Are you ready to set up a commercial bank in Nigeria, but unsure about the requirements and procedures for doing so? In this article, we will outline the procedure for setting up a commercial bank in Nigeria, aiming to provide a comprehensive guide for individuals seeking a thorough understanding of the process.
OVERVIEW OF COMMERCIAL BANKS IN NIGERIA
A commercial bank is a bank issued a license to carry out banking business as stipulated by the Central Bank’s Guidelines. A license is seen as the grant of legal authority by the Governor of the Central Bank of Nigeria to the promoters of the bank to carry on business. There are three types of commercial banks: international, regional, and national commercial banks. We will now consider the scope of operations for each of these commercial banks.
- International Commercial Bank
An international commercial bank is permitted to operate across all States within the Federation and may also establish and maintain offshore banking operations in jurisdictions of its choice, subject to the approval of the Central Bank of Nigeria and compliance with the regulatory requirements of the respective host countries.
- Regional Commercial Bank
A Commercial Bank with regional authorization may operate within 6 to 12 contiguous states across no more than two geopolitical zones, including the Federal Capital Territory.
- National Commercial Bank
A Commercial Bank with national authorization is permitted to carry out banking operations in all States of the Federation.
It is worth noting that on the 28th of March, 2024, the Central Bank of Nigeria issued a new directive announcing the upward review of the minimum capital base for licensing of commercial banks at 500 billion, 200 billion, and 50 billion for international, national, and regional commercial banks, respectively. Following this directive, promoters of proposed commercial banks are mandated to comply with the new directive as a prerequisite for obtaining a license, in addition to other requirements.
WHAT ARE THE PERMISSIBLE ACTIVITIES OF COMMERCIAL BANKS IN NIGERIA?
The scope of banking operations covered by commercial banks licensed in Nigeria is expressly provided by the CBN guidelines regulating commercial banks. We will now dive into the permissible and non-permissible banking operations of commercial banks in Nigeria
Permissible Banking Operations of Commercial Banks
Whether international, regional, or national, commercial banks in Nigeria are permitted to carry out the following banking activities;
- To receive deposits and maintain the savings and current accounts of individuals and corporations
- Provide retail banking services, including mortgage products
- Provide finance and credit facilities.
- Deal in foreign exchange and provide foreign exchange services, subject to the requirements of the Foreign Exchange (Monitoring & Miscellaneous Provisions, etc) Act Cap. F35 Laws of the Federation of Nigeria 2004, any other law, and CBN Regulations;
- Act as a settlement bank, subject to CBN approval;
- Provide treasury management services, including but not limited to the provision of money market, fixed income, and foreign exchange investments on behalf of clients, subject to the approval of the CBN;
- Provide custodial services;
- Provide financial advisory services incidental to commercial banking business which do not require regulatory filings with the Securities and Exchange Commission such as: advising on financing and business strategies and structures, conducting research and economic intelligence services, building financial models, writing business plans, conducting private placements, arranging loan syndications and advising on project structures;
- Invest in non-convertible debt instruments and, subject to CBN approval, enter into derivative transactions;
- Undertake fixed income trading, where duly licensed to act as a Primary Dealer/ Market Maker to trade in securities such as Federal Government bonds, treasury bills, treasury certificates, and such other debt certificates as may be prescribed by the CBN from time to time;
- Provide non-interest banking services subject to CBN approval; and
- Such other activities as may be prescribed in writing by the CBN from time to time.
Non-permissible Banking Operations of Commercial Bank
Commercial banks are prohibited from engaging in the following business activities;
- Insurance underwriting;
- Loss adjusting services;
- Re-insurance services;
- Asset Management services;
- Issuing House and Capital Market underwriting services;
- Investment in equity or hybrid-equity instruments, save and except for the investments permissible under BOFIA;
- Proprietary trading, save as permitted by these Regulations;
- Provision of financial advisory services; and
- Any other business activities that may be restricted by the CBN from time to time
WHAT LAWS REGULATE THE ESTABLISHMENT OF COMMERCIAL BANKS IN NIGERIA?
Before we take a delve into the core of the subject matter, it is pertinent to highlight the laws regulating the establishment, operations, and administration of banks in Nigeria. They are as follows;
- Companies and Allied Matters Act
Banks operating in Nigeria are recognized as corporate entities and are required to be duly incorporated as companies by the provisions of the Companies and Allied Matters Act (CAMA).
- Banks and Other Financial Institutions Act
All banks are mandated to obtain a valid banking license to lawfully engage in banking operations within Nigeria.
- Central Bank of Nigeria
This Act establishes the Central Bank of Nigeria (CBN) as the statutory body responsible for the issuance of banking licenses in the country.
- Relevant CBN Guidelines on Regulation and licensing of Banks
HOW TO SET UP A COMMERCIAL BANK IN NIGERIA
The process for starting a commercial bank in Nigeria can be divided into three major stages. There are;
A. The Grant of Approval – in- Principle (AIP) Stage
- Payment of a non-refundable fee of N500,000
- The application shall be accompanied by the following documents;
- A feasibility or business plan which shall include the Certificate of Incorporation, CTC of Memorandum of Association, and CTC of CAC Form 07 (particulars of directors) and 02 (return of allotment of shares), board composition and management team, internal control structure, other documents such as: Shareholders Agreement providing for Disposal/transfer of shares as well as authorization, amendments, waivers, reimbursement of expenses etc, Statement of intent to invest in the bank, Technical Services Agreement (where applicable), Any other documents/information that may be demanded from time to time.
- If satisfied, CBN issues an Approval-in-Principle (AIP), usually valid for 6 months.
B. Application for grant of final license
To obtain full regulatory approval to commence operations, the following requirements must be complied with;
- The promoters will apply to the CBN for the grant of a final license
- Payment of a non-refundable fee of N5,000,000 (five million naira) in a bank draft to the CBN
- The application shall be accompanied by 3 copies each of the CTC of the certificate of incorporation, MEMART, Form CAC07, and CAC02
- Applicants must provide evidence of a suitable head office or branch location, details of any changes in board, management, or shareholders, proof of essential banking infrastructure (e.g., strong room, loading bay, banking hall), availability of bullion vans with security features, installed IT systems, and employment letters for the management team.
- If CBN is satisfied, the bank will be issued a Final Banking License
C. Post-Licensing Stage
Here, the promoters are required to comply with some pre-commencement conditions before the commencement of banking operations. They are as follows;
- A letter shall be sent to the CBN notifying the CBN of the bank’s readiness to commence operations.
- Applicants must submit evidence of clearing house admission, shareholder register, share certificates, a draft opening statement of affairs signed by directors and auditors, and valid insurance for cash handling.
- Additional requirements include an operations manual, proof of cheque, and document readiness, minutes of the pre-commencement board meeting, and comprehensive security measures (e.g., police presence, guards, CCTV, alarms, Regiscope camera, and communication-equipped escort vans).
CONCLUSION
Setting up a commercial bank in Nigeria is a rigorous but achievable process that demands strategic planning, substantial capital investment, and strict compliance with regulatory requirements set by the Central Bank of Nigeria. From securing the Approval-in-Principle to meeting post-licensing conditions, every stage must be approached with diligence and transparency. With the right team, infrastructure, and governance framework, aspiring promoters can successfully navigate the licensing process and establish a credible banking institution that contributes to Nigeria’s financial ecosystem.
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