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Tuesday, March 27, 2018 /05:20 PM /CBN
Developments
in the Nigerian banking industry have necessitated the need for the licensing
of Private Asset Management Companies (PAMCs) to play complementary roles in
the management of non-performing assets of the industry.
We
forward herewith, an Exposure Draft of the Framework for Licensing, Regulation
and Supervision of the business of Private Asset Management Companies for your
comments and observations.
Preamble
The
dynamic developments in the management of risk assets in the Nigerian banking
system necessitated the establishment of the Asset Management Corporation of
Nigeria (AMCON) in 2010. The prime objective of AMCON was to manage The Toxic
assets of the system, which was exacerbated by the global financial crisis.
Given
the ever evolving developments in the industry, the decline in international
commodity prices with its consequent impact on risk assets in the industry, if
has become expedient to proactively widen the space for the management of
non-performing loans through the establishment of Private Asset Management
Companies (PAMCs). This is in line with The Central Bank of Nigeria‘s core
mandate of promoting a sound and stable financial system in Nigeria.
Following
from the above, This Framework is issued by the Central Bank of Nigeria
(hereinafter referred to as the “CBN” or the “Bank") in exercise of the
powers conferred on if by the provisions of Sections 2 (d) and 33subsecfion (l)
(b) of The CBN Act No.7 of 2007 and in pursuance of provisions of Sections 58
(2), 61- 63 of The Banks and Other Financial institutions Act (BOFIA) of 1991
(as amended).
The
purpose of The Framework is to set forth the rules and procedures for The
establishment and operations of PAMCS in Nigeria).
Objectives
of the Framework
The
main objectives of This Framework shall be to:
i. Assist
the regulatory authorities in promoting the soundness and stability of The
Financial System;
ii. Create
a vehicle to acquire Eligible Asset of banks, Other Financial institutions
(OFls) and banks in-liquidation;
iii. Create
alternative source of liquidity for banks and OFI;
iv. Provides
a platform for restructuring acquired Eligible Asset of banks, OFIs
v. And
banks in-liquidation;
vi. Minimize
the systemic consequences of delinquent assets on banks and OFIs
vii. Allow
private institutions to complement the role of AMCON.
Private
Asset Management Companies (Pamcs)
A
PAMC is a privately owned institution licensed by The CBN as Other Financial
institutions (OFI) To acquire, manage, restructure and dispose of Eligible
Asset of banks, OFIs and banks in-liquidation.
The
PAMC shall:
a.
be an independent legal entity with a primary focus on the purchase,
management and disposal of Eligible Assets of banks and OFIs;
b.
be privately-owned limited liability company incorporated in Nigeria
under the Companies and Allied Matters Act (CAMA);
c.
have 'Asset Management Company' as part of its name and object
clause; control,
d.
have well defined processes for the acquisition management, marketing and
disposal of Eligible Assets; and
e.
be regulated and supervised by the CBN as an OFI.
Scope
of Activities
Permissible
Activities
A
licensed PAMC is authorized to undertake the following activities;
a.
Acquire Eligible Assets of banks and OFI
b.
Hold, manage, realize and dispose of Eligible Assets acquired from banks and
OFls in accordance with the Guidelines issued by the CBN;
c.
Hold, manage, realize and dispose of underlying collaterals associated with the
Eligible Assets acquired from banks, OFls and/or the Nigeria
Deposit Insurance Corporation NDIC);
d.
Acquire performing loans of banks and OFİs, undertake debt factoring and
subject to SEC approval, engage in assets securitization.;
e.
Purchase or sell other receivables of banks and OFIs including other assets;
f.
Provide consultancy and advisory services to banks and OFIs for the purpose of
restructuring receivables and other assets, including sale of such assets to
third parties;
g.
Subject to SEC and other requisite regulatory approvals, issue or invest in
securities;
h.
Subject to CBN's approval, own subsidiaries;
i.
Purchase Eligible Assets from other PAMCs;
j.
Sale of Eligible Assets to other PAMCs; and
k.
Any other activities as may be prescribed by the CBN from time to time.
Prohibited
Activities
A
licensed PAMC is prohibited from carrying out the following activities:
a.
Provision of credit to customers;
b.
Acceptance of deposits from customers;
c.
Provision of guarantee(s) for loans;
d.
Obtaining loans from banks and OFIs in Nigeria;
e.
Issuance of securities to banks and OFIs in Nigeria;
f.
Provision of fund management services to third parties; and
g.
Engaging in 'sale and buy-back' of eligible assets with banks and OFls.
h.
Acquisition of any Eligible Assets in respect of which the PAMC has provided
services as stated in 4.1 (e) above; i. Any other business that may be
prohibited by the CBN from time to time
Transparent
and Realistic Assets Pricing
a.
The pricing and transfer of assets must be transparent, reasonable and at
arms-length.
b.
The accounting entries for the transactions must fully comply with relevant
accounting standards, principles and guidelines.
Creation
of Security Interest
a.
A PAMC shall enter into security agreement with the bank or OFL it intends to
purchase Eligible Assets from.
b.
In the case of purchase of Eligible Assets of a bank in-liquidation, a PAMC
shall enter into security agreement with the NDIC.
c.
A security agreement shall be effective and create a security interest as
between the parties according to its terms.
Establishment
and Management of PAMCS in Nigeria
Licensing
Requirements
As
from the date hereof, no person or group of persons shall operate a PAMC (as
defined in this Framework) in Nigeria unless licensed to do so by the CBN.
Application
for the Grant of Licence
Requirements
for Grant of Approval-In-Principle (AIP)
A
Promoter seeking to operate a PAMC in Nigeria shall apply in writing to the
Governor, Central Bank of Nigeria, P.M.B 0187, Garki, Abuja and submit with the
following documents:
a.
A non-refundable application fee of N500,000 (Five Hundred Thousand Naira only)
payable to the CBN or any other amount that may be prescribed by the CBN from
time to time.
b.
Evidence of deposit of the specified minimum paid-up capital requirement of
N10, 000,000,000 (ten billion Naira only) into the designated account with CBN
or any other amount that may be prescribed by the CBN from time to time. The
amount shall be refunded to the PAMC with the accrued interest upon grant of
final licence.
c.
Detailed business plan or feasibility study, including:
i.
Objectives of the PAMC.
ii.
The need for the services of the PAMC, Supported with a detailed market survey.
iii.
Ownership structure in tabular format showing names of proposed investor(s),
profession/business and their percentage shareholding.
iv.
Five-year financial projection for the operation of the PAMC indicating
expected growth and profitability and the details of the assumptions which form
the basis of the financial projection;
v.
Proposed Information and Communication Technology (ICT) infrastructure.
d.
Detailed bio-data/resume of shareholders.
e.
Details of the proposed sources of equity contribution from each investor.
Note:
Where a loan is obtained to finance the equity, such loan must be long-term (at
least of 7-year tenor) and must not be taken from the Nigerian banking system
and/or foreign subsidiaries of Nigerian banks.
f.
Board and Committee charters stating the roles and responsibilities of the
Board and its Sub-Committees.
g.
Board composition and directors detailed resumes. The total number of directors
should be between 5 and 7, including the independent director(s). h. Clear
means of identification of shareholders and directors.
i.
Signed Fitness and Propriety Questionnaire and Declaration executed by the
proposed shareholders, directors and management personnel in line with the provisions
of Section 4.0 of the CBN's Revised Assessment Criteria for Approved Persons'
Regime for Financial Institutions.
j.
Organisational structure, showing functional units, responsibilities, reporting
relationships and grade (status) of heads of department/unit.
k.
Services to be rendered by the PAMC.
l.
Undertaking by promoters that the PAMC will be adequately capitalized for the
volume and character of its business at all times.
m.
For corporate investors, promoters shall forward:
i. Certificate
of Incorporation of the investing company
ii. Board
resolution supporting company's decision to invest in the equity shares of
the proposed PAMC
iii. Names
and addresses (business/residential) of shareholders/directors and their
related companies, if any
iv. Last 3
years audited financial statements of the company and Tax Clearance
Certificate.
v. Certified
True Copies of the company's Corporate Affairs Commission (CAC) Forms CO2
and co7
vi. Tax
Identification Number of the investing company.
n.
Proposed PAMC's name reservation with CAC.
No
PAMC shall be registered or incorporated with a name which includes the words
"Central", "Federal" "Federation",
"National", "Nigeria", "Reserve",
"state", "Christian", "Islamic",
"Moslem", Quranic" or "Biblical"
o.
Draft copy of Memorandum and Articles of Association (MEMART) stating:
i. Proposed
name of the PAMC.
ii. Object
clauses
iii. Subscribers
to the MEMART
iv. Procedure
for amendment v. Procedure for share transfer/disposal
v. Procedure
for appointment of directors
p.
Shareholders agreement providing for disposal/transfer of shares as well as
authorisation, amendments, waivers, reimbursement of expenses etc.
q.
Statement of intent to invest in the PAMC.
r.
Bank Verification Number of the proposed shareholders/Directors.
s.
Current Tax Clearance Certificate of the proposed shareholders/Directors.
t.
Notarized Statement of Networth of the Shareholders and Directors.
u.
Two Reference Letters from reputable individuals for each director nominee.
v.
Technical Services Agreement (where applicable). w. Any other
documents/information that may be required by the CBN from time to time.
Requirements
for Grant of Final Licence
Not
later than six (6) months after obtaining the AIP, the promoters of a proposed
PAMC, having met all the conditions in the AIP, shall submit an application for
the grant of final licence accompanied with the following:
a.
A non-refundable licensing fee of N2, 000,000 (two million Naira only) payable
to the CBN or any other amount that may be prescribed by the CBN from time to
time.
b.
Evidence of deposits made by each shareholder.
c.
Certified True Copy (CTC) of Certificate of Incorporation of the PAMC.
d.
CTC of MEMART.
e.
CTC of CAC Form C02 -Allotment of Shares.
f.
CTC of CAC Form CO7 - Particulars of Directors.
g.
CTC of CAC Form CO3 - Primary Place of Business.
h.
Evidence of payment of Stamp Duties.
i.
List of identified top/senior management staff (AGM and above) and detailed
curriculum vitae stating their qualification, experience, records of
accomplishment etc.
j.
Changes (if any) in the Board and Shareholding.
k.
Copies of letters of offer and acceptance of employment in respect of the
management team (Heads of department and above).
l.
Manual of Operations.
m.
Enterprise Risk Management Framework.
n.
Internal control policy.
0.
Contingency and Disaster Recovery Plan (Business Continuity Plan).
Terms
of Licence
a.
The licence shall be granted for an indefinite period and shall not be
transferable.
b.
In accordance with Section 5 (1) of BOFIA, the CBN may impose such conditions
on a PAMC's licence, vary or review the conditions at any time, as it may deem
fit.
c.
A licensed PAMC shall comply with the provisions of the guidelines, regulations
and circulars as may be issued by the CBN from time to time.
d.
A licence shall automatically expire if a PAMC fails to commence business after
six (6) months from the date of issuance of the licence, or such other period
as may be specified by the CBN from time to time.
Requirements
for pre-commencement of operations
A
PAMC shall submit a letter to the CBN of its readiness to commence operation,
accompanied with the following:
a.
Copy of shareholders' register.
b.
Opening statement of affairs signed by its directors and auditors.
c.
Minutes of pre-commencement Board meeting.
Post
commencement requirements
A
PAMC shall:
a.
maintain adequate accounting system and records that capture information and
reflect the financial conditions of the institution;
b.
ensure sustenance of an unimpaired minimum share capital;
c.
ensure on-going compliance with all other requirements incidental to the
authorization granted and perform PAMC activities as stipulated by the CBN;
d.
render returns of its activities to the CBN as specified in Section 7.2 (V).
Change
of Name
No
PAMC shall change its name without prior written approval of the CBN. The
request for approval shall be accompanied with the following:
i.
Application fee of N200, 000 (two hundred thousand Naira only) payable to CBN
or any other amount that may be prescribed by the CBN from time to time.
ii.
Board resolution authorizing the change.
iii.
Justification for the proposed name change.
iv.
Any other information/document as may be required by the CBN.
Opening,
Relocation and Closure of Offices and Branches
No
PAMC shall open, relocate or close an office or a branch without the prior
written approval of the CBN. The PAMC shall forward a written request along
with the following documents, to the CBN:
i.
Board Resolution approving the opening, relocation or closure;
ii.
Justification for the opening, relocation or closure;
iii.
Feasibility report which should contain the cost implication; and
iv.
Any other document or information as may be required by the CBN from time to
time.
Ownership
and Board Composition of a PAMC
a.
Interested individuals/entities, foreigners inclusive, are at liberty to invest
in a PAMC subject to CBN approval.
b.
Nigerian banks, financial holding companies, OFIs and their subsidiaries are
precluded from investing in PAMCs.
c.
The maximum number of directors [including executive directors] on the Board of
a PAMC shall be seven [7], while the minimum number shall be five [5], at least
one of which shall be an independent director.
d.
The number of non-executive directors shall be more than that of executive
directors at any point in time.
e.
No individual shall serve on the board of more than one [1] PAMC at the same
time.
f.
No board member or officer of a Nigerian bank, financial holding company and
their subsidiaries shall serve on the board of a PAMC.
g.
The appointment/upgrade of a new director/ management staff shall be subject to
the approval of the CBN.
Qualifications
for appointment to the Positions of Director and Top Management of a PAMC
The
following minimum qualifications and experience are mandatory for officers who
may occupy executive management positions in the PAMC:
a.
Managing Director/Chief Executive - minimum of a recognized university degree
or its equivalent with at least ten (10) years relevant post-qualification
experience.
b.
Executive Director - minimum of a recognized university degree or its
equivalent with at least eight (8) years relevant post qualification
experience.
c.
Non-Executive Director – A non-executive director must possess a minimum of
first degree or its equivalent with at least five (5) years relevant post
qualification experience.
d.
Top Management
i. A minimum of first degree or its equivalent in any discipline
(additional qualification in any related discipline would be an advantage);
ii. A minimum of seven (7) years post-graduation experience out of
which, at least, 4 must have been in financial services industry and at least,
2 at management level.
Corporate
Governance
PAMCs
shall comply with good Corporate Governance practice.
Risk
Management
A
PAMC shall be required to develop an Enterprise Risk Management (ERM) Framework
which will serve as a guide in the identification, measurement, monitoring and
control of risks. The ERM Framework should be approved by the Board of
Directors and cover the different forms of risks to which a PAMC may be
exposed. Such risks include: Liquidity, Credit, Operational, Market, Legal and
Compliance Risks.
Internal
Control
a.
A PAMC shall have in place an internal control framework which should at a
minimum cover the following key areas: control environment; risk assessment;
control activities; information and communication; and monitoring.
b.
A PAMC shall, as part of its audited annual financial statements, include:
i. a statement on the effectiveness of the internal control signed off by
the Board of Directors; and
ii. a report by its external auditors attesting to the existence,
adequacy and effectiveness or otherwise of the internal Control system.
On-Site
Examination and Off-Site Surveillance
On-Site
Examination
a.
The CBN shall conduct periodic examination of the activities of all licensed
PAMCs.
b.
Every PAMC shall make its books and records readily available to the CBN for
examination and other supervisory purposes as and when required.
c.
The CBN shall have unrestricted access to the records of all licenced PAMCs.
Off-Site
Surveillance
Every
PAMC shall:
i.
Comply with the International Financial Reporting Standards (IFRS) in its
reporting framework.
ii.
Maintain December 31 as its financial year-end.
iii.
Submit its annual financial statements to the Other Financial Institutions
Supervision Department (OFISD) of the CBN not later than three (3) months after
its year-end for the purposes of obtaining 'no objection' from the CBN to
publish.
iv.
Publish its annual financial statements not later than four (4) months after
its year-end.
v.
Submit its returns, in the specified format, to the Other Financial
Institutions Supervision Department (OFISD) of the CBN not later than ten (10)
working days after the last day of each month or at such other interval as the
CBN may specify from time to time.
vi.
Submit report to the CBN as may be required at any time, in any format and on
any matter, including the performance of its functions under this Framework and
any information or statistics relating thereto. Failure to comply with
any of the provisions of this sub-section or any other section of this
Framework shall attract appropriate regulatory sanctions.
Dissolution,
Liquidation and Revocation of Licence
Dissolution
and Liquidation
a.
Where a PAMC is desirous of winding up its affairs, it shall notify the CBN in
writing accompanied with the following documents:
i.
A copy of the minutes of the special meeting of shareholders in which the
resolution to dissolve the PAMC was passed.
ii.
Financial statements as at the date of the resolution as well as a report from
its external auditor.
iii.
A sworn statement from the chief executive officer specifying outstanding
obligations (if any).
iv.
A sworn declaration of how it intends to extinguish the outstanding
obligations.
b.
The CBN shall on receipt of notice of dissolution conduct an investigation and
if satisfied, withdraw the licence of the PAMC.
Revocation
of Licence
A
PAMC that fails to meet the terms of the licence and conditions for operation
as provided by this Framework shall be granted a period of three months to
address the regulatory concerns. Without prejudice to the powers of the CBN
Governor to revoke the license of OFIs under the BOFIA, the Governor may revoke
the licence granted to a PAMC on any or all of the following grounds:
a.
Failure to address regulatory concerns within the stipulated timeframe.
b.
Submission of false information/data during and/or after the processing of the
application for licence.
c.
Engaging in functions/ activities outside the scope of its licence as specified
in this Framework.
d.
Failure to comply with the requirements of this Framework or directives of the
CBN.
e.
Failure to render returns in the prescribed manner.
f.
Unauthorized cessation of operations for a continuous period of three months or
any period aggregating three months during a continuous period of twelve
months.
g.
Liquidation, winding-up or dissolution of the PAMC.
h.
Any other act[s] which in the opinion of the CBN constitute [s] a valid ground
for revocation of the licence.
Commencement
This
Framework shall come into force on XXXX 2017.
DEFINITION
CLAUSE "Banks" shall mean any institution licensed by the CBN to
carry out banking business and shall include:
i.
Deposit Money Banks
ii.
Microfinance Banks
iii.
Development Finance Banks
iv.
Non-Interest Banks
Any
other institution that may be designated as a bank by the Central Bank of
Nigeria from time to time
Acronyms
AGM:
Annual General Meeting
AIP:
Approval-In-Principle
AMCON:
Asset Management Corporation of Nigeria
BOFIA:Banks
and Other Financial Institutions Act
BVN: Bank
Verification Number
CAC:
Corporate Affairs Commission
CAMA: Companies
and Allied Matters Act
CBN: Central
Bank of Nigeria
CTC: Certified
True Copy
ERM: Enterprise
Risk Management
ICT: Information
and Communication Technology
IFRS: International
Financial Reporting Standards
MEMART: Memorandum
and Articles of Association
PAMCs:
Private Asset Management
Companies
SEC: Securities
and Exchange Commission
Glossary
of Terms
1.
Eligible Assets: Non-performing loans (as defined in the CBN Prudential,
Microfinance Banks, Primary Mortgage Banks and other sector Guidelines) and any
other assets as may be designated by the CBN from time to time. For the purpose
of this Framework, eligible assets shall include:
i.
Collateralized or secured non-performing loans of eligible financial
institutions which are substandard, doubtful and lost in accordance with the
Prudential Guidelines, the Guidelines for Microfinance Banks and Primary Mortgage
Banks, whether or not so classified by an eligible financial institution;
ii.
Unsecured non-performing loans of eligible financial institutions which are
substandard, doubtful and lost in accordance with the Prudential Guidelines,
the Guidelines for Microfinance Banks and Primary Mortgage Banks, whether or
not so classified by an eligible financial institution;
iii.
Loans (whether or not classified) owed to an eligible financial institution
that is a bank or other financial institution whose licence has been revoked by
the CBN pursuance to BOFIA;
iv.
Assets acquired by an eligible financial institution in the course of the
satisfaction of any debt owed to such eligible financial institution, whether
or not the underlying debt obligation remains outstanding:
v.
Any loan which poses significant risk to an eligible financial institution. For
the purpose of this Framework, a loan shall be deemed to pose significant risk
where such loan () is reasonably expected to be classified as substandard
within a period of at least 3 months following the date the relevant eligible
financial institution makes an application to the PAMC to purchase such loans;
or (ii) may result in a loss equal to at least 1% of the eligible financial
institution's balance sheet within a period of at least 6 months following the
date the relevant eligible financial institution makes an application to the
PAMC to purchase such loan; and
vi.
Such other instruments or asset class which the CBN may, from time to time
2.
CAC Form CO2: Return on Allotment of Shares.
3.
CAC Form Co7: Particulars of Directors.
4.
Security Interest: A type of property interest created by agreement or by
operation of law over assets to secure the performance of an obligation,
usually the payment of a debt.
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