The Process And Types Of Banking License In Nigeria – Finance and Banking


Nigeria:

The Process And Types Of Banking License In Nigeria


To print this article, all you need is to be registered or login on Mondaq.com.

Banking licenses in Nigeria are issued by the Central
Bank of Nigeria (CBN).
The CBN was established by the
Central Bank of Nigeria Act 2007. It is charged with the duty of
supervisions and regulations of banks and other financial
institutions.

The purpose of the application and issuance of a banking license
is to ensure that no person can carry out banking operations
legally in Nigeria without being issued and granted a valid banking
license under the Banks and other Financial Institution Act (BOFIA)
2020.

Essentially, there are three classes or categories of banks that
can obtain licenses from the CBN. These types of banks are;

  • Commercial Banks.

  • Merchant Banks.

  • Specialized Banks.

In this write-up, we will highlight the requirements to process
licenses for each category of banks stated above.

  • Commercial Banking License

This category of banking license is issued for banking
operations on National Commercial Level, Regional, or International
authorization basis. The minimum paid-up share capital to be
maintained for National level banking license is N25 Billion Naira,
or any such amount that may be prescribed by the CBN, while for
Regional Banking License is N10 Billion Naira and International
Commercial Banking License is N50 Billion. To obtain the commercial
banking license, the banking operators are to comply with all the
prudential guidelines and regulations issued by the CBN on the
required level of capital adequacy, liquidity, and cash
reserve.

The license confers on the bank operators the authority to
undertake the following business transaction;

  • Take deposits and maintain current savings accounts from
    natural (individuals) and legal persons (companies).

  • Provide retail banking services including mortgage
    products.

  • Provide financial and credit facilities.

  • Deal in foreign exchange and provide foreign exchange services,
    which will be subject to the bank having a foreign exchange
    authorized dealership license and any other law and CBN
    Regulations.

  • Act as a settlement bank subject to CBN approval.

  • Provide treasury management services which include the
    provision of money market, fixed income, and foreign exchange
    investment on behalf of clients, which is also subject to the
    approval of the Central Bank.

  • Provide custodial services.

  • Provide financial advisory services relating to commercial
    banking business which do not require statutory filings with the
    securities and exchange commission (SEC)

  • Invest in non-convertible debt instruments and enter into
    derivative transactions subject to the approval of the CBN and
    permitted under the CBN directives and circulars.

  • Provide non-investment banking services subject to the approval
    of the CBN.

  • Undertake fixed income trading, where duly licensed to act as a
    Primary Dealer Market Maker to trade in securities such as Federal
    Government bonds, treasury bills, treasury certificates, and such
    other certificates as may be prescribed by the CBN.

  • Any other activities that may be prescribed by the CBN in
    writing from time to time.

A commercial bank with regional banking authorization is
entitled to carry on its baking business operations within a
minimum of six (6) and a maximum of twelve (12) States of the
Federation, which lies within not more than two (2) geographical
zones of the Federation as well as within the Federal Capital
Territory. While a commercial bank with national banking
authorization is entitled to carry on its banking business
operations in every State of the Federation and finally a
commercial bank with international banking authorization is
entitled to carry on its banking business operations within all
States of the Federation as well as maintain an offshore banking
operation in the jurisdiction of its choice, which will be subject
to the approval of the Central Bank of Nigeria and compliance with
the regulatory requirement of the host country.

  • Specialized Banking License

This type of banking license applies to special banks which
include non-interest banks, microfinance banks, development
financial institutions, mortgage banks, and any other banks
designated by the CBN. It is issued in line with the Minimum
Standards for Specialized Institutions Regulations No.03 2010. The
minimum paid-up share capital for setting up such banking
institutions is illustrated in the table below.










Types of Institution

Minimum Paid-up Share capital

Non-interest bank (regional)

N5 Billion

Non-interest bank (national)

N10 Billion

Primary Mortgage Institution

N5 Billion

 

This type of banking license is regulated by the Merchant Banks
Regulations 2010. The license is issued by the Governor of the CBN
upon the fulfilment of terms and condition authorizing the
operation of a merchant bank. The merchant banks allow such a
financial institution to provide specialist services such as
wholesale banking and investment banking services. The bank offers
commercial loans, investment, and advisory services to large firms
and high net-worth individuals in Nigeria and not to the general
public. The CBN regulates the banking activities of the merchant
bank.

The minimum paid-up share capital required for a merchant
banking license is N15 Billion naira or any other amount that would
be prescribed by the CBN. The license gives the bank the authority
as provided under Part 2 of the Merchant Banks Regulations,
2010
to;

  • Take deposits and maintain current savings accounts from
    natural and legal persons at least N100 Million per tranche or any
    other minimum amount that may be prescribed by the CBN;

  • Provide finance and credit facilities to non-retail
    customers;

  • Dealing in foreign exchange and provide foreign exchange
    services subject to the provision of the foreign exchange
    (Monitoring and Miscellaneous Provisions) Act and CBN
    regulations;

  • Act as an issuing house for managing, arranging, coordinating
    the issuance of securities, subject to the provisions of
    BOFIA;

  • Provide underwriting services for equity issuance of
    securities, subject to the provisions of BOFA and prior
    notification in writing to the CBN;

  • Provide debt factory services;

  • Issuing, discount, and rediscount negotiable instruments;

  • Provide treasury management services including the provisions
    of money market, fixed income, and foreign exchange investment on
    behalf of clients.

  • Provide custodial services;

  • Engage in trading of fixed income securities, where duly
    licensed to act as a Primary Dealer/ Market Maker to trade
    securities such as Federal Government bonds, treasury bills,
    treasury certificates, and any other debt certificates as may be
    prescribed by CBN;

  • Engage in proprietary trading such as an investment in debt
    instruments of any person, investing in equity or hybrid equity
    instruments subject to BOFIA and CBN rules and guidelines;

  • Provide asset management services, including fund and portfolio
    management services, act as a dealer of securities for its account
    and the account of its clients or otherwise make or manage
    investments on behalf of clients.

  • Provide financial consulting and advisory services relating to
    corporate and investment matters for a fee;

  • Such other activities that may be prescribed in writing by the
    CBN from time to time.

The merchant bank is instrumental in investing majorly in wealth
and assets management and also to raise funds for companies.

In closing, for banks to operate legally in Nigeria, it must
possess a valid license issued by the CBN in line with the Banks
and other Financial Institutions Act (BOFIA). The banks or
licensees are to ensure that they comply with all corporate
governance standards that may be prescribed by the CBN and all
other relevant regulatory authorities in Nigeria.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

POPULAR ARTICLES ON: Finance and Banking from Nigeria

Revised Banking Law In Nigeria – Bofia 2020

Pavestones Legal

In response to the significant developments in the financial sector, President Muhammed Buhari on the 12th of November 2020 signed the Banks and Other Financial Institutions Act 2020 (“2020 BOFIA”) into Law.