Banking Regulations In Nigeria


BANKING REGULATION IN NIGERIA 
This Banking Regulation guide provides a high level overview of the governance and supervision of banks, including legislation, regulatory bodies and the role of international standards, licensing, the rules on liquidity, foreign investment requirements, liquidation regimes and recent trends in the regulation of banks. 
Aim of Regulation 
The objectives of Financial Regulation are usually” 
Market confidence – to maintain confidence in the financial system 
Financial stability – contribute to the protection and enhancement of stability of the financial system 
Consumer protection – securing the appropriate degree of protection for consumers  
Structure of Supervision  
Acts empower organizations, government or non-government, to monitor activities and enforce actions.  There are various setups and combinations in place for the financial regulatory structure around the globe. 
Supervision of stock exchange 
Exchange acts ensure that trading on the exchange is conducted in a proper manner.  Most prominent the pricing process, execution and settlement of trades direct and efficient trade monitoring. 
Supervision of listed companies 
Financial regulators ensure that listed companies and market participants comply with various regulations under the trading acts.  The trading acts demands that listed companies publish regular financial reports ad hoc notifications or directors’ dealings.  Whereas market participants are required to publish major shareholder notifications.  The objective of monitoring compliance by listed companies with their disclosure requirements is to ensure that investors have access to essential and adequate information for making an informed assessment of listed companies and their securities. 
Supervision of investment management  
Asset management supervision or investment acts ensure the frictionless operation of those vehicles 
Supervision of banks and financial services providers 
Banking acts lay down rules for banks which they have to observe when they are being established and when they are carrying on their business.  These rules are designed to prevent unwelcomed developments that might disrupt the smooth functioning of the banking system.  
Thus, ensuring a strong and efficient banking system. 
Legislation and regulatory authorities 
Legislation 
1. What is the legal framework for banking regulation? 
The primary legislation for the regulation of banks in Nigeria is the Banks and Other Financial Institutions Act (BOFIA) which, with the Central Bank of Nigeria (Establishment) Act 2007 (CBN Act), gives the Central Bank of Nigeria (CBN) powers to supervise and regulate banks and other financial institutions in Nigeria. Other relevant legislation includes the: 
Companies and Allied Matters Act (Cap 59, Laws of the Federal Republic of Nigeria 1990 (CAMA), which regulates companies generally. 
Nigerian Deposit Insurance Corporation Act, which is responsible for insuring all deposit liabilities of licensed banks. 
Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, which established the Autonomous Foreign Exchange Market and provides the regulatory framework for foreign exchange transactions in Nigeria. 
Regulatory authorities 
2. What are the regulatory authorities for banking regulation in your jurisdiction? What is the role of the central bank in banking regulation? 
Lead bank regulators 
The lead bank regulator is the Central Bank of Nigeria (CBN) which was established by the Central Bank of Nigeria (Establishment) Act (CBN Act). 
The principal objectives of the CBN are to (section 2, CBN Act): 
Ensure monetary and price stability. 
Issue legal tender currency. 
Maintain external reserves to safeguard the international value of the currency. 
Promote a sound financial system. 
Act as banker and provide economic and financial advice to the Federal Government. Under the Banks and Other Financial Institutions Act (BOFIA), the CBN is responsible for granting banking licences to carry on the business of banking and for supervising and regulating banks and other financial institutions. 
The CBN is also responsible for the supervision and monitoring of the Autonomous Foreign Exchange Market and has the power to issue guidelines under the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act. The CBN regularly issues circulars and guidelines in line with its oversight responsibilities over banks, other financial institutions and the foreign exchange market. 
The CBN also has the powers to intervene when as a result of its various examinations and supervisory powers it considers that a bank is failing by directing that the management and control of the bank should be turned over to the Nigerian Deposit Insurance Corporation (NDIC) (see Question 23). 
Other authorities 
The Monetary Policy Committee. The Monetary Policy Committee (MPC) was established pursuant to section 12 of the CBN Act. The role of the MPC is to facilitate price stability and to support the economic policy of the Federal Government. The MPC is responsible for formulating monetary and credit policy for the Nigerian financial system. 
The Nigerian Deposit Insurance Corporation. The Nigerian Deposit Insurance Corporation (NDIC) is responsible for insuring all deposit liabilities of licensed banks and other deposit taking financial institutions operating in Nigeria and assisting monetary authorities in formulating and implementing banking policy to ensure sound banking practice and fair competition among financial institutions. 
Central bank 
See above, Lead banking regulators. 
Others 
The Corporate Affairs Commission (CAC). Under the Companies and Allied Matters Act, the Corporate Affairs Commission has regulatory powers over all registered companies in Nigeria including banks and other financial institutions particularly in respect of certain statutory filings required by them. 
The Financial Reporting Council of Nigeria. The Financial Reporting Council of Nigeria (FRCN) was established under the Financial Reporting Council of Nigeria Act and has the powers to enforce compliance with accounting, auditing, corporate governance and financial reporting standards. 
The FRCN also develops and publishes accounting and financial reporting standards for the preparation of financial statements of public interest entities, which includes banks and other financial institutions (see Question 6). 
Financial Services Regulations Co-ordinating Committee. The Financial Services Regulations Co-ordinating Committee was established by the CBN Act to co-ordinate the supervision of financial institutions and to articulate the strategies for the promotion of safe, sound and efficient practices by financial intermediaries. 
The members of the Financial Services Regulations Co-ordinating Committee are: 
The Governor of the CBN, who chairs the committee. 
The Managing Director of the NDIC. 
The Director-General of the Securities and Exchange Commission (SEC). 
The Commissioner for Insurance. 
The Registrar-General of the CAC. 
A representative of the Federal Ministry of Finance not below the rank of a Director. 
Auditors. The role of auditors (internal and external) include financial checks, operational accounting, evaluation and reviewing of the system of internal control of the banks to ensure they are in line with the applicable standards set by the CBN and other regulatory authorities. 
Bank licences 
3. What licence(s) are required to conduct banking services and what activities do they cover? 
No person is permitted to carry out any banking business unless it is a company duly incorporated in Nigeria and holds a valid banking licence issued under the Banks and Other Financial Institutions Act (BOFIA). 
A banking licence is issued by the Central Bank of Nigeria (CBN) and authorises a company duly incorporated in Nigeria to carry on banking business in the country. A banking licence can be a commercial banking licence, merchant banking licence or a specialised banking licence, as follows: 
Commercial banking licence. This licenses commercial banking operations on a national, regional or international basis and authorises banks to (paragraph 3, CBN Scope, Conditions and Minimum Standards for Commercial Banks Regulations No 01, 2010): 
o take deposits and maintain current and saving accounts from natural and legal persons; o provide retail banking services, including mortgage products; o provide finance and credit facilities; 
o deal in foreign exchange and provide foreign exchange services, subject to such a bank having a Foreign Exchange Authorised Dealership Licence; 
o act as a settlement bank, subject to CBN approval; o provide treasury management services including but not limited to the provision of money market, fixed income, and foreign exchange investment on behalf of clients, subject to the approval of the CBN; 
o provide custodial services; o provide financial advisory services incidental to commercial banking business which do not require regulatory filings with the Securities and Exchange Commission (SEC); 
o invest in non-convertible debt instruments and, subject to CBN approval, enter into derivative transactions permitted under CBN circulars and directives; 
o undertake fixed income trading, where duly licensed to act as a primary dealer or market maker to trade in securities such as federal government bonds, treasury bills, treasury certificates; o provide non-interest banking services subject to CBN approval. 
o other activities prescribed in writing by the CBN. 
Merchant banking licence. This licence allows financial institutions to provide specialist services such as wholesale banking or investment banking services as set out in guidelines made under the CBN Scope, Conditions and Minimum Standards for Merchant Banks Regulations No. 02, 2010. Activities permitted by a merchant banking licence include: 
o taking deposits from any natural or legal person of at least NGN100 million per tranche, or such other minimum amount prescribed by the CBN; 
o providing finance and credit facilities to non-retail customers; 
o dealing in foreign exchange and provide foreign exchange services, subject to the requirements of the Foreign Exchange (Monitoring & Miscellaneous Provisions, etc) Act and CBN Regulations made under it; 
o acting as issuing house, or otherwise managing, arranging or coordinating the issuance of securities, subject to the provisions of BOFIA; 
o providing underwriting services for issuance of securities, subject to the provisions of 
BOFIA and to prior notification in writing to the CBN; o providing treasury management services including money market, fixed income and foreign exchange investment on behalf of clients; 
o providing financial, consultancy and advisory services relating to corporate and investment matters; 
o providing asset management services, including fund and portfolio management services, act as a dealer of securities for its own account, and for clients, or otherwise make or manage investments on behalf of clients; 
o engaging in proprietary trading, such as investing in debt instruments, equity or hybridequity instruments, subject to the provisions of BOFIA and CBN rules, and guidelines; 
o trading in fixed income securities, where duly licensed; o providing custodial services; o issuing, discount and rediscount negotiable instruments; o providing debt factoring services; o any other activities prescribed in writing by the CBN. 
Specialised banking licence. Specialised banks include non-interest banks, microfinance banks, development banks, mortgage banks and any other banks designated by the CBN. 
Foreign Exchange Authorised Dealership Licence. This is issued by the CBN and permits the holder to deal in foreign currency and provide foreign exchange services in the Nigerian foreign exchange market subject to the requirements of the Foreign Exchange (Monitoring & Miscellaneous Provisions, etc.) Act among others and CBN Regulations made under it. 
Certificate of Registration as a Capital Market Operator. This is issued by the Securities and Exchange Commission (SEC) and permits the holder to operate in the Nigerian capital market and carry on investments and securities business in Nigeria. However, a bank licensed as a commercial bank cannot be registered as a capital market operator, while a merchant bank can be so registered. 
4. What is the application process for bank licences? 
Application 
The process for applying for banking licence is in two phases, namely: 
Applying for the grant of approval in principle. 
Applying for the grant for a final banking licence. 
Grant of approval in principle: An application for banking licence should be addressed to the Director of Banking Supervision Department at the Central Bank of Nigeria (CBN) and submitted with the following: 
Non-refundable application fee of NGN500,000. 
Deposit of the applicable minimum capital with CBN, with evidence of deposit by each shareholder. 
Feasibility report of the proposed bank including the ownership structure of the proposed investors and percentage of their proposed shareholdings, the objectives of the proposed banks, services to be rendered, the branch expansion programme and a five-year financial projection. 
List of shareholders, directors and principal officers of the proposed bank and their particulars. 
Shareholders Agreement (where applicable). 
Statement of intent by the promoters to invest in the bank. 
Technical Services Agreement (where applicable). 
Any other documents/information that may be demanded by the authority. 
Grant of final licence. Not later than six months after the grant of the approval in principle, the promoters of a proposed bank must submit an application for the grant of a final banking licence to the Director of Banking Supervision, CBN with following documents: 
Non-refundable licensing fee of NGN5 million in bank draft payable to CBN. 
Three copies each of: 
o certified copy of certificate of incorporation of the bank; o certified copy of the memorandum of association; o certified copy of Forms CO2 (allotment of shares) and CO7 (particulars of directors). 
Evidence of location of head office or branch building (rented or owned) for the take-off of banking business. 
Changes (if any) in the board, management and shareholding must be clearly stated for necessary appraisal. 
Evidence of strong room, loading bay and banking hall facilities. 
Bullion lorries with necessary security equipment. 
Evidence of IT facilities/computerisation. 
Copies of letters of offer and acceptance of employment in respect of the management team. 
Requirements 
Minimum paid up capital requirement. The minimum paid-up capital requirements for the different categories of banks are as follows: 
Regional commercial banking licence: NGN10 billion or other prescribed amount. 
National commercial banking licence: NGN25 billion or other prescribed amount. 
International commercial banking licence: NGN50 billion or other prescribed amount. 
Merchant banking licence: NGN15 billion or other prescribed amount. 
For an applicant meeting all the requirements, the Governor of the CBN may issue a licence with or without conditions, or refuse to issue a licence and does not need to give any reasons for his refusal. 
An applicant must submit all documents for both stages of approval as set out above (see Application). 
Foreign applicants 
A foreign applicant must incorporate a company in Nigeria, apply for a business permit, register with the Nigerian Investment Promotion Commission and obtain a banking licence. 
Timing and basis of decision 
The BOFIA is silent on the timelines for the grant of a banking licence. The CBN makes its decision on the basis of the information provided by the applicants and based on its independent examination of the applicant. An applicant for a banking licence must provide evidence that it meets all the requirements for the grant of a licence. 
As stated, the CBN can refuse to issue a licence and need not give any reason for its refusal. 
Cost and duration 
The applicant pays an initial non-refundable fee of NGN500,000 for an approval in principle and a non-refundable licensing fee of NGN5 million at the final approval stage. 
There are no renewal fees charged by the CBN for licences except for the foreign exchange authorised dealership licence which is subject to an annual renewal fee. A banking licence is not issued subject to any time limits, but the CBN may suspend or revoke a licence if it is satisfied that the bank: 
Ceases to carry on the type of banking business for which the licence was issued for any continuous or aggregate period of six months during a continuous period of 12 months. 
Goes into liquidation or is wound up or otherwise dissolved. 
Fails to fulfil or comply with any condition subject to which the licence was granted. 
Has insufficient assets to meet its liabilities. 
Fails to comply with any obligations imposed on it by or under the Banks and Other Financial Institutions Act (BOFIA) or the Central Bank of Nigeria (Establishment) Act, 2007 (CBN Act). 
Fails to comply with the minimum capital ratio prescribed by the CBN. 
5. Can banks headquartered in other jurisdictions operate in your jurisdiction on the basis of their home state banking licence? 
Nigeria does not have a framework similar to the passporting rights available to financial or credit institutions operating within the European Union. A foreign bank cannot carry out banking services in Nigeria unless it has incorporated a local entity and obtained a valid banking licence. 
There are no exemptions from licensing requirements available to foreign banks who wish to carry on banking business in Nigeria. However, foreign banks may open representative offices in Nigeria subject to obtaining the prior approval of the Central Bank of Nigeria (CBN) provided that such representative offices will not be licensed to carry out banking activities in Nigeria and will only be permitted to act as liaison offices for the customers of the foreign bank and to carry out research activities. 
Forms of banks 
6. What forms of bank operate in your jurisdiction, and how are they generally regulated? Does the regulatory regime distinguish between different forms of banks? 
State-owned banks 
The Central Bank of Nigeria (CBN) generally regulates all banks in Nigeria and regularly issues guidelines, circulars and directives regulating each of the different types of banks. 
The only state-owned banks are the Developmental or Specialised Financial Institutions which include: 
Bank of Industry. 
Federal Mortgage Bank of Nigeria. 
Bank of Agriculture. 
Nigeria Export Import Bank. 
The Infrastructure Bank. 
The National Economic Reconstruction Fund. 
The CBN issued the Regulatory and Supervisory Guidelines for Development Finance Institutions in Nigeria in February 2015 to regulate Development Finance Institutions. 
Universal banks, commercial and retail banks 
Under a Circular dated 4 October 2010, (on the Regulation on the Scope of Banking Activities and Ancillary Matters), the CBN repealed the Universal Banking Guidelines which had introduced a regulatory framework, whereby a licensed bank in Nigeria, could carry out all categories or types of banking activities. Pursuant to this circular, the CBN made it mandatory that the different types of banking activities needed to be done under different legal structures, thus a single legal entity could not carry out investment banking, merchant banking and commercial banking activities. 
The only banks permitted to carry on business in Nigeria under the Circular are commercial banks, merchant banks and specialised banks which include non-interest banks, micro finance banks, development banks and mortgage banks. 
The CBN also released the Prudential Guidelines for Deposit Money Banks in Nigeria, 2010 to regulate commercial banking activities in Nigeria. 
Investment banks 
The CBN Prudential Guidelines for Deposit Money Banks in Nigeria, 2010 also regulates investment and merchant banks in Nigeria. 
The Securities and Exchange Commission also has oversight and regulatory purview over investment banks in Nigeria, to the extent that it relates to their capital market activities. 
Other banks 
Other types of banks include: 
Micro-finance banks: regulated by the CBN pursuant to its Revised Regulatory and Supervisory Guidelines for Micro-finance Banks. 
Non-interest banks: regulated pursuant to the Guidelines for the Regulation and Supervision of Institutes Offering Non-Interest Financial Services in Nigeria. 
Primary mortgage banks: regulated pursuant to the Revised Guidelines for Primary Mortgage Banks in Nigeria. 
Regulation of systemically important financial institutions (SIFIs) 
The CBN's Framework for the Regulation and Supervision of Domestic Systematically Important Banks became effective on 1 March 2015. 
The main objective of the regulation is to create stronger risk management practices in Domestic Systemically Important Banks (D-SIBs) and reduce any systematic risks posed to the financial system in line with the requirement of the Basel Committee on Banking Supervision. 
Organisation of banks 
Legal entities 
7. What legal entities can operate as banks? What legal forms are generally used to operate as banks? 
Under the Banks and Other Financial Institutions Act (BOFIA) only companies duly incorporated in Nigeria can carry on banking business in Nigeria. This means that the company must be incorporated in accordance with Companies and Allied Matters Act (Cap 59, Laws of the Federal Republic of Nigeria 1990 (CAMA). 
Corporate governance 
8. What are the legislative and non-legislative corporate governance rules for banks? 
The CBN Code of Corporate Governance for Banks and Discount Houses is mandatory for all banks and discount houses (see Questions 9 and 10). 
The SEC Code of Corporate Governance for Public Companies also applies where the bank is a public company. 
Generally, there are no special rules on corporate governance that applies only to SIFIs. 
9. What are the organisational requirements for banks? 
All banks must have the following organisational systems and policies in place: 
Risk management framework specifying the governance architecture, policies, procedures and processes for the identification, measurement, monitoring and control of the risks inherent in its operations. 
Whistle-blowing policy containing mechanisms including assurance of confidentiality that encourage stakeholders to report any unethical conduct to the bank or the Central Bank of Nigeria (CBN). 
Code of Conduct committing the bank, board and management to the highest standards of professional behaviour, business conduct and sustainable business practices. 
Conflict of interest policy to guide the board in managing conflicts of interest. 
At the board level, the Code for Corporate Governance for Banks and Discount Houses requires each board to have a risk management and board audit committee headed by non-executive directors. 
SIFIs are among other things required to (Framework for the Regulation and Supervision for Systemically Important Banks): 
Carry out quarterly stress tests of their capital and liquidity the results of which must be reviewed by the CBN. 
Develop specific recovery plans to be submitted to the CBN and Nigeria Deposit Insurance Corporation by 1 January every year. 
Make monthly and quarterly reports to the CBN on their financial condition and risk management activities. 
10. What are the rules concerning appointment of auditors and other experts? 
The appointment of auditors for banks must be approved by the Central Bank of Nigeria (CBN) (CBN Code of Corporate Governance for Banks and Other Financial Institutions, 2014). External auditors must render reports to the CBN on banks' risk management practices, internal controls and level of compliance with regulatory directives. The Code stipulates that the tenure of auditors for any given bank is a maximum of ten cumulative years after which the auditor cannot be reappointed to audit the bank until after another ten consecutive years has expired. An audit firm must not provide audit services to a bank if one of the bank's senior officials (such as directors, chief finance officer, chief audit officer) was employed by the firm and worked on the bank's audit in the immediate past two years. 
There are no special rules for SIFIs. 
11. What is the supervisory regime for management of banks? 
The Central Bank of Nigeria’s (CBN) Revised Assessment Criteria for Approved Persons' Regime for Financial Institutions (issued in October 2015) specifies the minimum requirements for candidates occupying or intending to occupy management positions in banks, discount houses, development finance and other financial institutions. 
There are no special rules applicable only to SIFIs. 
12. Do any remuneration policies apply? 
Every bank is required to have a remuneration policy, which is established by the Board of 
Directors of that bank, and disclosed to the shareholders in the bank's annual report (paragraph 2.7, CBN Code of Corporate Governance for Banks and Discount Houses in Nigeria). The levels of remuneration must be sufficient to attract, retain and motivate executive officers of the bank while not amounting to excessive remuneration. Banks must also have a committee of non-executive directors who determine the remuneration of executive directors. 
Executive directors do not receive sitting allowances and directors' fees. 
Non-executive directors' remuneration is limited to director's fees, sitting allowances for board and board committee meetings and reimbursable travel and hotel expenses. Non-executive directors are not entitled to receive benefits, salaries and so on whether in cash or in kind, other than those mentioned above. 
There are no special rules applicable only to SIFIs. 
13. What are the risk management rules for banks? 
Every bank must have a committee responsible for oversight of risk management and audit functions (paragraph 2.5.1, CBN Code of Corporate Governance for Banks and Discount Houses). The board risk management committee must include two non-executive directors and the executive director in charge of risk management but chaired by a non-executive director. 
Every bank must have a risk management framework specifying the governance architecture, policies, procedures and processes for the identification, measurement, monitoring and control of the risks inherent in its operations. 
The board of directors of the bank is responsible for preparing the bank's risk management framework and has overall responsibility for the implementation of the bank's policies on risk management and must satisfy itself that the bank’s management has developed and implemented a sound system of risk management and internal control. 
In addition, the Companies and Allied Matters Act (CAMA) provides that all public companies must have audit committees consisting of an equal number of directors and shareholders representatives (subject to a maximum number of six members) which are responsible for examining the auditor's report. Members of the audit committee are not entitled to any remuneration for the discharge of their responsibilities and members of the committee and are subject to re-election annually. This only statutorily applies to only a bank that is a public company. 
There are no special rules applicable only to SIFIs. 
Liquidity and capital adequacy 
Role of international standards 
14. What international standards apply? How have they been incorporated into domestic law/regulation? 
On December 10 2013, the Central Bank of Nigeria (CBN) issued guidance notes for the implementation of Basel II/III in Nigeria (Guidance notes on Regulatory Capital Measurement and Management for the Nigerian Banking System (Basel Guidance Notes)). 
The Basel Guidance Notes sets out basic approaches to be adopted by banks for the computation of credit risk, market risk and operational risk. 
The Framework for the Regulation and Supervision of Domestic Systemically Important Banks in Nigeria was also issued in the light of the Basel Committee on Banking Supervision (BCBS) and the Financial Stability Board (FSB) developing a framework for Domestic Systemically Important Banks (D-SIBs) and Global Systemically Important Financial Institutions (G-SIFIs). The implementation of the Basel II/III standards by the CBN in Nigeria is an ongoing process and a target date for full implementation of the Basel III standards is yet to be set. 
Main liquidity/capital adequacy requirements 
15. What liquidity requirements apply? 
The Central Bank of Nigeria (CBN) is responsible for prescribing the minimum liquidity ratio for banks in Nigeria from time to time in line with its monetary policy's directions. SIFIs must comply with the minimum liquidity ratio requirement for banks. 
There are no special rules applicable only to SIFIs. 
16. Is a leverage ratio applicable? 
Banks must maintain healthy leverage ratios to ensure their ability to meet financial obligations (Guidance Notes on the Calculation of Regulatory Capital issued by the CBN). Specifically, Development Finance Institutions (DFIs) must maintain a minimum ratio of Tier 1 capital to total assets at 5% (paragraph 8.1.3, Regulatory and Supervisory Guidelines for Development Finance Institutions). 
17. What is the capital adequacy framework that applies for banks? 
All banks must apply the rules in the Central Bank of Nigeria (CBN) Guidance notes on Regulatory Capital (which govern the capital adequacy levels of all banks) for assessment of qualifying capital. 
The Framework for Regulation and Supervision of Domestic Systematically Important Banks sets out additional regulatory requirements for capital adequacy ratios for SIFIs. 
SIFIs must also set aside an additional loss absorbency or additional capital surcharge of 1% to their respective minimum required capital adequacy ratio. 
The aim of the additional loss absorbency requirement is to ensure that the SIFIs have a higher share of their balance sheet funded by instruments that reinforce the resilience of the institution as a going concern. 
Consolidated supervision 
The Central Bank of Nigeria (CBN) released a draft framework for the Consolidated Supervision of Banks in Nigeria in 2007 and requested for comments from the public or relevant persons that would be affected. The draft framework is not yet effective and is yet to be published as a substantive regulation. 
However, the CBN in line with its objective of promoting a sound financial system in Nigeria supervises banks and other financial institutions in Nigeria. This is done in conjunction with other stakeholders in the banking industry including the Securities and Exchange Commission (SEC). 
International co-ordination and co-operation 
19. To what extent is there co-operation with other jurisdictions? 
Nigeria, through the Central Bank of Nigeria (CBN), has signed up to a number of international standards, such as the Financial Action Task Force (FATF) Recommendations on Combating Money Laundering and the Financing of Terrorism and Proliferation. 
In 2010, the CBN signed a strategic partnership memorandum of understanding with Bank Negara (the Central Bank of Malaysia) to share expertise and exchange relevant information in the areas of: 
Banking Supervision. 
Small and Medium Enterprises (SMEs). 
Microfinance. 
Islamic Finance. 
Monetary Policy. 
Development Finance Institutions. 
External Reserve Management. 
Institutional arrangement for financial crisis management and resolution. 
Foreign Exchange Administration. 
Performance Management and Corporate Strategy. 
Leadership Development and Talent Management. 
Shareholdings/acquisition of control 
Shareholdings 
20. What reporting requirements apply to the acquisition of shareholdings in banks? 
The acquisition of an equity holding of 5% and above by any investor in a bank is subject to Central Bank of Nigeria (CBN's) prior approval (paragraph 3, Code of Corporate Governance for Banks and Discount Houses in Nigeria). Where such shares are listed securities and are acquired through the stock exchange, the bank must apply for a no objection letter from the CBN immediately after the acquisition. No single shareholder can acquire more than 5% in the share capital of any bank without the approval of CBN. 
The approval of the Securities and Exchange Commission (SEC) is required for the acquisition of controlling interest in the shareholding in banks. 
Further, to discourage government (including its agencies) from having majority shareholding in banks, government's equity holding in any bank is limited to 10%. 
21. What approval requirements apply to the acquisition of shareholdings and of control of banks? 
The Code of Corporate Governance for Banks and Discount Houses in Nigeria states that an equity holding of 5% and above by any investor will be subject to Central Bank of Nigeria (CBN's) prior approval. Where such shares are listed securities and are acquired through the capital market, the bank must apply for a no objection letter from the CBN immediately after the acquisition. Where the CBN refuses to grant its “no objection” such shares will need to be sold. 
Further, to discourage government (including its agencies) from having majority shareholdings in banks, government's equity holding in any bank is limited to a maximum of 10%. 
The approval of the Securities and Exchange Commission (SEC) is required for the acquisition of controlling interest in the shareholding of a bank. 
Foreign investment 
22. Are there specific restrictions on foreign shareholdings in banks? 
Save for the requirement of the prior approval of the Central Bank of Nigeria (CBN) for the acquisition of an equity holding of 5% by any investor in a bank, there are no restrictions on foreign shareholdings in banks in Nigeria. 
Resolution 
23. What is the legal framework for liquidation of banks? 
The liquidation of banks is largely governed by the: 
Nigerian Deposit Insurance Corporation Act: this ensures that the liquidation process involves orderly and efficient closure of the failed institutions with minimum disruption to the banking system, cost-effective realisation of assets and settlement of claims to depositors, creditors and where possible, shareholders. 
Companies and Allied Matters Act: this sets out the qualifications of a receiver and the procedure for the appointment of a receiver. 
Banks and Other Financial Institutions Act: this Act approves the control of a failing bank by the Nigerian Deposit Insurance Corporation (NDIC). 
Investment and Securities Act: empowers the Securities and Exchange Commission (SEC) to intervene before an intermediary becomes insolvent or when effectively insolvent. 
24. What is the resolution regime for banks? 
Section 36 of Banks and Other Financial Institutions Act (BOFIA) empowers the CBN to intervene when a bank is failing and to turn over the management and control of the bank to the Nigerian Deposit Insurance Corporation (NDIC). 
Where a bank is failing or its licence has been revoked, the Nigerian Deposit Insurance Corporation will take over the management and act as liquidator of the bank (sections 38 and 41, NDIC Act). When this occurs, the powers of the NDIC include: 
directing specific changes in the management of the bank. 
arranging a merger with or an acquisition by another insured institution. 
contracting to have deposit liabilities assumed by the other institution. 
The NDIC can also: 
Organise and incorporate a bridge bank (this bank will be issued a licence by the Central Bank of Nigeria (CBN)) to assume the deposits or liabilities and to purchase the assets of the failing bank. 
Realise the assets of the bank, enforce the liabilities of the shareholders and directors and wind up the bank. 
Generally, the NDIC Act provides that a bank in liquidation must pay its liquidation expenses first and then pay depositors and creditors. However, section 54 of the BOFIA gives statutory priority to local deposits over any other claims. 
The Standards on Total Loss-Absorbing Capacity (TLAC) requirements have been implemented in Nigeria as CBN's Guidance Notes on Supervisory Review Process. 
In the Supervisory Review and Evaluation Process (SREP), the CBN reviews and assesses the Internal Capital Adequacy Assessment Process (ICAAP), analyses the bank's own assessment of its risk profile, the corporate governance system as it relates to the ICAAP and the internal control system, and verifies overall compliance with prudential rules in calculating internal capital. 
Specifically, banks must conduct stress testing of their risk mitigation and control systems and, where necessary, the adequacy of their internal capital, to enhance the assessment of their exposure to risks. This is applicable to all bank structures in Nigeria. 
Regulatory developments and recent trends 
25. What are the regulatory developments and recent trends in bank regulation? 
Regulations for transactions with authorised dealers in renminbi 
The CBN and the People's Bank of China (PBoC) executed the PBoC-CBN Bilateral Currency Swap Agreement (BCSA). The swap agreement allows for both the CBN and the PBoC to make available liquidity in their respective currencies for the facilitation and promotion of trade and investments across the two countries, through the purchase, sale and subsequent repurchase and resale of the Chinese Yuan (CNY) against the Naira and vice versa. To achieve this, the CBN intends to conduct bi-weekly bidding sessions. The BCSA is for a maximum amount of CNY15 billion for NGN720 billion with a three- year tenor. 
Regulatory framework for the use of Unstructured Supplementary Service Data 
The CBN also recently introduced a regulatory framework for the use of Unstructured 
Supplementary Service Data (the USSD Framework) taking effect from 1 June 2018. The USSD Framework seeks to establish the rules and risk mitigation considerations that are required when implementing USSD for financial services offering in Nigeria. The USSD Framework is applicable to financial institutions, mobile money operators, mobile network operators, value added service providers/aggregators and customers. 
Mobile money operators are eligible for the issuance of USSD short codes from the Nigerian Communications Commission (NCC) after meeting the necessary requirements laid down by the NCC. However, in respect of CBN licensed entities other than mobile money operators, a letter of no-objection/introduction from the CBN is required before the entity can be considered for the issuance of the USSD short codes by the NCC, subject to meeting the requirements of the NCC. 
FMDQ Clear and Frontclear deliver clearing structure 
The collaboration between FMDQ Clear Limited (FMDQ Clear) and Frontclear is the culmination of a long-standing working relationship focused on improving the Nigerian OTC financial market functions and follows an initial introduction via the International Capital Market Association (ICMA), of which FMDQ is a full member and Frontclear is a long-standing partner. The FMDQ OTC Plc offers efficient workflows for clearing and ensuring finality of trade settlements through FMDQ's wholly-owned SEC-registered subsidiary FMDQ Clear Limited (FMDQ Clear). FMDQ Clear ensures seamless processes, from trading through to settlement of transactions. 
On 31 May 2018 FMDQ Clear and Frontclear signed an agreement to facilitate a clearing structure to strengthen the over-the-counter market liquidity with the support of a settlement guarantee fund. FMDQ Clear will be backed by Frontclear's core financial guarantee product, thereby improving the credit worthiness of participating counter-parties and reducing initial set-up costs. The Frontclear guarantee, will in practice, function like a settlement/credit guarantee fund typical to more developed financial markets. On the default of a clearing member, Frontclear guarantees any mark-to-market losses incurred by any other counterparty clearing or dealing member(s), up to a pre-agreed maximum amount. 
With this guarantee fund, FMDQ Clear can significantly improve access to a breadth of financial products such as interest rate and currency derivatives, and repurchase agreements (repos), especially for smaller dealing members who may have been previously excluded because of perceived counter-party credit risk. 
New monetary, credit, foreign trade and exchange policy guidelines 
The CBN issued the Monetary, Credit, Foreign trade and Exchange Policy Guidelines for the 2018 and 2019 fiscal years in January 2018 (2018/2019 MPC) with the primary objective of maintaining price stability and by extension, the sustenance of a stable financial system in Nigeria. The 2018/2019 MPC was issued to replace previous guidelines published in January 2016. 
As part of its policy measures, the CBN will adopt a proactive monetary policy stance which will involve the discretionary management of the bank's balance sheet. The Monetary Policy Rate (MPR) will continue to be the anchor rate for short-term interest rates and the Monetary Policy Committee (MPC) will regularly review the rate in response to prevailing liquidity conditions and other developments in the economy. 
The regulatory authorities 
Central Bank of Nigeria 
T +234 9 462 39701-02 
E info@cenbank.org 
W www.cbn.gov.ng 
Corporate Affairs Commission 
T +234-703-973-2889 
E cservice@cac.gov.ng 
W www.new.cac.gov.ng 
Securities and Exchange Commission 
T +234 (0) 94621100 
E sec@sec.gov.ng 
W http://sec.gov.ng/ 
Nigerian Deposit Insurance Corporation 
E nfo@ndic.gov.ng W https://ndic.gov.ng/ 
Online resources 
Central Bank of Nigeria 
W www.cbn.gov.ng 
Description. This website serves as the interface between the CBN, financial institutions (including banks), and the public. It contains all policies and circulars issued as well as current trends in the Nigerian banking sector. 
National Assembly| Federal Republic of Nigeria 
W www.nassnig.org/ 
Description. Maintained by the legislative arm of the Federal Republic of Nigeria, this contains all parliamentary documents such as Acts, Bills, Orders and Notice papers. 

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