The Central Bank of Nigeria (CBN) has warned that any financial Holding Company (HoldCo) that loses controlling interests in its banking subsidiaries will lose its license.
This is one of the highlights of new restrictions imposed on HoldCos in the financial sector in order to protect depositors’ funds in the banking industry.
In an Exposure Draft on Guidelines for Licensing and Regulation of Financial Holding companies in Nigeria, CBN also banned HoldCos from participating in the loan administration or approval process of their banking subsidiaries.
Following the banking crisis occasioned by poor corporate governance and abuse of depositors’ funds for funding investment activities of their subsidiaries, CBN cancelled the universal banking model and replaced it with holding company model. The purpose was to make banks operate on stand-alone basis such that depositors’ funds will be used solely for banking activities as stipulated by regulatory requirements.
Consequently, banks were given till 2012 to either divest from their non bank subsidiaries or evolve into a holding company in order to maintain their ownership.
They were also to return their universal banking license for new license. Out of the 24 banks, five banks namely First City Monument Bank (FCMB) Plc, First Bank of Nigeria (FBN) Plc, Stanbic IBTC Bank Plc, United Bank for Africa (UBA) Plc and Union Bank of Nigeria (UBN) Plc adopted the HoldCo structure, while Access Bank Plc, Diamond Bank Plc, Fidelity Bank Plc, Guaranty Trust Bank (GTBank) Plc, Skye Bank Plc, Zenith Bank and Wema Bank chose to divest from non-banking subsidiaries.
The guidelines defined a financial holding company as a “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.”
