By Oliver Azi

A banking license is an official document or permit issued by the Central Bank of Nigeria (CBN) that grants legal permission for a financial institution to conduct banking business in Nigeria. The banking licensee specifies the scope and activities the bank is authorized to undertake, such as taking deposits, providing loans, foreign exchange services, wealth management, etc. The license categorizes banks as commercials, specialized, or merchant.

The banking license is considered an intangible asset for the bank, as it grants protective legal rights and the ability to operate in a regulated financial sector. The value of the license depends on the factors like the bank’s business model and market position. This work seeks to examine the process of acquiring licenses to effectively operate a bank in Nigeria, the stages required for this purpose, the law regulating banks, and the legal implication on the defaulters.

TYPES OF BANKING LICENSE IN NIGERIA

Considering the fact that commercial banks are the most popular in Nigeria, there are other types of banking licenses that are issued by the Central Bank of Nigeria, which will be discussed below:

Commercial banking license
This category of banking license is issued for banking operations on a regional, national, or international authorization basis as provided in the commercial banks regulations No. 1 2010. The minimum paid up share capital to be maintained for a national level banking is N25 billion naira or any such amount that may be prescribed by the Central Bank of Nigeria, while for regional banking license is N10 billion and international commercial banking is N50 billion. To obtain this license, the banking operators are to comply with all the prudential guidelines and regulations issued by the Central Bank of Nigeria on the required level of capital adequacy, liquidity, and cash reserve.

A commercial bank with regional banking authorization is entitled to carry out on its banking 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 the federal capital territory. While a commercial bank with national banking authorization is entitled to carryon its banking business operations in every state of the federation. A commercial bank with international banking authorization, on the other hand, is entitled to carryon its banking business operations within all the 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 license applies to “business of other financial institutions,” which include discount houses, bureau de change, credit bureaus, finance companies or or money brokerage, international money transfer services, mortgage refinance companies, mortgage guarantee companies, credit guarantee companies, financial holding company or payment services providers, specific businesses and any other banks designated by the central bank of Nigeria.

Put succinctly, this covers non-interest banks, primary mortgage institutions, microfinance banks, development banks, and discount houses. This license is issued in line with the minimum standards for specialized institutions regulations no. 03 2010.

Merchant Banking Licensing
This class of banking license is majorly regulated by the merchant banks regulations 2010 and is issued by the governor of the CBN upon the fulfillment of terms and condition authorizing the operation of a merchant.

APPLICATION FOR A LICENSE

The banks and other financial institutions (BOFIA) 2020, is the principal legislation in charge of issuing a license to operate a bank in Nigeria, while the Central Bank of Nigeria (CBN) is saddled with the responsibility of giving full effect to the provisions of the BOFIA, which includes the issuing of license to operate a bank in Nigeria.

In 2020, CBN made provision for the guidelines for licensing and regulation of payment service banks in Nigeria to regulate the licensing procedure. Therefore, any person desirous of undertaking a bank business in Nigeria must takes steps to register as a company and acquire the relevant license.

PROCESSES/ STAGES OF ACQUIRING LICENSES TO OPERATE A BANK IN NIGERIA

There are basically three stages for and granting of license for the operation of banks in Nigeria.

Grant of approval in principle.
Grant of final license.
Pre-commencement of operation requirement.

GRANT OF APPROVAL IN PRINCIPLE

This application is made to the Central Bank of Nigeria by the promoters of the prospective bank. Such application will be accompanied by the following documents;

  1. A non-refundable application fee of 500,000.00 naira only on bank draft, payable to CBN may specify from time to time;
  2. Deposit of minimum capital of 25 billion naira to the Central Bank of Nigeria on application, with evidence of deposit by each shareholder;
  3. Evidence of capital contribution made by each shareholder
  4. A feasibility report of the proposed bank, including the schedule of services to be rendered and financial projections for at least 5 years;
  5. A draft copy of the memorandum and articles of association of the proposed bank;
  6. A list of shareholder, Directors and principals officers of the proposed bank and their particulars;
  7. In the case of a non-interest bank, a list of experts on the non-interest bank or finance will serve as its advisory;
  8. And such other information, documents and reports as the CBN may specify.
    After the submission of the documents and reports, the shareholders of the proposed bank shall deposit with the CBN, a sum equal to the minimum paid up share capital that maybe applicable under the BOFIA. Upon payment of the sum, the governor may with the approval of the board, grant a license with the approval of the board, grant a license with or without conditions or may refuse to grant a license. The governor need not give reasons for his refusal to grant a license.

GRANT OF FINAL LICENSE

Not later than 6 months after the grant of the approval in principle, the promoters of the proposed bank will apply for the grant of the final license with the following documents:

  1. Non-refundable licensing fee of 2, 000, 000, 00. Naira, only payable in banks draft to the CBN.
  2. 3 certified true copies of the certificate of incorporation of the bank, memorandum and articles of association, Form CAC 2 (Allotment of shares) and Form CAC 7 (Particulars of directors) of the bank. Evidence of the location of the head/branch building for the take-off of the banking business.
  3. Evidence of strong room, loading and banking hall facilities.
  4. Bullion Lorries with necessary security gadgets.
  5. Evidence of installation of I.t facilities/computerization.
  6. Copies of offer letters and acceptance of employment in respect of the management team, and their details and resume.
  7. Evidence to meet technical requirements and modern infrastructure facilities such as office equipment, computers, telecommunication.
    The final license is granted when the CBN inspect the premises and facilities of the proposed bank.

PRE-COMMENCEMENT OF OPERATIION REQUIREMENTS

Where the bank has been granted a final license for banking business, it will submit the following documents before the commencement of business informing the CBN of its readiness to commence operation:

  1. Evidence of admission into the clearing house;
  2. Copy of shareholders register;
  3. Copy of the share certificate issued to each investor;
  4. A draft copy of the opening statement of affairs signed by the insurance policies;
  5. Evidence of insurance coverage and the insurance policies;
  6. Evidence of readiness of Cheques and other security documents;
  7. Minutes of pre-commencement board meeting; and
  8. Evidence of adequate security arrangements.
    It is imperative to note that the Banks and Other Financial Institutions Act (2020) (BOFIA), is the primary legislation in charge of issuing licenses to operate a bank in Nigeria, while the Central Bank of Nigeria (CBN) is the body that gives the said license. Therefore, for a bank to operate effectively and legally in Nigeria such a bank must apply for and be duly issued a licensed.

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Legal Writer and Researcher, Oliver Azi, is a graduate of law from the University of Jos and Bar Part II Aspirant of the Nigerian Law School. He can be reached at [email protected] or Oliver Azi on Linkedin.