CBN TO ABOLISH UNIVERSAL BANKING LICENSES
CBN to abolish universal banking licenses
By Bassey Udo
March 16, 2010 12:05AM
The Central Bank of Nigeria (CBN) yesterday said it would soon stop the issuance of universal banking licenses to operators in the nation's banking industry.
According to the director, banking operations, Samuel Oni, the new banking system structure is in line with the ongoing reforms in the banking sector aimed at supporting the stability recorded so far.
Under the new arrangement, operators would be expected to apply for and get separate licenses for each model of banking operations, including commercial banking, micro-finance banking, mortgage banking and investment banking.
Mr. Oni, who disclosed this at the end of the 298th meeting of the Bankers' Committee held yesterday, added that 'This is part of the ongoing reforms to redraw the banking structure to ensure that commercial banks face their traditional business and ensure that depositors' funds are not endangered. The new arrangement would protect commercial bank activities from pressures from non-commercial banking operations, to allow them concentrate in the provision of their traditional banking activities.'
The Central Bank had in 1999, under the tenure of Joseph Sanusi, introduced the universal banking license scheme. Under the scheme, banks were allowed to operate in all sectors without differentiation as merchants, commercial or mortgage banks.
Separate licenses
Mr. Oni said operators would be issued different categories of licenses, depending on whether the bank is interested in carrying out business at international, national and regional levels, adding that 'Those interested in the provision of specialised banking services, like non-interest banks, small and medium enterprises (SME) banking, would also be expected to get separate operational licenses.'
The policy, he pointed out, would bring the current services of subsidiary companies of banks into a non-operating financial holding company under a new model, with the bank as a subsidiary, adding that details about how it would work would be spelt out during a transitional period that would last between 18 and 24 months to ensure that normal banking operations are not disrupted.
Although he did not say the exact time that the new arrangement is scheduled to take off, he said that it would be 'within the next few months.'
He also said the bank has commenced discussions with the relevant government agencies, like the Securities and Exchange Commission (SEC), Corporate Affairs Commission, and Federal Inland Revenue Service (FIRS), to work out modalities for the take off of the new policy.
Economic performance
Reviewing the performance of the economy, the National Economic Intelligence Committee expressed satisfaction that the policy of injecting targeted funding to some priority sectors of the economy is already yielding the desired impact and that it should be sustained.
The committee listed the N200billion Agricultural Credit Scheme, put together to provide liquidity for lending to agricultural sector, and the N500billion recently announced to support efforts to develop infrastructure in the power sector at an interest rate of not more than seven percent, with tenure of two to 15 years.
The bond sub-committee, in its report to the meeting, recommended four options for the issuance of the facility for infrastructure development, including that the federal government or development bank would issue infrastructure bond for lending to commercial banks according to laid down criteria, while the development bank can also issue a bond in its name for specific infrastructure projects.
The other options, according to the committee, include a state government issuing revenue bond for infrastructure and other development projects, while a consortium of banks can also come together to jointly issue bonds for infrastructural development.
Besides, the committee also recommended that the various regulators, like SEC, should initiate an amendment of the Investments and Securities Act (ISA) to permit the issuance of government bonds and registration of a financial markets dealers' association. This is to enable primary dealers in government securities to also trade on corporate revenue bonds over the counter.
To fast-track the development of the corporate bond market, the committee also recommended that the CBN would issue the guideline for securities lending within the first quarter of this year, while FIRS is requested to reduce taxes and statutory fees by waiving taxes on corporate bonds as is done on state government bonds.
Call for action
The sub-committee on economic development, in its report, identified power, transportation and agriculture as the most critical sectors for the development of the real sector of the economy, adding a call for action in four areas, to help contribute to the nation's economic development.
These areas include increased lending to infrastructure and real sector; sustenance of regulation and policy reforms; strengthening of the financial sector structure in terms of policy and regulatory initiatives; and creating a platform for leveraging effective transmission of economic policy in the banking system.
To follow up on the commitment of the sector to support agencies and state governments with policies and plans to fund infrastructure development, the committee said it has held discussions with the Lagos, Delta, Rivers, Ogun and Kaduna State governments as well as the Minister of Power on how to identify projects for funding.
Apart from sending investment banking and projects finance experts to work with these state governments and agree on specific projects, the committee said a technical committee has been set up to work out modalities for the implementation of agreed proposals.
The technical committee includes representatives from the CBN, Bank of Industry (BOI), Manufacturers Association of Nigeria (MAN), and National Association of Small and Medium Enterprises (NASME), with the African Finance Corporation (AFC) serving as the technical adviser on power projects.