Introduction
A bank license is a legal document that authorises a financial institution to operate as a bank and conduct banking activities. The bank license shows that the financial institution has met government regulations and requirements to protect its customers' money and data. It indicates that the bank is safe and secure for customers to use.
To receive a bank license, a financial institution must file an application with the appropriate regulatory authorities, such as the Central Bank. This usually includes completing capital requirements, demonstrating operational preparedness, and passing "fit and proper" assessments on the management team.
Legal Framework Governing Banking License
- The Central Bank of Nigeria Act 2007: It established the Central Bank of Nigeria as the regulating body responsible for providing banking licences in Nigeria.
- he Banks and Other Financial Institutions Act ("BOFIA") requires all banks in Nigeria to have a valid license to do banking operations.
- The Central Bank of Nigeria's ("CBN") Regulations on Scope of Banking Activities and Ancillary Matters, No. 3, 2010: It enhanced the scope and framework for banking business in Nigeria.
- Companies and Allied Matters Act ("CAMA"): Banks in Nigeria must comply with the Companies and Allied Matters Act ("CAMA") and be incorporated as companies.
Types of Banking License
The Central Bank of Nigeria (CBN) issues key categories of banking licenses, including:
- Commercial Banking License:
- Allows banks to receive deposits, make loans, and provide a variety of financial services.
- National commercial banks must have a minimum paid-up capital of ₦25 billion, while regional banks must have ₦10 billion and international commercial banks need ₦50 billion.
- Commercial banks can operate in all states of Nigeria or in a specific region, depending on the licensing type.
- Merchant Banking License:
- Allows banks to offer firms specific financial services such as advising, underwriting, and corporate restructuring.
- The minimum amount of paid-up capital is ₦15 billion.
- Certain retail banking practices are restricted for merchant banks, such as accepting deposits that can be withdrawn by cheque.
- Specialized Banking License:
- It includes non-interest banks, microfinance banks, development banks, mortgage banks, and other CBN-designated institutions.
- Minimum paid-up capital varies by institution type, from ₦5 billion to ₦10 billion.
- These specialised banks focus on providing financial services for certain sectors or segments of the population.
How to Obtain a Commercial Bank License
The key steps to obtain a commercial bank license in Nigeria are:
- Grant of Approva in Principle
- Grant of Final License
- Pre-Commencement of Operations Requirements
1. Requirements for Grant of Approval-in-Principle (AIP)
- Submit a formal application to the Governor of the Central Bank of Nigeria (CBN) for a banking license.
- The application must include a feasibility report, draft Memorandum and Articles of Association, list of shareholders/directors/officers, non-refundable application fee of ₦500,000.00 and any other required documents.
- The applicant must deposit the minimum paid-up capital of ₦25 billion with the CBN.
- The CBN will review the application and may issue an Approval in Principle with or without conditions or refuse to issue the license.
2. Requirements for Grant of Final License
- Within 6 months of receiving the Approval in Principle, the applicant must submit an application for the final banking license.
The documents required include:
- Non-refundable licensing fee of N5,000,000 in bank draft payable to CBN.
- 3 copies each of: Certified true copy (CTC) of Certificate of Incorporation of the bank, CTC of MEMART, CTC of Forms CO2 (Allotment of shares) and CO7 (particulars of directors).
- Evidence of location of Head Office/Branch Building (rented or owned) for the take-off of banking business.
- Changes (if any) in the Board, Management and Shareholding should be clearly stated for necessary appraisal.
- Evidence of strongroom, loading bay and Banking Hall Facilities.
- Bullion lorries with necessary security gadgets.
- Evidence of installation I.T. facilities/computerization.
- Copies of letters of offer and acceptance of employment in respect of the Management Team.
- The CBN will review the application and may issue the final banking license
3. Pre-Commencement of Operations Requirements
- Before commencing operations, the bank must submit additional documents to the CBN, such as:
- Evidence of admission into the clearing house.
- Copy of shareholders register
- Copy of share certificate issued to each investor.
- Draft copy of opening statement of affairs signed by directors and auditors.
- Evidence of insurance coverage for cash such as Cash-In-Transit (CIT), Cash on Counter, Strong room/ Vault, etc, insurance policies.
- Manual of Operation.
- Evidence of readiness of cheques and other security documents.
- Minutes of Pre-Commencement Board Meeting.
- Evidence of adequate security arrangements – physical and
logical such as:
- Uniformed and/or plain cloth policemen
- Uniformed security guards
- CCTV especially in the banking hall, strong room and loading bay areas
- Raid alarm (especially foot operated type) inside the teller cubicles, and fire alarms at strategic points within the premises
- Regiscope camera
- Cash movement & escort vans fitted with communication equipment
- The CBN will review the documents and grant approval to commence banking business.
Conclusion
A bank license is a fundamental regulatory approval that permits a financial institution to operate as a genuine bank and provide banking services to customers while under the supervision and protection of the appropriate authorities.
The key steps to obtain commercial bank license are to submit an initial application for Approval in Principle, then apply for the final banking license, and finally meet the pre-commencement requirements before commencing operations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.