CBN Seeks to Curb Parent Companies’ Influence on Banks’ Lending Decisions

The Central Bank of Nigeria (CBN) is initiating a significant overhaul of the regulatory framework for Financial Holding Companies (HoldCos). The proposed changes aim to bolster governance, increase accountability, and clarify ownership structures within Nigeria's financial sector.

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Be involved in credit administration and approval processes of any of its subsidiaries.

A central tenet of the proposed reforms is to restrict parent companies from interfering in the lending and credit approval processes of their subsidiaries. The CBN's draft guidelines explicitly state that a HoldCo shall not be involved in the credit administration and approval processes of any of its subsidiaries. Furthermore, any loans provided by a banking subsidiary to its HoldCo would be treated as a return of capital, impacting the bank's capital adequacy ratio.

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Loans by a banking subsidiary to its holdco would be regarded as a return of capital and deducted from the capital of the bank in computing the bank’s capital adequacy ratio.

These proposed regulations, detailed in the 'Exposure Draft of the Revised Guidelines for Licencing and Regulation of Financial Holding Companies in Nigeria,' are a response to years of implementing the existing framework, which was introduced in 2014. The CBN has identified areas needing enhancement to strengthen operational effectiveness and regulatory oversight.

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Following several years of implementation, the CBN has identified areas within the extant Guidelines that require enhancement to strengthen the operational effectiveness and regulatory oversight of Financial Holding Companies.

One of the most impactful proposed amendments is the introduction of a mandatory majority ownership requirement. Financial Holding Companies will be required to hold a minimum of 51% equity stake in each subsidiary. This measure is intended to strengthen the ability of HoldCos to exercise effective oversight and eliminate ambiguities surrounding control and accountability within financial groups. The CBN also seeks to clearly delineate responsibilities by prohibiting HoldCos from interfering in the operational and business decisions of their subsidiaries.

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Ownership and Control Requirements: Requiring FHCs to hold a minimum of 51 per cent equity stake in each subsidiary and to be registered as a person with significant control by the appropriate corporate registration authority.