxix) A bond issue that is simultaneously sold and consequently traded in major Financial
Markets is:
(e) Global bond
(f) Foreign bond
(g) Worldwide bond
(h) International bond
(xxx) What is the Forward rate if the discount on the US$ narrowed further and for three
(3) months settled at N6 or 5.50% to affect all periods up to a year as an indication
of unwinding leads and lags?
a. 75.2135
b. 82.7011
c. 72.7272
d. 73.3224
(xxxi) All but ONE of the following assumptions does not agree with Heckscher – Ohlin
Model:
(e) There are only two countries but similar in factor endowments quantity.
(f) There are only two factors of production i.e. Labour and Capital.
(g) There are only two commodities.
(h) There are only two countries but differ in factor endowments quantity, that is, one
country possesses more of one than other interchangeably.
2017/IP/B/04
(xxxii) Exchange rate risk can better be described under one of the following
classifications:

89
a. Economic Risk, Translation Risk and Transaction Risk.
b. Economic risk, Liquidity Risk and Transaction Risk.
c. Economic Risk, Liquidity Risk and Credit Risk.
d. Translation Risk, Transaction Risk and Liquidity Risk.
(xxxiii) All but ONE of the following are features of Global Depository Receipt (GDR):
a. It is a secured security
b. It is listed and traded on the stock exchange
c. It is an unsecured security
d. It may be converted into shares
(xxxiv) All but ONE of the following are causes of Exchange Rate fluctuations:
(e) Trade movement, capital movement and stock exchange movement.
(f) Capital movement, labour movement and stock exchange operations.
(g) Speculative transaction, Trade movement and Banking Operations.
(h) Political conditions, Monetary Policy and Speculative Transaction.
(xxxv) The international organisation established to promote exchange rate stability
and provide temporary financing for countries experiencing balance of
payments difficulties is _________________.
(xxxvi) The most favoured clause of the World Trade Organisation requires that each
member must:
(e) Offer to all member countries the same trade concessions offered to any member
country.
(f) Offer to all member countries concessions as may be determined by the home
country to any member country.
(g) Chose one foreign member as its most favoured trading nation and give that
country its generous trade concession.
(h) Offer some trade concession to any other member country offering it a trade
concession.

90
(xxxvii) A perfect hedge (full range) on transaction exposure can usually be achieved
when:
(e) Using the money market hedge.
(f) Using the forward hedge.
(g) Using the futures hedge.
(h) None of the options since a perfect hedge is nearly impossible.
(xxxviii) With floating exchange rate, a monetary contraction causes:
(e) Capital inflow
(f) Exchange rate to depreciate
(g) The interest rate to fall
(h) None of the options
2017/IP/B/04
(xxxix)Which of the following is not an incentive available to operators in the Free Trade
Zones in Nigeria?
(e) Up to 50% of the products may be sold in the domestic market.
(f) Foreign ownership allowed is not more than 50%.
(g) Repatriation of Foreign Capital Investment allowed anytime.
(h) No import or export licence is required.
(xl) A type of international trade financing where long-term financial instruments such as
Bill of Exchange or Promissory notes are discounted for capital goods in the importer’s
country but for the benefit of the exporter is known as ______.
(xli) A letter of credit that allows the seller to receive a part of the documentary credit
amount as an advance payment before the fulfillment of all the conditions stated in
the documentary credit is known as ________________.

91
(xlii) The rate of inflation in France over the next one year is estimated to grow at 8% and
in Nigeria over the same period at 12%, while the spot rate is Euro/N235.7250 in the
parallel foreign exchange market. What is the expected Forward Rate on one (1) year
Forward Market?
(e) N240.4468
(f) N244.4468
(g) N245.4468
(h) N242.4468
(xliii) Where the price quoted on the invoice by the exporter include all cost under the Cost
Insurance and Freight (CIF) contract but additional responsibilities up to the importer’s
warehouse are inserted is found in:
a. CPI
b. CIP
c. DDP
d. DAP
(xliv) A quotation in which the home currency unit is expressed in variable units of Foreign
currency is called:
a. Direct Rate
b. Spot Rate
c. Indirect Rate
d. Forward Rate
(xlv) The economic theory that links exchange rates, price levels and interest rate is called:
a. Law of one price
b. Nominal effective Exchange rate
c. International parity condition
d. Fisher Effect

92
(Total = 40 marks)
2017/IP/B/04
SECTION B
PART I
Question 2
Mr. Goriola, the Import Manager of one of your valued customers called at your office today
and complained about the features of the document received from your bank under the
confirmed irrevocable documentary letters of credit opened in favour of their foreign
suppliers.
The document comprised of copies made by carbonized facsimile and other reprographic
means EXCEPT for the Bill of Lading. He also observed that some of the documents were
not signed by the foreign exporter and therefore not properly drawn in accordance with the
terms and conditions of the documentary letters of credit.
Required:
(d) Justify your actions in accepting these documents with reference to the relevant
provisions of UCP 600. (10 marks)
(e) What protection, if any that are available to the bank? (3 marks)
(f) What would be the bank’s position if some of these documents were dated before the
due date on the letters of credit? (2 marks)

93
(Total = 15 marks)
Question 3
Capital Market is concerned primarily with the provision of international liquidity.
Required:
(c) (i) What is International Liquidity? (2 marks)
(ii) List four (4) purposes of International Liquidity (4 marks)
(d) Succinctly explain the markets of operations involved in International Capital Market.
(9 marks)
(Total = 15 marks)
2017/IP/B/04
Question 4
The Managing Director of Ayox Nigeria Limited, a company that operates in the local markets
has large export orders from foreign buyers as a direct effect of their participation in a Trade
Fair which they attended recently in USA. The Managing Director called in your office today
and informed you of the breakthrough into the Exports Market and would require your expert
advice on this issue.
Required:

94
(iv)Briefly advise your customer on Export Trade in Nigeria. State six (6) points.
(6 marks)
(v) What are the services that are available to this type of customer who breaks into the
export market for the first time (state six points to include three banking and three non-
bank services). (6 marks)
(vi)State conditions precedent to export activities by a Nigeria company under the relevant
exchange control regulations. (3 marks)
(Total = 15 marks)
PART II
Question 5
You have called your favourite Bureau De Change operators and required a quotation on the
Naira/US dollar exchange rate for spot, one month, three months and six months forward
rates. The dealer subsequently responded with the following SWAP quotation N/$ 166/8, ¾,
7/5, 9/7.
Required:
(c) Express the above quotation in the outright way:
(iii) If you wanted to buy $1000 spot, how much would you have to pay in Naira.
(5 marks)
(iv) If you wanted to invest N9,420,000 in US dollars, six months forward, how
much would that cost you in dollars at the quoted rate. (5 marks)
(d) Calculate the premium/discount in annual percentage for the one month and three
months forward quotations.

95
(Assuming you are a buying client). (5 marks)
(Total = 15 marks)
2017/IP/B/04
Question 6
Your customer Frank-Derese Limited, on 1st April informed you they were expecting currency
receipts and payments during the next three months. They seek your professional advice as
to the protection against possible fluctuations in rates of exchange.
Suggest what action will be taken regarding the following transactions.
Receipts:
(v) Japanese Yen 200,000 is expected within the next two months.
(vi) Bank accepted bill US$ 75,000 due on 4th May covering supply made to Yankee & Co
of New York.
(vii) Euro 90,000 on 13th May from Germany for goods shipped from United Kingdom. (viii)
SwFr 10,000 on the 5th June for goods dispatched from France to Switzerland.
(9 marks)
Payments:
(v) The equivalent in Pounds Sterling of Euro 90,000 received from Germany to United
Kingdom supplier.
(vi) Japanese Yen 1,500,000 to Japanese supplier due 30th April.
(vii) SwFr 10,000 on 10th April to France for goods dispatched to Switzerland

96
(7 marks)
(Total = 15 marks)
Question 7
The SEPA aims to harmonize the process of paying for goods and services in Europe so that
business and consumers can make a cross-border purchase within the region the same way
as domestic transactions.
Required:
(c) What is SEPA and what are its benefits? (9 marks)
(d) Briefly explain the EU Regulations defining mandatory deadlines for migration to SEPA.
(6 marks)
(Total = 15 marks)
THE CHARTERED INSTITUTE OF BANKERS OF NIGERIA
October, 2017 Examinations
2017/IP/B/04
INTERMEDIATE PROFESSIONAL LEVEL
INTERNATIONAL TRADE AND FINANCE
Thursday, October 12
Morning
INSTRUCTIONS TO CANDIDATES
(i) Read ALL instructions on the cover of the Answer Booklet carefully.

97
(ii) Accuracy and neatness will be taken into account in the award of marks.
(iii) Use only ball point pen.
(iv) Maximum marks allotted are as indicated on the questions.
(v) Only non-programmable calculators are allowed.
(vi) Each answer must begin on a new page.
(vii) You are expected to show and attach details of all calculations and reasons for your
conclusions. Every professional advice you may offer should be supported with detailed
rational assumptions.
(viii) Telephone, books, papers or unapproved documents shall not be brought into the
Examination Hall.
(ix) ONLY approved examination documents and writing materials i.e. ball point pen, pencil,
ruler etc. may be brought in.
(x) ATTEMPT - FIVE (5) QUESTIONS IN ALL.
- QUESTION 1 IN SECTION A IS COMPULSORY.
- ANY FOUR (4) QUESTIONS IN SECTION B (NOT MORE THAN 2 QUESTIONS
FROM EACH PART OF THE SECTION).
(xi) TIME ALLOWED: 3 HOURS.
Turn Over
2017/IP/B/04

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