CBN Releases Guidelines For Financial Holding Companies

The Central Bank of Nigeria
(CBN) has released the guidelines for licensing and regulation of financial holding companies in Nigeria.
This is contained in a circular issued and signed by the director, financial policy and regulation Department of the apex bank, Mr. Kevin Amugo and made available to The Tide.
The guideline is coming four years after CBN repealed the universal banking guidelines, introducing a new banking model that allows banks to adopt a holding company or sell off non-banking subsidiaries.
According to the circular, the CBN’s financial department had earlier in the year released a circular calling for inputs from operators in the industry.
It would be recalled that the new banking model instituted in 2010 restricted banks to only banking business but permits banks 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 business in a subsidiary arrangement.
The arrangement seeks to ring-fence depositors’ funds from risks inherent in the non-core banking businesses.
The situation resulted in Frist Bank, Stanbic IBTC and UBA evolving as Holdcos, while banks like Guaranty Trust Bank, Diamond Bank and Skye Bank sold off their non-banking subsidiaries.
The guideline defines a financial holding company as a company whose principal object includes the business of a holding company set up for the purpose of making and managing its equity investment in two or more companies being its subsidiaries.
The bank could engage in the provision of financial services, one of which must be a bank, adding that the term bank refer to commercial, merchant or special bank such as microfinance banks.
For structure, the apex bank in the guideline says “for any financial holding company structure to emerge there shall be at least, two subsidiaries and the focus of the conglomerate shall be in the financial services sector.
However, a financial holding company can lose its HoldCo license if it “loses its controlling interest in the only banking subsidiary in the group, for a period that exceeds six consecutive months, the financial holding company shall cease to be a financial holding company and will be required to return its licence to the Central Bank of Nigeria for cancellation.
With controlling interest put at 50 per cent voting shares in a subsidiary, the guidelines stipulates that “Where a financial holding company loses controlling interest in a subsidiary under 4.1 (f) or (g), it shall divest wholly from that subsidiary within a period of six (6) months or any other period as may be determined by the CBN.”
With the approval of the CBN, a financial HoldCo is allowed to provide shared services within the group in respect of “Human Resources policy; Risk Management policy; Internal Control policy; Compliance policy; Information and Communication Technology; Facilities (Office Accommodation including Electricity, Security and Cleaning Services in that accommodation) Strategy and any other services as may be approved by the CBN from time to time.”
The HoldCo can however not undertake activities such as “Investment in non-financial firms; Establishment, divestment and closure of subsidiaries without the prior written approval of the CBN and/or any other relevant regulatory or supervisory authority, as the case may be. “Deriving or receiving income from sources other than as listed herein: a) Dividend Income from its subsidiaries/associates; b) Income from shared services, where applicable; c) Interest earned from idle capital funds invested in government securities; d) Divestment from subsidiaries/associates; and e) Any other source as may be approved by the CBN.”