Nigeria Economy | |
Nigeria Economy | |
5460 VIEWS | |
![]() |
Wednesday, September 09, 2020 04:42
PM / by Laoye Jayeola, CEO NESG Group/ Header Image
Credit: @nassnigeria
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.
Related Post: NESG v CBN: Beyond the Battleground - The Need for Facts, Perspective and Resolution
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 -
or
(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.
Footnote
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 Post: NESG v CBN: Beyond the Battleground - The Need for Facts, Perspective and Resolution
Related Links
Related News - BOFIA
Related News - Nigeria Economy