ABFC:

BANKING REGULATION UPDATE ON NIGERIA

Being a Presentation by

Kalu Abosi Esq

Kabosi@spaajibade.com. www.spaajibade.com

+234.803.348.3016; +234.815.979.4212

Outline

• Overview

• Regulatory Changes

• Implementation Review

• Responding to State Influence

• Conclusion

Overview

Banking is by the law of every nation as regulated business and

regulation plays a key role in every aspect of banking

Most consequential change in the banking Landscape in Nigeria

before 2009 was the 2004 regulator-mandated change in the

operating capital of banks

The In 2004, the Central Bank of Nigeria (CBN) gave a deadline

of December 2005 for all banks in Nigeria to achieve a minimum

capitalization of 25 billion naira

Banks that failed to reach the required minimum by the deadline

forfeited their operating licences.

Overview

Banks were forced by the regulatory change to engage in

mergers and acquisitions to meet the new capital requirement

Others had to issue fresh equity on the Nigerian Stock Exchange

to meet the requirements

Result was a reduction of the number of MDB in Nigeria from 89

to 24 institutions.

Larger institutions with greater lending capacity

Overview

• The other effect was a massive growth in the capitalization of the

Nigerian Stock Exchange

• Bank stocks constituted over 60% of the Nigerian Stock Exchange

at its peak of 2008 with a capitalization of $11 Billion;

• Unintended consequences included of size and massive capital

mobilised

• World financial crises in 2008 reached Nigeria in 2009 leading to

wide ranging changes in the banking regulation;

Regulatory Changes

• Government Intervention in 2009 saw CBN takeover of 8 Lenders

and dismissal executive management of affected banks

• Bailed out banks with capital adequacy issues

• Establishment of a bad bank Asset Management Corporation of

Nigeria (AMCON) in 2010 to buy non-performing loans (toxic assets)

and inject capital into the banking sector.

• This process resulted in four mergers, nationalization of three

institutions and an acquisition of one.

Regulatory Changes

• Most important result of the 2009 crises was the end to universal

banking. The universal banking licenses previously held were

revoked

• Universal banking allowed banks to engage in non core banking

functions including –

insurance underwriting; re-insurance services; asset management;

broker/ dealer in the securities market; issuing house /underwriting

(for securities); and proprietary trading

Regulatory Changes

• The new regime was aimed at ring fencing banking from non core

banking businesses

• DMB were required to cease from engaging in those activities either

by themselves or through subsidiaries

• Institutions that choose to continue were required to adopt a holding

company structure that kept the banks ring fenced from prohibited

activities

Regulatory Changes

• New monoline banking licenses only allowed banks to engage in the

following :

– taking deposits

– provision of credit and finance facilities

– custodial services

– provision of financial advisory services

Regulatory Changes

• Cashless Policy Change in March 2012

• The introduction of cash-handling charges on daily cash deposits

and withdrawals in banks. Cash limit of N500,000 and N3million are

stipulated for individuals and corporate bodies respectively. Initial

implementation of the policy started in Lagos from 30th March 2012

and is being gradually extended to other parts of the country.

Charges:

2% (deposits) and 3% (withdrawals)= individual accounts

3%(deposits) and 5% (withdrawals) = corporate accounts

Regulatory Changes

• Cashless Policy Change in 2012

• In January saw end of free CIT services to customers.

• Two day cheque clearance down from three

• 24hrs to same day value on bank transfers

Regulatory Changes

• Policy objectives that informed change

• Reduce the negative costs of handling cash (storage, security,

transportation)and consequently reduce handling operations cost of

banking services

• To drive modernization of the payment system

• Improve monetary policy effectiveness in managing inflation

• Curb cash-related fraudulent crimes, corruption and money

laundering

Regulatory Changes

• Positive Impact on the import Industry. Greater demand for efficient

infrastructural technology by businesses, banks and individuals

which are not produced locally.

• Encourage the use of more efficient Payment system for transacting

business, such as: e-payment tools (ATMS, POS, debit cards, e-

banking) .

• Reduction in cash handling costs for banks and the CBN

Regulatory Changes

• Introduction of IFRS :

• Introduction of International Financial Reporting Standards (IFRS )

was made mandatory in 2012 for Banks

• All listed entities and public institutions were required to become

IFRS complaint by 2012.

• Regulation was in keeping with the international trend that most

countries had adopted IFRS as the gold standard for financial

statements reporting

Regulatory Changes

• Review of Bank Charges:

• The CBN revised the bank charges of deposit money banks with

effect from April 2013. Some of the major changes include;

• Immediate reduction of COT from N5/1Mmillion in 2013 to

N3/1Million

• Complete elimination of COT by 2016

Regulatory Changes

• Review of Bank Charges:

• Mandated increase in interest paid on savings accounts to 30% of

MPR;

• Fixed charges for counter cheque leaflets, tokens, interbank

transfers and bill payments

• Elimination of non account domicile bank ATM use charge

Regulatory Changes

• Review of Bank Charges – Impact ;

• Lower cost of banking services for bank customers , policy objective

is to drive increased use of banking services ;

• For banks it’s a loss of revenue from previously easy source of

income

• There’s an argument that these loss of revenue will result in cost

cutting that will negatively impact real sector

Regulatory Changes

• Review of CRR ;

• The CBN reviewed the Cash Reserve Ratio on public sector funds

from 12% to 50% in July 2013;

• Again in January 2014 from 50% to 75%

• Public sector funds constitute between 15% -25% of total funds

Regulatory Changes

• Review of CRR;

• Objective is use a monetary policy tool the reduce inflation and stop

arbitrage on public sector funds;

• Reduce money supply available to lessen pressure on the local

currency in line with regulatory policy of strengthening the Naira

75%

Regulatory Changes

• Review of CRR - Impact;

• A negative impact on banks’ projections on earnings;

• Lending capacity reduction

• Interests rates have been kept high already by regulation –doubtful

that CRR hike will further increase rates

Regulatory Changes

• Introduction of AMCON Levy;

• CBN introduced a levy that requires of banks to contribute 0.3% of

their total assets every year to a sinking fund for AMCON in 2012;

• Was increased to 0.5% in 2013

• A means of ensuring that the industry will pay for the a bail out

• Projections are that contributions from banks wont be enough

Implementation Review

• Banks have generally complied and avoided sanctions that come

with non compliance

• CBN has reiterated the need to appoint senior officers of the GM

grade as Chief Compliance Officers of banks in July 2013

• Target goal is to have compliance officers in every bank branch

Implementation Review

• Policy of having CCO have been in place since 2002

• Institutions recognize importance and have fairly large compliance

departments

• Target goal is to have compliance officers in every bank branch is

still some way down the road

State Influence

• Environment post 2008 has seen greater scrutiny and supervision to

ensure financial system stability

• Significant fines and regulatory sanctions have been common

• A lot of the outlined changes have been the result of a mix of

political and sate exigencies

Responding to State Influence

• Best practices

• Self regulation and keeping ahead minimum standards

• Anticipating and participating in shaping policy

Conclusion

• Banks in Africa at the moment are in are a unique position of

growing economies that have tremendous potential for growth

• States will continue to hold institutions to greater supervision and

regulation

• Love may be gone from the marriage of regulators and banks but

the interest of their children will keep them married.

Conclusion

• THANK YOU