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Amidst concerns,
the Central Bank has issued a review of the guidelines for the proposed
specialised banking, and announced plans to discontinue the issuance of
universal banking licenses to operators in the nation’s banking
industry.

Last week, the
Central Bank published a review of the guidelines for the proposed
specialised institutions – in pursuance of its objective to promote a
sound financial system in the nation.

“In furtherance of
the strategic imperatives being implemented by the Central Bank to
reform the Nigerian financial system, the Central Bank is conducting a
comprehensive review of the guidelines for the licensing of Specialised
Institutions which include Non-interest banks, Primary Mortgage
Institutions, Microfinance banks, Development banks and Discount
Houses” the bank stated in a circular on its website.

“Accordingly, the
minimum paid-up capital requirement for the following specialised
institutions shall, by applicable regulations and guidelines soon to be
issued by the Central Bank, be revised.

Non interest bank
(Regional) N5 billion, Minimum paid-up capital, non- interest Bank
(National) N10 billion and primary mortgage institution N5 billion” the
Central Bank said.

As part of
transitional arrangements, the Central Bank says it will provide
guidelines for the recapitalisation of existing specialised
institutions that will be affected by an increase in minimum capital
requirements.

It also said that
following the recent repeal of the universal banking guidelines, and
the imminent exchange of universal banking licences by banks for
licences permissible under the Banks and Other Financial Institutions
Act, the Central Bank deemed it necessary to expound upon licensing
conditions for merchant banks, with the aim of providing clarity to the
market on the terms on which merchant banking business may be conducted.

The Central Bank
also added that the draft framework for the regulation and supervision
of Non-interest banks which was issued in March 2009 is being finalised
based on feedback received from industry operators. In addition, the
framework for primary mortgage institutions is being reviewed and
finalised in terms of operations and funding for the mortgage sector.

It said primary
mortgage institutions, microfinance banks, development banks and
discount houses shall continue to perform their specialised roles
within the framework of existing guidelines pending the issuance of
revised guidelines by the Central Bank.

Concerns abound

Even though some
finance experts say doing away with universal banking is a positive
move, bank officials say the move would not address any of the
challenges that caused the banking crisis last year and that it is not
really a realistic project at this point in time, nor will it improve
proper regulation and /or good corporate governance.

“By creating three
tiers of commercial banks alone, the Central Bank might have worsened
the regulatory space” a senior staff of the First Bank said. He added
that the major problems of the banking industry were poor corporate
governance and inadequate regulatory monitoring, which led to the
crisis.

“And because we
cannot prove that the absence of these tiers was the problem with the
industry, it is hard to understand how they may be a response to it” he
said.

However, some
finance experts say that the embargo on universal banking is not likely
to have adverse effects on Nigeria’s banking climate if the
requirements for such transitions are met appropriately.

Akinbamidele
Akintola, a finance analyst at Renaissance Capital, an investment
banking firm said that “I do not think this (specialised banking)
should adversely affect the banking industry but the concern is that
does the Central Bank of Nigeria have the man power, efficiency and
capacity to really execute this? That is the concern” he said.

Better Regulation?

In March when the
policy was announced, some finance experts said it was a good idea.
Gamaliel Onosode, a leading boardroom player in Nigeria’s corporate
environment said the policy was a welcome one as he did not think it
was a good idea that universal banking was introduced in Nigeria.

Mr. Onosode said
the practice had weaken transparency in terms of effective management
and control of the banking sector. He added that if the regulators had
improved on the quality of supervision and regulation, without
compelling all banks to comport to a business mode in terms of size, it
would have been better.

In March, the
Central Bank said it would soon discontinue the issuance of universal
banking licenses in line with the ongoing reforms in the banking sector
aimed at supporting the stability recorded so far.

Under this new
policy, operators would apply for separate licenses for each model of
banking operations, including commercial banking, micro-finance
banking, mortgage banking, and investment banking.

The Central Bank will spell out the details of the policy in a
transitional period that would last between 18 and 24 months to ensure
that normal banking operations are not disrupted.