Through two separate publications released on its website on 22 May 2023, the Central Bank of Nigeria revoked the operating license of 179 Microfinance Banks, 3 Finance Companies, and 4 Primary Mortgage Banks operating in Nigeria. The Apex Bank exercised the powers conferred on it by the Banks and Other Financial Institutions Act, (BOFIA) 2020.
Why were the operating licenses of this financial institution revoked?
CBN under Section 12 of BOFIA may revoke any license granted under the Act if the institution,
- Ceases to carry on in Nigeria the type of banking business for which the license was issued for any continuous period of six months or any period aggregating six months during a continuous period of 12 months.
- Goes into liquidation or is wound up or otherwise dissolved,
- Fails to fulfill or comply with any condition subject to which the license was granted,
- has insufficient assets to meet its liabilities,
- Conduct its business in an unsound manner or its directors engage in unsafe practices,
- Is involved in a situation, circumstance, action, or inaction which constitutes a threat to financial stability, or
- Fails to comply with any obligation imposed upon it by or under this Act, the Central Bank of Nigeria Act, or any other rules, regulations, guidelines, or directives made hereunder.
- Is in the opinion of the Bank (CBN) critically undercapitalized with a capital adequacy ratio below the prudential minimum or such other ratio as the Bank (CBN) may prescribe,
- fails to commence banking operation within 12 months following the grant of a license, or
- Fails to comply with the provisions of sections 9 or 13 of this Act.
For financial institutions to comply with section 9 or 13 they must have the minimum paid-up share capital of banks and comply with minimum paid-up capital requirements and minimum capital ratio.
In the CBNs publication, the Institutions operating licenses were revoked for the following reasons;
(a) ceased to carry on, in Nigeria, the type of business for which their licenses were issued for a continuous period of 6 months;
(b) failed to fulfill or comply with the conditions subject to which their licenses were granted; or
(c) failed to comply with the obligations imposed upon them by the Central Bank of Nigeria in accordance with the provisions of the Banks and Other Financial Institutions Act (BOFIA) 2020, Act No. 5.
That’s section 12(1)(a), (c) & (g) of BOFIA.
The revocation implies that the affected institutions can no longer carry on the said business in Nigeria. What will depositors now do?
What happens to depositors’ funds or savings in the institutions?
Once a bank/financial institution’s license is revoked, the Nigeria Deposit Insurance Corporation (NDIC) automatically receives an appointment letter as a Liquidator of the Institution and begins the process of liquidation. Upon completion of the liquidation, NDIC pays the depositors their deposits. In other words, the funds of depositors in the liquidated banks are safe.
Can A Revocation be challenged in Court?
Yes, a revocation can be challenged in court. But the affected banks have to act swiftly as the Act provides that any action challenging the revocation has to be filed within 30 days in the Federal High Court.
All these said serious financial institutions avoid this kind of occurrence by legal compliance officers who ensure that the institutions always comply with the requirements of the law.
My name is Prosper Ambaka, Esq. Please Feel free to connect.