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Varied reactions have greeted the newly introduced banking policy which became effective from Monday, November 15, 2010.

The Central Bank of Nigeria (CBN) said the new policy is aimed at promoting a sound financial system in Nigeria and that it has determined that the Universal Banking Model and the resultant expansion of banks into a broad range of financial services, has exposed the banks to higher operating risks, increased the propensity to put depositors' funds into risky non-banking businesses, and consequently heightened the risk of financial system instability.

Financial expert and the Chief Executive Officer of Dunn Loren Merrifield, Sonnie Ayere, raised fundamental doubts over the workability of the policy.

According to him, the holding company option is not necessary. 'I sincerely doubt the working of the ban on universal banking. I would rather have the banks completely separated as opposed to the option of a holding company,' he said.

He explained that having commercial banks and investments banks lumped together under a holding company doesn't't change anything. 'In fact, it is still subjects to the banks and to the whims of the board of the holding company,' he averred.

He said he would prefer the commercial banks to function on their own and the investment banks to also function on their own because they manage different risks.

Titled Regulation on the Scope of Banking Activities and Ancillary Matters, No. 3, 2010, the new rule, according to the Central Bank of Nigeria (CBN), is aimed at streamlining the banking operation in Nigeria as well reducing the exposure of the banks to higher operational risk.

With the new rules, universal banking guidelines which have been  in existence since 2000 have been repealed and henceforth, only commercial banks, merchant banks and specialised banks, which include non- interest banks, microfinance banks, development banks and mortgage banks are the only types of banks that will be permitted to carry out banking business in Nigeria.

The old rules were considered to have exposed the banks to higher operating risks as well as increased the propensity to put depositors' funds into risky non-banking business, and consequently heightened the risk of financial system instability.

Also, Dominic Ichaba, Group Executive Director of Cornerstone Insurance Plc said the commencement of the policy abolishing universal banking is good for the industry.

'There is a positive side of it. The positive side is that there would be the development of key competencies that are required for banking. Banking is a serious business. So when you are into banking and so many things at the same time, particularly in a financial system that is developing, it is going to be tough,' he said.

According to him, the bankers should focus on core banking and that over time, it will positively affect loans system.

He said that there would be less bad loans because the bankers will develop the skills to do the business of banking.

He noted that the subsidiaries in capital market, pension, insurance etc have learnt a lot from the banks, particularly in areas of marketing and management.

'It is positive for them and they should be able to survive on their own. Immediately, it may be a challenge but in the long run, they will benefit leveraging on the expertise they learnt from the banks. If the CBN follows that up with a kind of integration in the financial service sector, it will go well.'

Some, he said would struggle but majority will survive.  The banks have also been given an option of a holding company, which will carry the bank and the subsidiaries.  'So I also see some of the banks establishing holding companies if they don't want to let go their subsidiaries,' he said.

The general manager, Guarantee Trust Assurance (a former subsidiary of Guarantee Trust Bank) Mr. Owolabi Salami, said generally speaking, it was announced earlier and that he expects the banks to divest their holdings from the subsidiaries or establish a holding company.

GT Bank late last month divested its interest from all its subsidiaries including GT Assurance.

On whether GT Bank's divestment from GT Assurance will affect operations and profit of his company and his parent company, he explained that 'it will not affect profits of the subsidiaries because there is still a strong business synergy between the insurance industry for instance and the banking sector. The insurance industry does not have the wide reach, infrastructure and distribution capacity for now, to achieve the level of success the banking sector has achieved. Rather than recreating the wheel, both the banking and insurance sectors recognise that they can leverage on each other's strengths.

'For instance, GT Assurance will continue to do business with Guarantee Trust Bank. We will continue to leverage on GT Bank to deepen the reach of insurance and GT Bank will also reap certain benefits from that association. Our business will go on as normal but the ownership has changed,' he said.

According to the new rule issued by the CBN which was signed by the apex bank's governor, Sanusi Lamido Sanusi, Section 57 of the Banks and Other Financial Institutions Act (BOFIA) Cap. B3 Laws of the Federation of Nigeria 2004, stated that no bank shall establish, maintain or permit to exist, any related enterprise except pursuant to Sections 21(1) and 22(1) (c) of BOFIA and that such related enterprise is a banking institution incorporated outside Nigeria with the permission of the CBN and such related enterprise is a company jointly established by two or more banks with the approval of the CBN for the purpose of promoting the development of the money market or improving the delivery of banking services in Nigeria.

It also stated that: 'From the date hereof, no bank shall acquire real estate or immovable property other than as business premises for its own use, as may be authorized by the CBN, grant or permit to subsist , any loan, donation, gifts or any form of financial accommodation to any political funds, political party, or for political purposes whether directly or indirectly, incur any political expenditure, grant or permit to subsist, any loan to any persons to invest in the primary issues of any stocks of any bank or grant any loan or any form of financial accommodation to any person or enterprise to facilitate the acquisition of any related entity from which the bank is divesting in compliance with this regulation.'

The apex bank also stated that not later than 90 days from 15th November 2010, every bank currently operating under a universal banking licence shall submit for the approval of the CBN, a compliance plan duly approved by the bank's board of directors.

'The Compliance Plan shall contain such information as the CBN may prescribe from time to time, including the type of banking licence that such bank proposes to operate and a detailed proposal on how the bank intends to comply with the provisions of this regulation, and business justification for the approach proposed, and where the CBN considers the compliance plan satisfactory, CBN shall grant such bank an approval – in principle, pursuant to which the applicant bank shall forthwith commence the restructuring of its operations and affairs for the purposes of bringing same in conformity with the provisions of this regulation and the compliance plan', it said.

Every bank, which has been granted an approval – in principle, according to the new rules, shall ensure that from the date of such approval – in principle, it shall conduct its business operations in accordance with the terms of approval - in principle and the approved compliance plan.

The new rules also explain that not later than 60 days before the effective date, every bank that has been granted an approval  in-principle by the CBN or  has had the terms of its licence varied, shall apply to the CBN to have its universal banking licence exchanged for an appropriate licence to conduct business as one of the types of banks permitted and in applying for such licence, every applicant bank shall provide such information, document , and reports as the CBN may from time to time specify, including evidence of compliance with the compliance plan, or the varied conditions of licence as the case may be.

'Such bank shall not enter into any contract or commitment or do anything which, in any such case, is either inconsistent with the terms of the approved compliance plan or out of the ordinary and usual course of its business,  it promptly seeks the approval of the CBN in writing upon the occurrence of any event or circumstance which requires the bank to depart from the approved compliance plan;  it does not advertise, or generally solicit, for any business which although consistent with the terms of the universal banking licence which it presently holds, will be inconsistent with the operations of the type of bank for which it has been granted an approval - in-principle to operate as, it conducts its affairs in a manner which enables it to execute the approved compliance plan, and complies with this regulation within the shortest time possible; Bank henceforth must notify CBN for any increase in remuneration, payment of dividend or allowance payable to the directors.

'Save with the prior writ ten consent of the CBN, there will not be any increase in the remuneration payable by the bank to any employee, except where such increase is in the ordinary course of business and is consistent with the bank's human resources policy and annual budget for the relevant year, save with the prior writ ten consent of the CBN, there will not be any increase in the remuneration payable by the bank to any director or agent , nor any payment of any bonus, nor any profit sharing or other extraordinary remuneration payable to any such director or agent, or any change in, or adoption of any new bonus, profit sharing, or other similar plan, agreement or arrangement with respect to such director or agent;

'Save in accordance with the approved compliance plan, or in the ordinary course of business, it will not declare, make or pay any cash dividend or other distribution or allot, issue, grant any options over, redeem, purchase, consolidate, convert, sub-divide or reduce any share or loan capital or issue any share warrants or securities convertible into shares.'

Banks must, not later than five days after the end of each month, submit to the CBN for its review, progress implementation report, setting out in detail, such information as the CBN may specify from time to time, including, confirmation of compliance and the progress being made in the implementation of the compliance plan.