The Process And Types Of Banking License In Nigeria - THE MONDAQ
Banking licenses in Nigeria are issued by the Central Bank of Nigeria (CBN). The CBN was established by the Central Bank of Nigeria Act 2007. 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) 2020.
Essentially, 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.
In this write-up, we will highlight the requirements to process licenses for each category of banks stated above.
- 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. 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;
- 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 (6) and a maximum of twelve (12) States of the Federation, which lies within not more than two (2) geographical zones of the Federation as well as within the Federal Capital Territory. While a commercial bank with national banking authorization is entitled to carry on its banking business operations in every State of the Federation and finally 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.
- Specialized Banking License
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 No.03 2010. The minimum paid-up share capital for setting up such banking institutions is illustrated in the table below.
|Types of Institution||Minimum Paid-up Share capital|
|Non-interest bank (regional)||N5 Billion|
|Non-interest bank (national)||N10 Billion|
|Primary Mortgage Institution||N5 Billion|
- Merchant Banking License
This type of banking license is regulated by the Merchant Banks Regulations 2010. The license is issued by the Governor of the CBN upon the fulfilment of terms and condition authorizing the operation of a merchant bank. The merchant banks allow such a financial institution to provide specialist services such as wholesale banking and investment banking services. The bank offers commercial loans, investment, and advisory services to large firms and high net-worth individuals in Nigeria and not to the general public. The CBN regulates the banking activities of the merchant bank.
The minimum paid-up share capital required for a merchant banking license is N15 Billion naira or any other amount that would be prescribed by the CBN. The license gives the bank the authority as provided under Part 2 of the Merchant Banks Regulations, 2010 to;
- Take deposits and maintain current savings accounts from natural and legal persons at least N100 Million per tranche or any other minimum amount that may be prescribed by the CBN;
- Provide finance and credit facilities to non-retail customers;
- Dealing in foreign exchange and provide foreign exchange services subject to the provision of the foreign exchange (Monitoring and Miscellaneous Provisions) Act and CBN regulations;
- Act as an issuing house for managing, arranging, coordinating the issuance of securities, subject to the provisions of BOFIA;
- Provide underwriting services for equity issuance of securities, subject to the provisions of BOFA and prior notification in writing to the CBN;
- Provide debt factory services;
- Issuing, discount, and rediscount negotiable instruments;
- Provide treasury management services including the provisions of money market, fixed income, and foreign exchange investment on behalf of clients.
- Provide custodial services;
- Engage in trading of fixed income securities, where duly licensed to act as a Primary Dealer/ Market Maker to trade securities such as Federal Government bonds, treasury bills, treasury certificates, and any other debt certificates as may be prescribed by CBN;
- Engage in proprietary trading such as an investment in debt instruments of any person, investing in equity or hybrid equity instruments subject to BOFIA and CBN rules and guidelines;
- Provide asset management services, including fund and portfolio management services, act as a dealer of securities for its account and the account of its clients or otherwise make or manage investments on behalf of clients.
- Provide financial consulting and advisory services relating to corporate and investment matters for a fee;
- Such other activities that may be prescribed in writing by the CBN from time to time.
The merchant bank is instrumental in investing majorly in wealth and assets management and also to raise funds for companies.
In closing, for banks to operate legally in Nigeria, it must possess a valid license issued by the CBN in line with the Banks and other Financial Institutions Act (BOFIA). The banks or licensees are to ensure that they comply with all corporate governance standards that may be prescribed by the CBN and all other relevant regulatory authorities in Nigeria.