The Central Bank of Nigeria (CBN) on Thursday published a draft document of proposed changes to the current “Universal Banking Policy”.
The proposed changes are as a result of 2009’s audit of Nigeria’s entire banking sector that found a number of banks in a “grave situation” with a high percentage of non-performing loans on their books and poor risk management and corporate governance structures in place.
According to the CBN: “Banks in Nigeria currently carry out a wide range of banking and non-banking services, which include insurance, investment advisory, asset management services, etc, by virtue of the universal banking licence regime. The regime, however, has exposed the banking business to greater risks that challenge the stability of the financial system.”
The CBN’s primary objectives for the reform exercise include:
- Depositor/consumer protection by ring-fencing “banking” from non-banking business
- Ensuring effective regulation of the entire business of “banks” while facilitating a business model that is supportive of their growth aspirations
- Redefining the licensing model of banks and articulating rules/guidelines to guide bank operations going forward
- Facilitating the enhancement of risk management at “group enterprise” level to enable management and shareholders to fully understand and address risks from a holistic perspective
To implement the new licensing regime, the CBN will replace the existing universal banking licence with a new licence which terms will be restricted to the nature of the banks’ specific activities. The banking licences available to replace the current universal banking licence are detailed in the chart below:
The new capital requirement for national banks will be N25 billion (US$166 million) if they only operate within Nigeria and N100 billion (US$664 million) if they operate outside the country.
According to the new proposal, regional banks will be allowed to operate in a minimum of five and a maximum of 10 contiguous states. The minimum capital requirement for regional banks will be N15 billion (US$99 million). The word “regional” must also feature in their names.
National banks will only be allowed to participate in the following activities:
- Take current, savings and term deposits
- Provision of finance or credit facilities
- Deal in foreign exchange
- Act as a settlement bank
- Provide treasury management services for clients and itself
- Custodial services
- Non-operating equity investments in non-financial firms
- Provide financial advisory services
- Invest in the equity of SMEs
Permissible activities for regional banks will be the same as for national banks, except that they cannot act as settlement banks.
Proposed non-permissible activities for national and regional banks include:
- Insurance underwriting
- Loss adjusting services
- Re-insurance services
- Asset management
- Issuing house /underwriting
- Proprietary trading
Banks that want to retain their non-core banking businesses will have to evolve into a holding company model where a non-operating HoldCo holds the investments in:
- The bank; and
- Each non-core banking operation in a subsidiary arrangement (SubCo).
They will also need to comply with CBN requirements for the establishment of HoldCos which will include a detailed business case for engaging in any non-core banking operation. The business case will include the corporate and risk management frameworks that would be put in place to demonstrate how depositors’ funds from the core banking business will be ring-fenced from the non-core banking business.