Wednesday, September 09, 2020 04:42
PM / by Laoye Jayeola, CEO NESG Group/ Header Image
We refer to the Bill for an Act to repeal the Banks and Other Financial Institutions Act, 2004 and to re-enact the Banks and other Financial Institutions Act, 2020 ("the Bill") which we understand has been passed by the 9th National Assembly and has been forwarded to your Excellency for assent.
In line with Your Excellency's aggressive industrialization and investment agenda for Nigeria, and the focus of your administration on improving the Nigerian business climate, which has seen our country leapfrog several steps in the World Bank Doing Business Index, the Nigerian Economic Summit Group hereby respectfully wishes to bring to Your Excellency's attention, certain provisions in the Bill which, if not deleted or amended, may be inimical to the fulfillment of your mandate of formulating and implementing policies and programs which attract foreign and domestic investments, promote industrialization, increase trade and export, and develop enterprises in Nigeria, and thereby create an enabling business environment.
Your Excellency Sir, as you are aware the Nigerian Economic Summit Group ("the NESG") is a private sector think tank committed to the promotion of a globally competitive private sector economy. Since 2016 the NESG has been in a partnership with the Nigerian Bar Association - Section on Business Law working with the National Assembly Business Environment Roundtable (NASSBER) to initiate and review business, investment, and job creating laws in Nigeria. This collaboration established a platform for the private sector to support the legislature in its drafting, deliberations, discussions and review of laws that will improve Nigeria's business environment. It is expected that through this supportive work and resulting legislation, Nigeria's economy will achieve inclusive growth and sustainability, create jobs, and generally cater to the wellbeing of Nigerians.
Mr. President, it is in line with this mandate that we have worked with the Legislature and the Executive to enhance the quality of our laws and make Nigeria a prime investment destination, since 2015 shortly after you assumed office.
Against this background, Your Excellency, we bring to your attention several provisions of the Bill which we believe to be contentious, draconian and inimical to government's focus of creating an enabling business environment and level playing field attractive to both local and foreign investors.
Contentious Provisions in the Bill
From our review Sir, we have identified the following provisions which militate against Your Excellency's ongoing drive to improve Nigeria's ranking on the global ease of doing business index and or enable opaque discretion:
(a). Extension of Central Bank's regulatory oversight outside the scope of "banking business" - The Bill, under Section 2(5)(a) and (b) extends the scope of the Central Bank of Nigeria (CBN)'s regulatory oversight and licensing over and beyond the collection and solicitation of deposits from the general public. The section provides as follows:
"2(5) For the purposes of this Bill, a person shall be deemed to be receiving money as deposits and thus, conducting banking business -
(b) if the person receives moneys as deposits which are limited to fixed amounts, or for which certificates or other instruments are issued in respect of any such amounts providing for the repayment to the holder thereof either conditionally or unconditionally of the amount of the deposits at specified or unspecified dates, or for the payment of interest, dividend, profit or fees on the amounts deposited at specified intervals or otherwise, or that such certificates are transferable:"
Your Excellency, there are several activities in the business world where a company receives deposits as contemplated under section 2(5)(a and (b) of the Bill while not conducting banking business. This includes companies collecting money either as deposit for shares or loans notes, or such similar transactions. Accordingly, Your Excellency, we submit respectfully, that the section needs to be amended to align it with the intendment of the legislature which is to extend CBN's regulatory ambit only to all forms of banking business whether done electronically or otherwise without causing difficulties and interpretational issues for other forms of businesses or transactions, by its application. In this specific case, we suggest that the provisions be amended as suggested in the attached Schedule.
(b). Refusal to grant a banking license by the Governor: As currently drafted, Section 3(3) of the Bill gives the Governor of the CBN absolute powers to refuse to grant a banking license without giving any reasons whatsoever. Such enormous power goes against the grain of contemporary and good order regulatory oversight. We respectfully submit to Your Excellency that such powers might be considered by the investment community, operators and counter parties to be arbitrary and liable to abuse or be used to act in any manner the regulator sees fit, without check or balance or hindrance. This, we believe will discourage investment/participation in the banking industry - especially from serious investors - and affect the perception of Nigeria as a country where banking licenses are not granted on transparent principles. Good law making place constraints on a regulator's arbitrary power to do as he or she wishes without consideration for the impact on stakeholders and investing parties.
(c). Restriction of Nigerian banks from establishing relationships with certain foreign entities. Section 3(5) of the Bill attempts to restrict/prohibit Nigerian banks from establishing any relationship with a foreign bank or other entity which does not have a physical presence in its country of incorporation or which is not licensed in its country of incorporation and which is not affiliated to any financial services group that is subject to effective consolidated supervision. Your Excellency, we assume the intention, of the section is to prevent Nigerian banks from entering into banking or financial relationships with briefcase banks, which may adversely impact the financial stability of the bank with the systemic risk that this pose. While we agree with the mischief that this provision seeks to cure, we find it worrisome that the section does not take into cognizance that not all relationships between Nigerian banks and foreign entities are financial in nature or require that such foreign counterparty be affiliated to a financial services group. Some contractual relationships may be for administrative or other support, procurement of equipment, goods or services, all of which are caught by the provisions of the section, as currently drafted. This, in our view will seriously impact the ease and efficiency of doing business by Nigerian banks.
(d). Mergers and reconstruction by banks: Section 7(2) of the Bill provides a process for the restructuring of banks outside of the provisions of the recently enacted Companies and Allied Matters Act (CAMA), the Investment and Securities Act (for public limited liability banks) and the Federal Competition and Consumer Protection Act. In so doing, the Bill purports to give banks the right to call separate meetings to consider and approve mergers and restructurings. Under the provisions of section 711 of CAMA, these meetings are supervised and ordered by the Federal High Court, but the Bill proposes to dispense with the role of the Federal High Courts, which has worrisome implications. The reason these meetings are placed under the ambience of the Court is that decisions taken at such meetings tend to have the effect of infringing on shareholders' fundamental rights to property. Supervision and sanctioning of the process by the Courts ensures that the meetings are properly, effectively and fairly held. In addition, only the Courts or statute can by specified process alter each individual's right to their property. Accordingly, decisions taken at Court ordered meetings of shareholders are thereafter taken back to the Court for review and sanction, thus giving them force of law. To do otherwise would be a breach of fundamental human rights and thus unconstitutional. Since the CBN as the sector regulator would always have the first right to object to such a merger, reconstruction or arrangement, as the case may be, and the Bill has made provisions for CBN's right of review and objection, the sanctioning procedure must remain as specified under CAMA.
(e). Licensing of foreign banks: Section 8 (2) appears to suggest that the CBN may grant a licence to foreign banks to undertake domestic or offshore banking business within a designated free trade or special economic zone in Nigeria. This section is confusing to us, as under Nigerian law - including Section 2(b) of the Bill - a licence to carry on banking business in Nigeria may only be granted to a company duly incorporated in Nigeria. Thus, when foreign banks want to obtain banking licences in any part of Nigeria including a free zone area, they should also incorporate a Nigerian subsidiary for that purpose. The provision of section 8(2) authorising the CBN to grant licences to foreign banks to undertake domestic banking business would seem to conflict with that fundamental requirement of setting up a local subsidiary to do business in Nigeria, and grant such Banks undue advantage over local banks.
(f). Immunity from restorative orders: The Bill under Section 12(6) attempts to usurp the power of the Court to grant restorative or similar orders against the Bank or the Governor in any action, suit or proceedings in relation to the revocation of a licence by the Bank and limits a claimant's remedy to only damages. Your Excellency, we submit respectfully that these provisions are directly linked to our comments in paragraph (b) of this letter (Refusal to grant a banking licence by the Governor). The provisions can occasion unrestrained abuse of power and if retained, could discourage investment/participation in the banking sector. Regulated entities will live in perpetual fear of never being able to freely, fairly and respectfully express their views. No country's financial system develops and attains stability under such a draconian climate.
(g). Prohibition of banks from granting unsecured credit: Section 19(1)(c) of the Bill provides that a bank, specialised bank or other financial institution shall not, grant any unsecured advance, loan or credit facility except it is in line with the regulation on collateralisation as may be issued by the CBN. If this section is retained, banks will not be able to grant unsecured credit to grade A or credit worthy customers with high credit scores or who pass the bank's internal risk assessment for such loans. In addition, young business people, women and persons currently excluded from accessing credit from the banking sector who seek to rely on their business cash flows to obtain moderate credit, will remain permanently excluded from accessing bank credit. This provision overturns the progress made by Nigeria in the last decade and unwinds the positive gains achieved by the enactment of the Credit Reporting Act (which significantly raised Nigeria's profile in the World Bank's Ease of Doing Business Index in 2017).
(h). Overreaching by CBN Examiners: Section 29(4)(d) of the Bill grants the CBN examiners powers to attend (as observers) management and board meetings of the Banks and Financial institutions or specialized banks. Respectfully, your Excellency, this provision impacts on the ability of the bank to run its business on sound corporate governance and expressive principles and would discourage investment in the sector. It is our view that this provision, if retained, should only apply to failing or failed banks.
(i). Immunity from suit: Section 51 of the Bill intends to grant immunity from judicial intervention to the Federal Government, the CBN, or any officer of the Federal Government or the CBN from any action, claim or liability to any person in respect of anything done in the exercise of its duties under the Bill. Your Excellency, we respectfully submit that in a world where the actions of the financial sector and its regulators are being brought under closer scrutiny, granting immunity to the Bank and its officers from things done in the exercise of their administrative duties will have serious negative throwback on the country as a whole, jeopardise ability to engage in third party transactions and enable unbridled exercise of power by officers of the Bank. In modern democracies only heads of governments carry such immunity.
(j). Overreaching by the Central Bank: Section 57(1) and (2) of the Bill restricts any person from carrying on specialized banking of financial institution in Nigeria other than insurance, pension fund management, collective investment schemes and capital market business. It also goes on to define "business of other financial institutions" to include debt administration and investment management. We respectfully submit that "investment management" is separately regulated by the Securities and Exchange Commission under Section 38(1) of the Investment and Securities Act 2007, while "debt administration" is very wide and would for instance include receivership, liquidation and administration which is regulated under the Companies and Allied Matters Act, 2020. Accordingly, this section attempts to appropriate to the Central Bank of Nigeria, responsibilities already within the purview of other regulators such as the Securities and Exchange Commission and the Corporate Affairs Commission; a situation which would give rise to inter-agency conflict, duplicity of regulations and stifle the ease of doing business in Nigeria.
(k). Exorbitant cost of filing claims at the Tribunal. The Bill establishes a Tribunal for adjudicating on debt collection matters. This is laudable and will positively impact on the financial health of the industry as a whole. However, Section 118 of the Bill provides that the case fee payable by banks, specialised banks or other institutions shall be 0.5 percent of the amount of their claim. This amount is exorbitant and will adversely impact the effectiveness of the Tribunal. The fee should be a flat rate for all claims or flat rates based on a graduating scale. Charging ad valorem case fees ignores the fact that the banks are already dealing with bad loans and might have had to make loan loss provisions in their books.
Your Excellency, the above is a summary of the major issues we believe need to be urgently addressed and amended in the Bill before it receives your assent and becomes law. The issues are more particularly set out in the attached Schedule. The issues laid out herein are however not exhaustive and there remain several other concerns which we believe should also be addressed. We remain available to work with your office and the legislature to address these concerns and ensure the Bill that you pass into law is one that will truly enhance the ease of doing business in Nigeria, is fit for purpose in a developing country like ours aspiring to efficiently grow its economy and is void of arbitrariness and opaque discretion that will affect the creation of a stable and enabling financial system.
The Board and Management of the Nigerian Economic Summit Group remain grateful to Your Excellency for leading our great country, Nigeria effectively through these trying and uncertain times and we are firmly committed to providing our support to the Federal Government of Nigeria in your quest to bequeath a prosperous, inclusive and globally competitive economy to the people of Nigeria and generations unborn.
Nigerian Economic Summit Group. This Letter was dated 1st of September but delivered to the Presidency on 3rd September, 2020
Download Here - Banks and Other Financial Institutions Bill 2020
Related News - BOFIA
Related News - Nigeria Economy