5 Laws That Govern Nigeria’s Banking Sector


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The banking sector is an important part of the Nigerian economy. According to Nairalytics, the research arm of Nairametrics, the banking sector has attracted over $15.7 billion in foreign investment over the last five years.

The Central Bank of Nigeria (CBN) reported that Nigeria received $68.87 billion in foreign inflows between 2017 and 2021, with the banking sector accounting for more than 22.8% of total capital imported.

In real terms, the banking sector contributes 3.79% of national GDP (Q2 2022 estimates).

Laws that regulate the banking sector

The primary legislation governing banking activities in Nigeria are the Banks and other Financial Institution Act (BOFIA) and the Central Bank of Nigeria Act.

Other laws include the Companies and Allied Matters Act 2020, the Nigerian Deposit Insurance Corporation Act and the Foreign Exchange Act.

1. Banks And Other Financial Institutions Act, 2020

Before the BOFIA 2020, the BOFIA 1991 existed for over 20 years until November 12, 2020, when President Muhammadu Buhari assented to new legislation termed BOFIA 2020 which is currently in use.

  • While the New Act reviews the penalty for operating without a banking licence and introduces additional protections for account holders, the old Act stipulates that anyone operating without a licence is liable on conviction to imprisonment not exceeding 10 years or a fine of N2 Million or both.
  • This Act empowers the Central Bank of Nigeria (CBN) to supervise and regulate all banks and other financial institutions in Nigeria.
  • On the application for the grant of a banking licence, section 3(3) of the BOFIA 2020 gives the CBN Governor absolute powers to refuse to grant a banking licence without giving any reasons whatsoever.
  • The section states that “The Governor may, with the approval of the board issue a licence with or without conditions or refuse to issue a licence and the Governor need not give any reason for such refusal”
  • On the operation of unlicensed foreign banks, Section 3 (5) & (6) stipulates that “Any foreign bank or other entity which does not have a physical presence in its country of incorporation, or is unlicensed in its country of incorporation and is not affiliated to any financial services group that is subject to effective consolidated supervision, shall not be permitted to operate in Nigeria and no Nigerian bank shall establish or continue any relationship with such a bank.”
  • On revoking or varying conditions of a licence, Section 5 stipulates the penalty for failing to comply with the conditions of a licence.
  • The section also imposes additional penalties on the officers or directors of a bank that failed to take reasonable steps to ensure compliance with the conditions.
  • According to the Act, Such a director or officer shall be liable to imprisonment for a term not less than 3 years or a fine, not less than N2 million, or for both such imprisonment and fine.
  • On revocation of banking licence, section 12 introduced circumstances that may result in the revocation of a banking licence by the CBN Governor.

2. The Central Bank Of Nigeria Act 2007

Before this Act existed the CBN Act of 1958 established the Central Bank of Nigeria.

However, The current legal framework within which the CBN operates is the CBN Act of 2007 which repealed the previous CBN Acts and all their amendments.

The CBN is the lead regulator of the banking sector in Nigeria under the provisions of the CBN Act and BOFIA.

The CBN is charged with the overall control and administration of the monetary and financial sector policies of the Federal Government in Nigeria as stipulated by the CBN Act of 2007.

  • Section 2 of the Act stipulates the objectives of the CBN which includes: To ensure monetary and price stability, Issuing legal tender currency, Maintaining external reserves to safeguard the international value of the legal tender currency, Promoting a sound financial system in Nigeria; and Act as a bank and provide economic and financial advice to the Federal Government.
  • The Act also empowers CBN to issue guidelines and circulars relating to its responsibility to banks, foreign exchange market, and other financial institutions.

3. The Companies and Allied Matters Act, 2020

This Act establishes the Corporate Affairs Commission (CAC), which is charged with the regulatory powers over all registered companies in Nigeria, including banks and other financial institutions.

  • Under CAMA, certain corporate governance principles were introduced which require a public company to have at least three independent directors and prohibit a person from being a director in more than five public companies and these provisions apply to a bank that is a public company.
  • The Act governs banking activities because to operate a financial institution or banking business in Nigeria, one has to be duly registered and incorporated under the CAMA.
  • CAMA also provides various regulations and compliances that banks must follow from issuance of shares to meetings of companies, among others.
  • CAMA stipulates that Every registered company must file annual returns with the CAC as a mandatory requirement to which the Banks must adhere.

4. The Nigerian Deposit Insurance Corporation Act 2006

This Act is responsible for ensuring all deposit liabilities of licensed banks.t the Act seeks to ensure that liquidation proceeds carried out by banks are orderly.

  • This Act established the Nigerian Deposit Insurance Corporation (NDIC).
  • The NDIC is responsible for ensuring all deposit liabilities of licenced banks operating in Nigeria, Giving assistance to insured institutions in the interest of depositors, Guaranteeing payment to depositors and assisting monetary authorities in the formulation and implementation of banking policies.
  • With a directive from the CBN, The NDIC takes over the management and control of a failing bank and ensures the efficient closure of the failed bank and financial institutions without any disruption of the banking system.
  • It also ensures the cost-effective realisation of assets and settlement of claims to depositors, creditors, and shareholders.

5. Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, 1995 (FEMM Act)

This Act provides the regulatory framework for foreign exchange transactions and controls.

  • As provided under the Act, transactions in the foreign exchange market are to be conducted in convertible foreign currency.
  • Section 2 (2) of the Act listed specific money instruments that can be used in the market

These include: Foreign banknotes, Foreign coins, Travelers’ cheques, Bank drafts, Mail or telegraph transfers and any other money market instruments that the Central Bank may with the approval of the finance Minister determine

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