Reclassification-Seeking Banks Are Prohibited From Entering New Transactions

BVN Watch List

Yesterday, the Central Bank of Nigeria (CBN) released broad instructions on the procedures, criteria, and expectations for commercial, microfinance, and main mortgage banks seeking license conversion or reclassification.

The director of the financial policy and regulation department, Chibuzo Efobi, signed the regulatory guidance. It also applies to merchant, non-interest, and payment service banks that apply to the CBN for a change in business line.

The documents state that while the application is being considered, operators who have requested for conversion of the licence category are not permitted to increase, decrease, roll out new products, or engage in new strategic banking activities.

Nonetheless, the CBN stressed that the regular payment of rights and duties will continue up until final execution in accordance with the current terms and conditions.

Additionally, once the conversion process has started, the applicants are not allowed to make any new business decisions “unless in accordance with the bank’s conversion strategy provided to the CBN.”

It’s possible that an applicant for a change of license, regardless of the category, is required to demonstrate proof of IT infrastructure as a necessary prerequisite for considering an entry due to the growing relevance of digital payment support.

The CBN accelerated the implementation of its cashless policy while the naira underwent a redesign, leaving bank customers with Herculean tasks to complete when settling transactions through digital media in recent weeks.

Many depositors continue to visit banking facilities, ostensibly to resolve an upsurge in unsuccessful transactions brought on by subpar IT support.

The bank stipulated in its requirement: “Any bank or OFI seeking to change its licence type shall communicate its desire in writing to the Director of its current supervisory department. The application shall be accompanied by a business plan duly approved by the financial institution’s shareholders at an Annual General Meeting or Extra Ordinary General Meeting and the Board of Directors. It shall contain detailed processes, procedures, timelines and milestones regarding the proposed change.”

Applicants must be accompanied by documentation that demonstrates the board resolution, the justification for the change, the business case, the vision, mission, and strategy, the governance structure, the evidence of Shariah compliance (where applicable), and the framework for risk management. Financial projections and CBN clearances for any changes in management, the board, or shareholder ownership after the issuance of the current license are other topics that must be mentioned.

“As a requirement to the grant of final approval, the CBN shall conduct an inspection of the premises and facilities to ascertain their suitability or otherwise and confirm the authenticity of all relevant documents submitted by the bank or OFI (where applicable).”

“A bank or OFI that converted to another licence type shall, through a letter, inform the relevant supervisory department of the CBN of its readiness to commence operations and such information shall be accompanied by one copy each of the following: opening statement of affairs signed by external auditors and at least two directors with their names and designation and minutes of a pre-commencement board meeting,” the bank said.

The document also included a list of particular standards for each category that an existing financial institution was converting to, including commercial, merchant, microfinance, payment service, and principal mortgage banks. The capitalization of their target categories and a readiness to follow the codes of conduct practice are among the requirements for candidates.

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