CBN to license rescued banks as national or regional banks

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By Omoh Gabriel, Business Editor
LAGOS—INDICATIONS emerged, yesterday, that some of the rescued banks may be licensed as national or regional banks when the CBN begins its new universal banking scheme.

It was learnt that many of the banks may not be able to gather enough capital to meet the proposed capital base for banks wishing to operate at the national and international arena going by the bickering at both the board and management of the rescued banks.

A senior official of the apex bank who said that the proposal was still receiving inputs before it becomes official policy said that instead of cooperating with the apex bank for the early recapitalisation of their banks, some of the major shareholders and other stakeholders of the rescued banks were still in court and dragging back the process.

Most of the rescued banks already have several outlets or subsidiaries in Africa and in Europe. If they procure national or regional banking licence when the exercise begins, they will have to close up their subsidiaries outside the country.
Last Friday, the Central Bank of Nigeria, CBN, released a draft proposal of its new capital base for the three categories of banks that may be licensed soon. The draft proposal indicates that banks that will operate as national banks will maintain the current N25 billion minimum capital base, while those that will operate as international banks will be required to have a minimum capital base of N 100 billion.

Banks that will operate as regional banks will have a minimum capital base of N15 billion.

According to the review proposal, regional banks will be allowed to operate within a geographical scope of a minimum of five and a maximum of ten contiguous states and must have the word “regional bank” attached to their names.

Key prudential requirements

Key prudential requirements of capital adequacy, minimum qualifying capital to risk weighted assets ratio is pegged at 10 per cent, with a regulatory lending limit single obligor limit of not more than 20 per cent of share holders funds, SHF.

Similar to national banks, key prudential requirements permissible for these banks include: Taking current, savings and term deposits, provision of finance or credit facilities, dealing in foreign exchange, and acting as a settlement bank.

While regional banks may take deposits and perform the above functions, they cannot act as settlement banks. CBN definition of a commercial bank in the proposed arrangement is “any bank whose business includes the acceptance of deposits withdrawable by cheque (BOFIA 1991 as amended)

The CBN stated in a draft circular signed by J. O. Ajewole, Ag. Director of Banking Supervision, that: “As part of its strategic initiatives for reforming the Nigerian financial system to enhance the quality of banks, ensure financial system stability and promote the evolution of a healthy financial sector, the Central Bank of Nigeria, is currently reviewing the Universal Banking Policy. In this regard, a draft “Review of Universal Banking Model” is hereby released as exposure draft to the industry for comments/inputs.

Requirements for non-core banking businesses

“CBN also anticipates that some banks/banking group may wish to retain non-core banking businesses. For these, it will be a requirement to do the following: 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.

Such a company will have 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.”

Features of the permitted HoldCo arrangement are that subsidiary banks will be licensed and regulated by the CBN.  The operating sub-company, non-bank subsidiaries of HoldCo, will be licensed and regulated by the relevant functional regulator; Holding company will be licensed by the CBN as an Other Financial Institution, OFI, under BOFIA and that HoldCo will be domiciled in Nigeria.

Vanguard gathered that to implement the new licensing regime, the CBN will have to replace the existing universal banking license with a new licence which terms will be restricted to the nature of the bank’s specific activities. The banking licences available to replace the current universal banking license are mono-line banking, commercial banking, national banks, regional banks, non interest banking, micro-finance and primary mortgage institutions.

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