Vanguard (Lagos)

Nigeria: CBN to Introduce Three Types of Banks in 2011

Central Bank of Nigeria CBN will in January 2011, introduce three classes of banking licences. The licences will be for Commercial Banking, Merchant Banking, Specialised and Development Banking.

Under the new licences to be issued, commercial banking will include regional, national and international authorisation banking licences while specialised banking licences will be issued for Micro-finance banking, Mortgage banking, Non-interest banking which may be regional and national. Also to be issued are licences for operators to do Investment Banking and Development Banking.

CBN directive to banks which Vanguard sighted said: "This is to repeal the universal banking regime and require banks to divest from all non-banking business. The CBN intends to fully comply with the statutory provisions in the BOFIA, as amended regarding the conduct of banking business as follows:

discontinue the issuance of universal banking licence.

Licence banks to perform the following types of business:

Commercial banking (regional, national and international authorisation).

Merchant banking.

Specialised banking [Microfinance banking, Mortgage banking, Non-interest banking (Regional and National) and Development Finance Institutions." Those close to the formulation of the policy and bankers told Vanguard that the policy has been fine-tuned and ready for implementation. Bankers confirmed that they have received official instructions from the CBN to this effect although the take off date was not specified in the instructions they received.

A copy of the CBN instruction which Vanguard sighted indicating that the apex bank will introduce the policy stated: "The CBN, in 2002, through the Universal Banking Guidelines, authorised banks to engage in non-core banking financial activities either directly as part of banking operations or indirectly through designated subsidiaries.

"As part of CBN's blueprint for reforming the Nigerian financial system, which includes the enhancement of the quality of banks, financial system stability and evolution of a healthy financial sector, the CBN is implementing strategic imperatives to prevent a re-occurrence of the past events in the Nigerian banking industry.

"The primary objectives for the current reforms by the CBN include among others:

Ensuring the protection of depositor funds by ring-fencing "banking" from non-banking business;

Redefining the licensing model of banks and minimum requirements to guide bank operations going forward;

Effectively regulating the business of banks without hindering their growth aspirations; and - Facilitating more effective regulator intervention in public interest entities.

"As part of the reform agenda, the CBN conducted a review of the universal banking model and circulated a draft exposure report in March 2010, detailing its intent to modify the current banking model/arrangement and defining a new banking licence regime, going forward.

"Comments from key industry operators/stakeholders were received, considered, and served as input towards the finalisation of the exposure draft document.

"Consequently, the CBN intends to fully comply with the statutory provisions in the BOFIA, as amended regarding the conduct of banking business as follows: discontinue the issuance of universal banking licence; licence banks to perform the following types of business: Commercial banking (regional, national and international authorisation); Merchant banking; Specialised banking [Microfinance banking, Mortgage banking, Non-interest banking), (regional and national) and Development Finance Institutions]; prohibit banks from undertaking non-banking activities.

"Sequel to the exposure draft document, the CBN is issuing the following rules and guidelines: Regulation on Scope of Banking Business. This is to repeal the universal banking regime and require banks to divest from all non-banking business.

"The guideline defines the new types of banking licences, permitted activities and transition time-lines for restructuring. - Special banks/institutions like the Primary Mortgage Institutions, Micro-finance Banks, Non-Interest Banks, Development Banks and Discount Houses shall continue to perform their specialised roles within the framework of existing guidelines.

"In line with the above, all existing universal banks are required to prepare and submit to the CBN their plans on ensuring compliance with the requirements of the new banking regime not later than 90 days from October 4, 2010.

Banks are advised to note that the overall responsibility for ensuring that banking entities comply with stipulated guidelines lie with their board and management.

"The CBN, however, reserves the right to stipulate additional requirements covering the organisation of banking groups, prior to granting any approval or authorisation."

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