Key highlights
- The CBN in new circular barred banks and other financial institutions seeking conversion licenses from expanding or reducing their banking networks.
- The apex bank said this was due to increasing requests from these financial institutions to either upgrade or convert to other license regimes and provide clarity to these institutions on regulatory requirements.
- The CBN noted that the application shall be accompanied by a business plan duly approved by the financial institution’s shareholders at an Annual General Meeting or Extra Ordinary General Meeting and Board of Directors.
The Central Bank of Nigeria (CBN) has in its new guideline barred deposit money banks and other financial institutions seeking a conversion license from expanding or reducing their current banking network.
The new draft guideline is aimed at providing the procedure for banks and other financial institutions desirous of changing their license type and through conversion, re-categorization and re-designation as well as the need to comply with the relevant licensing requirements under the various regulatory guideline.
The disclosure is contained in CBN’s circular tagged ‘FPR/DIR/PUB/CIR/001/072’ to banks and other financial institutions, and signed by the apex bank’s Director of Financial Policy and Regulation Department, Chibuzor Efobi, and can be seen on its website.
The circular which was titled, ‘Regulatory guidelines for change of operational license for banks and other financial institutions in Nigeria’, dated 28 March 2023, was due to increasing requests from these financial institutions to either upgrade or convert to other license regimes and provide clarity to these institutions on regulatory requirements.
The CBN in the circular said that the guideline shall apply to eligible deposit-taking financial institutions like commercial banks, merchant banks, non[NU11] -interest banks, microfinance banks, primary mortgage banks, payment service banks and other financial institutions that CBN may designate from time to time.
What the CBN circular is saying
- The circular stated, “Under these guidelines, the following prohibitions/restrictions shall apply to eligible banks and OFIs applying for conversion or re-categorization. The bank or OFI shall not, pending when the application is determined expand or reduce its current banking network;
- “Roll out new products and services; carry out any new strategic banking activity but the settlement of rights and obligations shall continue until extinguished in accordance with existing terms and conditions;
- “Take any business decision after the conversion process was commenced, except in line with the bank’s conversion strategy submitted to the CBN; Engage in any banking activity specific to the proposed new license; any other requirement that may be prescribed from time to time by the CBN.”
The CBN also noted that any bank or other financial institution seeking to change its license type shall communicate its desire in writing to the Director of its current supervisory department.
It stated that the application shall be accompanied by a business plan duly approved by the financial institution’s shareholders at an Annual General Meeting or Extra Ordinary General Meeting and the Board of Directors. It shall contain detailed processes, procedures, timelines and milestones regarding the proposed change.
What you should know
In a related development, the CBN had in December 2011 via a circular to all banks introduced a Holding company structure that allows these banks to retain non-core banking businesses by evolving into a non-operating Holding Company (HoldCo) structure.
The term financial holding company refers to a type of bank holding company that offers a range of non-banking financial services. The bank holding company can engage in non-banking financial activities if they register as a financial holding company. These activities, which are not permissible for ordinary bank holding companies include insurance underwriting, securities dealing, merchant banking, underwriting initial public offerings (IPOs), and investment advisory services.
Some of the Nigerian banks that have approvals to operate a holding structure include GTB, Stanbic IBTC, First Bank, Zenith Bank, Access Bank, and FCMB, among others.