The Central Bank of Nigeria (CBN) has published a draft document of proposed changes to the current “Universal Banking Policy”. 

The proposed changes are aimed at preventing a reoccurrence of the 2009 banking crisis that found some banks with a high percentage of non-performing loans.

Says the CBN in a circular published in its website: 'Banks in Nigeria currently carry out a wide range of banking and non-banking services, which include insurance, investment advisory, asset management services, etc., by virtue of the universal banking licence regime. The regime, however, has exposed banking business to greater risks that challenge the stability of the financial system.'

The CBN’s primary objectives for the reform exercise include:

• Depositor/consumer protection 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 licensing model of banks and articulating rules/guidelines to guide bank operations going forward
• Facilitating the enhancement of risk management at “group enterprise” level to enable management and shareholders to fully understand and address risks from a holistic perspective.

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

Capitalisation

The new capital requirement for national banks will be N25 billion (US$166 million) if they only operate within Nigeria and N100 billion (US$664 million) if they operate outside the country.

The new proposal says regional banks will be allowed to operate in a minimum of five and a maximum of 10 contiguous states. The minimum capital requirement for regional banks will be N15 billion (US$99 million).

National banks will only be allowed to participate in the following activities:

• Take current, savings and term deposits
• Provision of finance or credit facilities
• Deal in foreign exchange
• Act as a settlement bank
• Provide treasury management services for clients and itself
• Custodial services
• Non-operating equity investments in non-financial firms
• Provide financial advisory services
• Invest in the equity of SMEs

Permissible activities for regional banks will be the same as for national banks, except that they cannot act as settlement banks.

Unbundling

The CBN 's preference is for banks to focus on banking business only. The option of  unbundling the current banking structure will entail the break up of the activities of banks under the current universal banking regime into distinct and separate financial business lines for which specific licences must be obtained from the relevant regulator.

In this option, banking groups that choose to adopt the Holding Company model must demonstrate a business case for retaining any non-banking, but financial operations.

See the full version of the circular.