The Central Bank of Nigeria (CBN) has released guidelines for setting up, regulating and supervising financial holding companies in Nigeria.

In a circular to all banks and other financial institutions signed by the Director, Financial Policy and Regulation Department of CBN, Kevin Amugo, obtained from its website at the weekend, the apex bank said financial holding companies that had been licensed prior to the issuance of this guidelines need not apply for a new licence.

It stated that the application for a grant of approval in principle shall be accompanied with a non-refundable application fee of N2 million or such other amount that the CBN may specify from time to time payable to the Central Bank of Nigeria by bank draft or through electronic transfer; evidence of meeting the prescribed minimum paid-up capital as defined in Section 7.1of the guidelines subject to the satisfaction of the CBN.

Other accompanying documents are detailed business plan or feasibility report which shall, at a minimum, include objectives of the financial holding company and those of the subsidiaries it intends to establish/acquire; justification for applying for the financial holding company; ownership structure in a tabular form indicating the name of proposed investor(s), profession/business and their percentage shareholdings; bio-data/resume of proposed investors; indication of sources of funding of the proposed equity contribution for each investor; “where the source of funding the equity contribution is a loan, it shall be a long-term facility of, at least, a 7-year tenor, and shall not be obtained from the Nigerian banking system.”

The guideline further indicated that “Pursuant to Extraordinary Gazette No. 38 of December 29, 2011, a financial holding company is a company whose principal object includes the business of a holding company set up for the purpose of making and managing (for its own account) equity investment in two or more companies, being its subsidiaries, engaged in the provision of financial services, one of which must be a bank.”

A ‘bank,’ for the purpose of the guidelines, means a commercial, merchant or specialised bank.

The Central Bank of Nigeria repealed the Universal Banking Guidelines and introduced a new banking model in 2010 as part of strategic initiatives to reposition the Nigerian banking system on the path of sustainable viability.

The new banking model permits banks/banking groups to retain non-core banking businesses by evolving into a non-operating Holding Company (HoldCo) structure. Under this model, a non-operating HoldCo is expected to hold equity investment in banks and non-core banking businesses in a subsidiary arrangement.

This arrangement seeks to ring-fence depositors’ funds from risks inherent in non-core banking businesses. A financial holding company shall be a source of financial strength to the subsidiaries. In serving as a source of financial strength to its subsidiaries, a financial holding company shall maintain financial flexibility and capital-raising capabilities for supporting its subsidiaries.

It shall also stand ready to use available resources to augment capital funds of its subsidiaries in periods of financial stress or adversity.