THE PROCESS OF ACQUIRING LICENSES TO OPERATE A BANK IN NIGERIA
Author: O. M. Atoyebi S.A.N FCIArb. (U.K.)., Contributor: ABDULWASIU MOHAMMED
Indeed, the goal of every business enterprise is to make a profit for its owners, and Banks are not an exception. A Bank can be defined as a financial institution that is licensed to accept checking and savings deposits and make loans. Banks also provide related services such as individual retirement accounts (IRAs), certificates of deposit (CDs) currency exchange, and safe deposit boxes.
The need to save money, manage expenses and protect our valuables from missing or being stolen has led to our craving for saving ideology like putting money, title document, gold, diamond, necklace and other valuables in banks for safe custody. Hence, the need for a bank in our society is very important, banks have also proven over the years to be the best means of saving not only money but what money can afford. This can be a direct consequence of strict compliance with the regulations as regards the operation and management in the banking sector; as it involves the keeping of monies and other valuables owned by the public.
This article 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.
HOW TO APPLY FOR A LICENSE
The Banks and Other Financial Institutions Act (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 the body 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[1] [1].
In 2020, the 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 take steps to register as a company and acquire the relevant license.
WHAT IS THE PROCESS OF ACQUIRING LICENSES TO OPERATE A BANK IN NIGERIA; Vis a Vis STAGES
There are three stages for applying for and granting a license for the operation of banks in Nigeria[2] [1].
- Grant of approval in principle.
- Grant of final license.
- Pre-commencement of operation requirement.
GRANT OF APPROVAL IN PRINCIPLE
An application for the grant of license is made to the Governor of the Central Bank of Nigeria in writing, 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 the CBN, or such other amount the 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 Shareholders, Directors and Principal Officers of the proposed bank and their particulars;
7. In the case of a non-interest bank, a list of experts on non-interest bank or finance will serve as its advisory committee of experts;
8. And such other information, documents and reports as the CBN may specify.
After the application and submission of the above 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 may be applicable under the BOFIA. Upon payment of the sum, the Governor may 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 the refusal to grant a license[3]. [1]
GRANT OF FINAL LICENSE
Not later than 6 months after the grant of Approval in Principle, the promoters of the proposed bank will apply for the grant of final license with the following documents[4] [1]:
1. Non-refundable licensing fee of 2,000,000.00 Naira, only payable in banks drat 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 office/branch building for the take-off of the banking business.
3. Evidence of strong room, loading bay 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, telecommunications, etc.
As a requirement to grant the final license, the CBN will inspect the premises and facilities of the proposed bank to:
1. Check the physical structure of the office building and the infrastructure provided for the takeoff.
2. Check the originals of the documents submitted for sighting.
3. Meet with the board and management team whose resumes had been submitted earlier.
4. Verify the capital contributions of the promoters.
5. Verify the integration of its infrastructure with the National Payment Systems.
PRE-COMMENCEMENT OF OPERATION REQUIREMENT
Where the proposed bank has been granted a final license for banking business, it will submit the following documents before the commencement of business informing CBN of its readiness to commence operation:[5] [1]
- Evidence of admission into the clearing house;
- Copy of Shareholders register;
- Copy of the share certificate issued to each investor;
- A draft copy of the opening statement of affairs signed by the insurance policies;
- Evidence of insurance coverage and the insurance policies
- Evidence of readiness of cheques and other security documents;
- Minutes of Pre-Commencement Board Meeting; and
- Evidence of adequate security arrangements.
LEGAL IMPLICATION / SANCTION
Anyone who carries on the business of Banking without first acquiring the license for it commits an offence and is liable upon conviction to-
- Imprisonment term of not less than five years;
- a fine of not less than 50,000,000;
- Two times the cumulative of the deposits or other amount collected; or both imprisonment and fine[6] [1].
CONCLUSION:
It is important to note that the Banks and Other Financial Institutions Act (2020) (BOFIA), is the principal 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 legally and effectively operate in Nigeria such a bank must apply for and be duly issued a license.
[1] See Section 1(1) of Banks and Other Financial Institutions Act, (2020)
[2] Vazi Legal Business Attorneys “Steps to Obtain a Commercial Bank License”
[3] See SECTIONS 3 (1) (a), (b), (c), (d), (e), (f), (2). Of Banks and Other Financial Institutions Act, (2020)
[4] Vazi Legal Business Attorneys “Steps to Obtain Commercial Bank License”
[5] Vazi Legal Business Attorney “Steps To Obtain A Commercial Bank License”
[6] See Section 2(2) of Banks and Other Financial Institutions Act (2020).