CBN restricts contract suspension period to two business days

The Central Bank of Nigeria (CBN) has introduced new interpretative guidance to clarify the application of key provisions within the Banks and Other Financial Institutions Act (BOFIA) of 2020. A primary focus of this guidance is to establish a maximum period of two business days for the suspension of certain contractual obligations when a bank is undergoing resolution.

According to the CBN, the absence of a clearly defined maximum duration for exercising its powers under Sections 34(2)(b) and 40(2) of BOFIA had previously created uncertainty for banks, financial institutions, and their counterparties. This ambiguity had the potential to impede the effective management of commercial risk. The circular, issued by Acting Director Okey Umeano, aims to provide clear operational guidelines for how the CBN Governor will exercise these powers.

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The Central Bank of Nigeria has observed that the absence of a defined maximum duration period pursuant to the exercise of its powers under Sections 34(2)(b) and 40(2) of the Banks and Other Financial Institutions Act, 2020 has created some uncertainty for counterparties dealing with Nigerian banks and other financial institutions in respect of financial contracts.

The new guidance specifies that any suspension of payment or delivery obligations under an "Affected Contract" involving a failing bank, or any suspension of termination rights under contracts covered by BOFIA, will not exceed two business days from the date the CBN Governor issues a written order or notice of suspension. This clarification directly addresses the bank resolution framework, particularly concerning the facilitation of bank acquisitions and the temporary suspension of contractual termination rights when a banking license is revoked in the public interest.

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any suspension of payment or delivery obligations under an affected contract involving a failing bank pursuant to Section 34(2)(b), as well as any suspension of termination rights under contracts covered by Section 40(2), “shall not exceed a period of two business days commencing from the date on which the written order or notice of suspension is issued by the CBN Governor.”