Post on 10-Mar-2020
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