CBN declares government’s equity in a bank shall not exceed 10% in five years

Earlier today, Nigeria’s Central Bank (CBN) released the new Corporate Governance Guidelines for Commercial, Merchant, Non-Interest, and Payment Service Banks in Nigeria. The latest regulations have been put in place by the apex bank to address recent events in the capital market affecting some commercial banks and are classified under the protection of shareholders’ rights provisions.

The code addresses government ownership of banks, which it states should not exceed more than 10% (direct and indirect) for a maximum of 5 years. It also states that no one can own the controlling stake in more than one bank, except if there is prior approval by the central bank.

“Except where prior approval of the CBN is granted, no individual, group of individuals, their proxies or corporate entities shall own controlling interest in more than one bank.”

Similarly, any investor looking to acquire up to 5% of any bank in Nigeria will need to obtain prior approval and no objection from the central bank. This is according to section 20.2 of the new corporate guidelines.

The new regulation also states that where the central bank has an objection to any of the acquisitions, the notice of the objection must be communicated to the bank. The bank then has 48 hours to notify

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“Where the CBN has an objection on any acquisition as stated in Section 20.2.b above, notice of the objection shall be communicated to the bank, and the bank shall notify such investor(s) within fortyeight (48) hours.”

How CBN’s latest regulation affects government’s ownership of banks

The protection of shareholders’ rights regulation also extends to government ownership of banks, which it states should not exceed more than 10% (direct and indirect) for a maximum of 5 years.

“Government’s direct and indirect equity holding in a bank shall not be more than ten per cent (10%), which shall be divested to private investors within a maximum period of five years from the date of investment.”

For existing investments above five years, the CBN directed that the government has two years from the effective date of the Guidelines to comply with the provision.

“For existing investments above five years, the bank shall within two years from the effective date of this Guidelines, comply with the provision.”

“CBN’s prior approval and No Objection shall be sought and obtained before any acquisition of shares of a bank (including through the capital market), that would result in equity holding of five per cent (5%) and above, by any investor.”

The freshly released regulation also addresses Financial Holding Companies (FHC), and activities around mergers and acquisitions. Henceforth, no director or shareholder can change control of a bank without the prior approval of the bank. It also does not allow the transfer of 5% and above of a bank to any shareholder without the prior approval of the CBN.

No FHC or any of its directors, shareholder or agent shall enter into an agreement which
results in a change of control of the holding

• “i. a change in the control of the FHC, the transfer of shareholding of five per cent (5%) and above in the FHC; and/or an increase in shareholding to five per cent (5%) or more in the FHC. Provided that CBN’s prior approval and No Objection shall be sought and obtained, before any acquisition of shares of an FHC by an investor (including through the capital market), that would result in equity holding of five per cent (5%) and above.
• ii. the sale, disposal or transfer of the whole or any part of the business of the FHC;
• iii. the acquisition or merger of the FHC;
• iv. the reconstruction of the FHC; or
• v. the employment of a management agent, management by or transfer of its business to any such agent.”