How banks operate through layers of licencing classification
By Dele Ojo
Since 1999, the Central Bank of Nigeria (CBN) has embarked on several intensive banking sector reforms to strengthen the erstwhile weak and fragmented sector for effective performance of its essential intermediation functions.
Although it has undergone tremendous metamorphosis since the return of democracy in the country, many people seem not to notice. If you do, have you ever bothered to ask your bank the type of operating licence its day to day activities are premised on? For sure a lot of us don’t bother about that, all we do is to carry our banking transactions seamlessly in the banks.
And not to bog you down too much on that, just to let you have the knowledge that banks in Nigeria are operating on the basis of the licence they have as follows:-commercial banking licence with international authorisation, commercial banking licence with national authorisation, commercial banking licence with regional authorisation, non-interest banking licence with national authorisation, non-interest banking with regional authorisation, merchant banking licence with national authorisation, and financial holding companies in Nigeria. Each category have its stipulated minimum required capital base.
The classification system was adopted to quash the pitfalls of the banking consolidation era where all banks were required to have minimum capital base of N25.00 billion, and are allowed to engage in any banking business irrespective of their capability, known as universal banking.
Banking licenses in Nigeria are issued by the CBN, for it is charged with the duty of supervisions and regulations of banks and other financial institutions.
The purpose of the application and issuance of a banking license is to ensure that no person can carry out banking operations legally in Nigeria without being issued and granted a valid banking license under the Banks and other Financial Institution Act (BOFIA) 2010 in Nigeria. There are three classes or categories of banks that can obtain licenses from the CBN. These types of banks are; Commercial Banks, Merchant Banks, Specialized Banks.
For commercial Banking License, this category of banking license is issued for banking operations on National Commercial Level, Regional, or International authorization basis. The minimum paid-up share capital to be maintained for National level banking license is N25 Billion Naira, or any such amount that may be prescribed by the CBN, while for Regional Banking License is N10 Billion Naira and International Commercial Banking License is N50 Billion.
Interestingly, international licences were issued for the following: Access Bank, Guarantee Trust Bank, United Bank of Africa, First Bank of Nigeria, Zenith Bank, Union Bank of Nigeria, Fidelity Bank, and First City Monument Bank.
However, Banks with national authorisation are: Citibank Nigeria Limited, Ecobank Nigeria Plc , Heritage Bank Limited, Keystone Bank Limited, Polaris Bank Plc, Stanbic IBTC Bank Plc, Standard Chartered Bank Limited, Sterling Bank Plc, Titan Trust Bank Ltd, Unity Bank Plc, Wema Bank Plc.
For Regional licence holders, we have; Globus Bank, SunTrust Bank, Providus Bank, and Parallex Bank Limited.
To obtain the commercial banking license, the banking operators are to comply with all the prudential guidelines and regulations issued by the CBN on the required level of capital adequacy, liquidity, and cash reserve.
The license confers on the bank operators the authority to undertake the following business transaction amongst others:
• Take deposits and maintain current savings accounts from natural (individuals) and legal persons (companies).
• Provide retail banking services including mortgage products.
• Provide financial and credit facilities.
• Deal in foreign exchange and provide foreign exchange services, which will be subject to the bank having a foreign exchange authorized dealership license and any other law and CBN Regulations. Act as a settlement bank subject to CBN approval.
• Provide treasury management services which include the provision of money market, fixed income, and foreign exchange investment on behalf of clients, which is also subject to the approval of the Central Bank. Provide custodial services.
• Provide financial advisory services relating to commercial banking business which do not require statutory filings with the securities and exchange commission (SEC)
• Invest in non-convertible debt instruments and enter into derivative transactions subject to the approval of the CBN and permitted under the CBN directives and circulars.
• Provide non-investment banking services subject to the approval of the CBN.
• Undertake fixed income trading, where duly licensed to act as a Primary Dealer Market Maker to trade in securities such as Federal Government bonds, treasury bills, treasury certificates, and such other certificates as may be prescribed by the CBN.
• Any other activities that may be prescribed by the CBN in writing from time to time.
A commercial bank with regional banking authorization is entitled to carry on its baking business operations within a minimum of six and a maximum of 12 States of the Federation, which lies within not more than two geographical zones of the Federation as well as within the Federal Capital Territory.
A commercial bank with national banking authorization is entitled to carry on its banking business operations in every State of the Federation.
However, a commercial bank with international banking authorization is entitled to carry on its banking business operations within all States of the Federation as well as maintain an offshore banking operation in the jurisdiction of its choice, which will be subject to the approval of the Central Bank of Nigeria and compliance with the regulatory requirement of the host country.
The new rules were made as a result of the repeal of the erstwhile Universal Banking Guidelines, to promote a sound financial system in Nigeria.
Meanwhile, there are also specialise banking categories, this type of banking license applies to special banks which include non-interest banks, microfinance banks, development financial institutions, mortgage banks, and any other banks designated by the CBN. It is issued in line with the Minimum Standards for Specialized Institutions Regulations. The minimum paid-up share capital for setting up non- interest banks are as follows: Non-interest bank regional: N5 Billion, national: N10 Billion, while Primary Mortgage Institution is N5 Billion.
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