How to Obtain a Bank License in Nigeria

This guide outlines How to Obtain a Bank License in Nigeria, the application process, requirements, and the regulatory framework that governs the sector.

How to Obtain a Bank License in Nigeria: A Complete Guide for Financial Institutions

The banking sector in Nigeria plays a pivotal role in the economy, offering essential financial services to individuals, businesses, and the government.

To operate legally, financial institutions must acquire a banking license from the Central Bank of Nigeria (CBN). The process of obtaining these licenses depends on the type of banking institution and the scope of its operations.

Overview of Bank Licenses in Nigeria

The Central Bank of Nigeria (CBN) regulates and supervises banking institutions in Nigeria by issuing various licenses. These licenses depend on the type of banking services offered and include:

• Commercial Bank License
• Merchant Bank License
• Microfinance Bank License
• Non-Interest (Islamic) Banking License
• Payment Service Bank License
• Development Bank License
• Specialized Bank License

1. Commercial Bank License

Commercial banks provide broad financial services such as deposit acceptance, loans, and payment processing. They are categorized as regional, national, or international, based on their operational scope.

Requirements for a Commercial Bank License

• Capital Requirement:
  • Regional: ₦10 billion
  • National: ₦25 billion
  • International: ₦50 billion
• Feasibility Report: Economic viability and financial projections.
• Board and Management: Directors must meet the CBN’s fit-and-proper criteria.
• Business Plan: Outlines the bank’s strategy, risk management, and growth.
• Corporate Governance: Must comply with the CBN’s governance code.

Steps to Acquire a Commercial Bank License

1. Grant of Approval in Principle (AIP):
   • Submit a formal application to the CBN, including a feasibility report, draft Memorandum and Articles of Association (MEMART), shareholder and director details, and pay a non-refundable fee of ₦500,000.
   • Deposit the minimum paid-up capital with the CBN.
   • The CBN reviews and may issue an AIP, with or without conditions.
2. Grant of Final License:
   • Apply for the final license within six months of the AIP, including a non-refundable licensing fee of ₦5 million, certified true copies of incorporation documents, and proof of operational readiness.
   • The CBN reviews and grants the final banking license.
3. Pre-Commencement Requirements:
   • Submit additional documents such as evidence of clearinghouse admission, share certificates, insurance coverage, and adequate security arrangements.
   • The CBN reviews and grants approval to commence operations.

2. Merchant Bank License

Merchant banks focus on wholesale banking services for large corporations and government contracts.

Requirements for a Merchant Bank License

• Capital Requirement: ₦15 billion
• Operational Focus: Emphasis on corporate clients.
• Corporate Governance: The board must have experience in wholesale banking.
• Risk Management: Must demonstrate robust risk-handling capacity.

Steps to Acquire a Merchant Bank License

• Submit the application and non-refundable fee of ₦500,000, including a business plan and board profiles.
• The CBN reviews risk management, financial standing, and corporate governance.
• Upon meeting requirements, provisional approval is granted, followed by the final license after pre-operational conditions are fulfilled.

3. Microfinance Bank License

Microfinance banks serve individuals and small businesses with limited access to traditional banking.

Types of Microfinance Bank Licenses

• Unit: ₦200 million
• State: ₦1 billion
• National: ₦5 billion

Steps to Acquire a Microfinance Bank License

• Apply with capital verification documents and pay a non-refundable fee of ₦100,000.
• The CBN reviews financial health and business feasibility before granting provisional approval.
• Final license granted after pre-operational requirements are met.

4. Non-Interest (Islamic) Banking License

Non-interest banks operate under Islamic Sharia law, offering services without charging interest.

Requirements for a Non-Interest Banking License

• Capital Requirement: ₦10 billion (Regional), ₦25 billion (National)
• Sharia Compliance: Must have a Sharia Advisory Board to ensure compliance.

Steps to Acquire a Non-Interest Banking License

• Apply with a non-refundable fee of ₦500,000, outlining Sharia-compliant operations.
• Provisional approval is followed by a final license after pre-operational conditions are met.

5. Payment Service Bank License

Payment Service Banks (PSBs) provide financial inclusion services such as mobile banking and money transfers but cannot grant loans.

Requirements for a Payment Service Bank License

• Capital Requirement: ₦5 billion
• Technology Infrastructure: Strong IT and mobile banking systems.

Steps to Acquire a Payment Service Bank License

• Submit the application, business plan, and non-refundable fee of ₦500,000.
• The CBN reviews IT infrastructure and business models before granting provisional approval.
• Final license granted after pre-operational conditions are satisfied.

6. Development Bank License

Development banks provide long-term funding for large-scale projects that promote economic growth.

Requirements for a Development Bank License

• Capital Requirement: ₦100 billion
• Government Involvement: Often owned or partially owned by the government.
• Development Focus: Must contribute to national development goals.

Steps to Acquire a Development Bank License

• Submit a detailed business plan and pay the non-refundable fee of ₦500,000.
• Provisional approval is granted after CBN review, followed by the final license.

7. Specialized Bank License

Specialized banks focus on niche sectors like mortgage banking, export financing, or agriculture.

Requirements for a Specialized Bank License

• Capital Requirement: Varies by specialization (e.g., ₦10 billion for mortgage banks).
• Operational Framework: Aligned with the CBN regulations for the specific niche.

Steps to Acquire a Specialized Bank License

• Apply along with a business plan, paying the non-refundable fee of ₦500,000.
• The CBN reviews financial viability and niche market focus before granting provisional and final licenses.

Regulatory Framework and Compliance

• Banks and Other Financial Institutions Act (BOFIA) 2020: Requires all banks to hold a valid CBN license.
• Central Bank of Nigeria Act 2007: Grants the CBN authority to issue banking licenses.
• Companies and Allied Matters Act (CAMA): Banks must comply with CAMA’s incorporation requirements.

Benefits of Obtaining a Bank License

• Legal Authorization: Enables lawful banking operations.
• Access to Financial Services: Allows offering a broad range of services.
• Enhanced Credibility: Increases trust among stakeholders.
• Regulatory Compliance: Ensures smooth operations and avoids penalties.

General Tips for Acquiring a Banking License

1. Engage Experts: The process of acquiring a banking license is complex. Consider engaging secretarial experts familiar with CBN regulations.
2. Prepare Thoroughly: Ensure all your documents are complete and accurate before submission. Incomplete applications can lead to delays or rejection.
3. Demonstrate Expertise: Show that your team has the necessary expertise to run the proposed bank successfully.
4. Prove Financial Capacity: Be prepared to demonstrate that you have the required capital and can sustain the bank's operations.
5. Understand Regulatory Requirements: Familiarize yourself with all relevant CBN guidelines and regulations.
6. Plan for Compliance: Develop robust systems for regulatory compliance, risk management, and corporate governance.

Conclusion

Remember, the banking sector is highly regulated, and requirements may change. Always refer to the latest CBN guidelines and consider seeking professional assistance to navigate the licensing process effectively.

Are you considering applying for a banking license in Nigeria? Our team at SplashDict specializes in guiding businesses through complex regulatory processes. Contact us today to learn how we can assist you in your banking license application journey.