Banks Get CBN Memo On Exit From Universal Banking



In pursuance of the new banking model, the Central Bank of Nigeria (CBN) will soon issue guidelines for transiting from the existing arrangement to the new licensing regime by the banks.


In a circular to all banks and discount houses yesterday, the apex bank said 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, it is reviewing the Universal Banking Policy.


It said a draft titled is hereby released as exposure draft to the industry for comments/inputs."


The circular, which was signed by the Acting Director of Banking Supervision, J. O. Ajewole, advised operators to forward their comments/ input to the Director of Banking Supervision before Wednesday April 14, this year.


According to Ajewole, "to achieve the objective of having banks focus on their core banking business, the CBN will issue guidelines requiring banks to divest from non-banking business.


"The guidelines will define the new types of licenses and permitted activities. It will also state the modalities for transiting from the existing arrangement to the new licensing regime.


"Further, the guidelines will also provide a cut-off date within which banks are to: "spin-off" or discontinue operations which are inconsistent with the terms of their new banking license, or divest from non-banking subsidiaries in which they have equity ownership," Ajewole said.


To implement the new regime, the CBN will replace the existing universal banking license with a new licence which terms will be restricted to the nature of the banks' specific activities."


The CBN said it anticipates that some banks/banking groups may wish to retain non-core banking business. In that case, such banks, it saids must 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 (SubCo). comply with CBN requirements for the establishment of HoldCos, which will include a detailed business case for engaging in any non-core banking operation.


"The business case will include the corporate and risk management frameworks that should be put in place to demonstrate how depositors' funds from core banking business will be ring-fenced from non-core banking business," the memo added.


The apex bank also explained that the adoption of the HoldCo model becomes necessary when a licensed bank owns/decides to expand into other type(s) of banking or other financial services. Also where a shareholder owns/controls a minimum of 20 per cent of one bank and another financial services entity, it triggers the requirement for a HoldCo structure.


Features of the permitted HoldCo arrangement, according to the CBN, includes:

Subsidiary banks will be licensed and regulated by the apex bank.

The operating subcos (non-bank subsidiaries of HoldCOs) will be licensed and regulated by the relevant functional regulator.

HoldCo will be licensed by the CBN as Other Financial Institution (OFI) under BOFIA.

HoldCo will be domiciled in Nigeria.


Giving reasons for its decisions to enthrone a new banking model, the CBN stated that banks in Nigeria now carry out a wide range of banking and non-banking services, which include insurance, investment advisory, asset management services, by virtue of the universal banking licence regime.


The regime, however, has exposed banks to greater risks that challenge the stability of the financial system.


As part of the CBN's blueprint for reforming the financial system, which includes the enhancement of the quality of banks, financial system stability and evolution of healthy financial sector, the apex bank is implementing strategic imperatives to prevent a reoccurrence of the recent past events in the industry.


CBN's primary objectives for the current reform include depositor/consumer protected by ring fencing "banking" from non- banking business.


Ensuring effective regulation of the entire business of "banks" while facilitating a business model that is supportive of their growth aspirations.


Redefining the license model of banks and articulating rules/guidelines to guide bank operations.


Facilitating the enhancement of risk management at "group enterprise" level to enable management and shareholders understand and address risks from a holistic perspective.



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