CBN Implements Oversight Measures: Law Enforcement to Monitor Nigerian Banks for Illicit Financing Amid Recapitalization Efforts

CBN Implements Oversight Measures: Law Enforcement to Monitor Nigerian Banks for Illicit Financing Amid Recapitalization Efforts

The Central Bank of Nigeria (CBN), in conjunction with law enforcement agencies, has announced stringent monitoring measures to oversee the recapitalization efforts within the Nigerian banking sector. This initiative aims to prevent the infusion of illicit financing into the sector, ensuring its integrity and stability. A circular signed by Mr. Haruna Mustafa, the Director of the Financial Policy and Regulation Department at the CBN, has revealed these measures.

The circular, addressed to commercial, merchant, and non-interest banks, as well as promoters of proposed banks, outlines new minimum capital requirements. It mandates banks to conduct thorough anti-money laundering screenings, including Know Your Customer (KYC) procedures, Customer Due Diligence, and monitoring of suspicious transactions. The goal is to guarantee that capital raised during the recapitalization process is devoid of any illegal origin.

Furthermore, the circular stresses the importance of vetting new investors and significant shareholders to ensure they meet the ‘Fit and Proper’ criteria. Background checks on prospective shareholders, directors, and senior management staff are required to maintain integrity in sector leadership and ownership.

The CBN asserts its commitment to actively monitor and supervise the recapitalization process, conducting both on-site and off-site reviews, verifying capital, intervening when necessary, and engaging stakeholders extensively.

Regarding sources of capital augmentation, the CBN identifies various options available to banks, including the issuance of new shares, mergers and acquisitions, or adjusting license categories. Guidelines will be issued to specify definitions, options, and approaches to meeting the new minimum capital requirement.

It’s noteworthy that paid-up capital and share premium are the only components considered for the new capital levels, excluding Additional Tier 1 (AT1) Capital. Commercial banks with international authorization face a new minimum capital base of N500 billion, while national and regional banks have thresholds of N200 billion and N50 billion, respectively. Merchant banks and non-interest banks also have specific minimum capital requirements.

This move follows an announcement by the CBN governor in November 2023, indicating the intention to carry out a fresh round of banking recapitalization for Deposit Money Banks (DMBs). Reports suggest that several banks might need significant capital infusion to meet the new requirements, potentially leading to mergers and acquisitions, akin to the previous recapitalization exercise in 2004/2005.

Overall, the CBN’s measures underscore its commitment to ensuring the financial soundness and integrity of the Nigerian banking sector amidst recapitalization efforts. However, the decision to exclude retained earnings from share capital calculation has drawn criticism from some quarters within the banking industry.

Leave a Reply

Your email address will not be published. Required fields are marked *