Banking Restructuring in Nigeria

As part of its initiatives to reform the Nigerian financial system, the Central Bank of Nigeria (“CBN”) is currently reviewing its Universal Banking Policy. The CBN has published several circulars containing proposals to achieve the reform, including the “Regulation on the scope of banking activities and ancillary matters, no. 3”. The regulations contained in this circular will radically overhaul the banking sector in Nigeria as it currently operates.

These regulations, which came into effect on 15 November 2010, require all banks to divest from non-banking business. In an earlier draft circular – “Review of the universal banking model” published in March, the CBN did however acknowledge that some banking groups may wish to retain non-core banking businesses; and as such have proposed that these groups evolve into a new holding company model, whereby a non-operating holding company (“HoldCo”) holds the investments in the bank and each non-core banking operation in a subsidiary arrangement.

These groups will be required to comply with the CBN's guidelines for the establishment of HoldCos, which will include a detailed business case for engaging in any non-core banking operation. Subsidiary banks will be licensed and regulated by the CBN and each other subsidiary (non-core banking business) will be licensed and regulated by the relevant functional Regulator. The main aim of the CBN's proposed new model is the protection of depositors by “ring fencing” banking business from non -banking activities.