Investors Must Get CBN Approval To Acquire 5% Interest In Nigerian Banks

The Central Bank of Nigeria (CBN) has issued new regulations with the aim of limiting single investor ownership or shareholding in financial institutions to five per cent. 

According to the newly introduced rules, any investor seeking to acquire more than five per cent of a bank in Nigeria must obtain prior approval and a no objection clearance from the apex bank.

The recently released regulation, titled ‘Corporate Governance Guidelines for Commercial, Merchant, Non-Interest, and Payment Service Banks in Nigeria,’ also specifies that no individual can hold a controlling stake in more than one bank without prior approval from the apex bank.

In cases where the central bank objects to an acquisition, the bank must be notified. The bank then has 48 hours to inform the investor(s) in question, stating, “Where the CBN has an objection to any acquisition as stated in Section 20.2.b above, notice of the objection shall be communicated to the bank, and the bank shall notify such investor(s) within forty-eight hours.”

The new corporate governance rules also address Financial Holding Companies (FHC) and activities pertaining to mergers and acquisitions. According to the updated code of governance, no director or shareholder can change control of a bank without prior approval from the bank. Furthermore, the transfer of more than five percent ownership of a bank to any shareholder is prohibited without prior approval from the CBN.

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“Except where prior approval of the CBN is granted, no individual, group of individuals, their proxies, or corporate entities shall own a controlling interest in more than one FHC,” stated the CBN in a guideline released yesterday, amidst a corporate governance crisis in some commercial banks in the country.

The newly introduced regulations stipulate that without prior written approval from the CBN, no financial holding company or any of its directors, shareholders, or agents can enter into an agreement resulting in: “a change in the control of the FHC, the transfer of shareholding of five percent and above in the FHC, and/or an increase in shareholding to five percent or more in the FHC. Provided that CBN’s prior approval and No Objection shall be sought and obtained before any acquisition of shares of an FHC by an investor (including through the capital market) that would result in equity holding of five percent and above.”

The protection of shareholders’ rights also extends to government ownership of banks, which the regulations state should not exceed ten percent (direct and indirect) for a maximum of five years.

“The government’s direct and indirect equity holding in a bank shall not exceed ten percent (10 percent), which shall be divested to private investors within a maximum period of five years from the date of investment.”

For existing investments exceeding five years, the central bank has granted the government a two-year grace period from the effective date of the Guidelines to comply with this provision. “For existing investments exceeding five years, the bank shall, within two years from the effective date of these Guidelines, comply with the provision,” read a section of the circular.

“The sale, disposal, or transfer of the whole or any part of the business of the FHC; the acquisition or merger of the FHC; the reconstruction of the FHC; or the employment of a management agent, management by, or transfer of its business to any such agent.”

The CBN further emphasized that, except where prior approval of the CBN is granted, no individual, group of individuals, their proxies, or corporate entities shall hold a controlling interest in more than one bank.

To promote good corporate governance, banks are encouraged to provide comprehensive disclosures beyond the statutory requirements in BOFIA 2020 and other applicable laws and regulations.

Regarding board structures and composition, the apex bank specified that for a Payment Service Bank (PSB), the minimum and maximum number of directors on the board should be seven and thirteen, respectively.