The Central Bank of Nigeria (CBN), has released an exposure draft of regulatory guidelines for change of operating licence for banks and Other Financial Institutions (OFIs).
The apex bank, in a circular signed by Chibuzo Efobi, director, financial policy and regulation department, CBN, dated march 28,2023, said the guidelines were drafted due to increasing requests from financial institutions to either upgrade or convert to other license regimes with the aim to provide clarity to eligible financial institutions on regulatory requirements.
The CBN further indicated that the guidelines were applicable to commercial banks, merchant banks, non-interest banks, microfinance banks, primary mortgage banks, payment service banks, and any other institution the regulator may designate from time to time.
According to the CBN, for any institution to be eligible for the operations, such institution shall be under the supervisory purview of the CBN; have no adverse supervisory report to its application; and satisfy any other condition which the CBN may stipulate from time to time.
However, for conversion, the institution must have been in operation for at least five years.
Highlighting prohibitions/restrictions which applies to eligible banks and OFIs applying for conversion or re-categorization, the circular read, “The bank or OFI shall not, pending when the application is determined: expand or reduce its current banking network; roll-out new products and services; carry out any new strategic banking activity but the settlement of rights and obligations shall continue until extinguished in accordance with existing terms and conditions;
“Take any business decision after the conversion process has commenced, except in line with the bank’s conversion strategy submitted to the CBN; engage in any banking activity specific to the proposed new license; any other requirement that may be prescribed from time to time by the CBN.”
The apex bank also gave stakeholders a period of three weeks from the date of the circular, to comment/make input on the guidelines, which could be addressed to its director of financial policy and regulation.
The apex bank however gave specific conditions for converting to Islamic Banking and Primary Mortgage Banks.
It said commercial banks or OFIs that intends to convert to non-interest (Islamic) banking business shall constitute its Advisory Committee of Experts (ACE) upon the grant of an Approval-In-Principle and the ACE shall commence operations before the grant of a final approval.
The CBN said, “Shariah Review Report and ACE’s Certificate confirming that the whole conversion process has been undertaken in conformity with Islamic commercial Jurisprudence.
“There shall be a meeting among the ACE, Shariah Compliance and Audit Unit of the converting institution with the CBN Financial Regulation Advisory Council of Experts (FRACE) to clarify any issue, where necessary.
“A bank or OFI converting to non-interest bank shall have a plan for migration or off-boarding of their customers within twelve (12) months. A bank or OFI converting to non-interest bank shall align its IT infrastructure with the new business model.”
According to the regulator, bank or OFI converting to Islamic bank shall divest from all their non-permissible activities within a maximum period of 12 months.
The apex bank noted that any non-permissible proceeds shall be treated in line with the extant CBN Guideline on Disposal of Non-Permissible Income.
The CBN added, “Revenue not yet received that are of doubtful permissibility are not subject to compulsory disposal, whether they were earned before or during the financial period in which the NIFI decides to convert. Institutions converting to non-interest bank shall be required to carry the NIFIs symbol.
“Undertaking by the directors that the bank will always adhere to the principles underpinning the operations of the proposed new license type.”
For Primary Mortgage Banks wishing to convert, CBN mandated them to provide evidence of divestment from mortgage loans under the National Housing Fund as a condition for the issuance of final approval.
Read Draft document: