In a bid to enhance corporate governance and safeguard the interests of shareholders in Nigerian banks, the Central Bank of Nigeria (CBN) has implemented a new regulation. The regulation stipulates that any investor seeking to acquire up to 5% of a bank in Nigeria must obtain prior approval and a “no objection” from the central bank.
This new directive is outlined in section 20.2 of the recently released Corporate Governance Guidelines for Commercial, Merchant, Non-Interest, and Payment Service Banks in Nigeria. It aims to address recent events in the capital market that have impacted some commercial banks.
According to the regulation, individuals or entities intending to acquire shares in a bank, including through the capital market, must seek and obtain the CBN’s approval and no objection if such acquisition would result in an equity holding of 5% or more. Additionally, the regulation prohibits any individual, group, proxy, or corporate entity from owning a controlling interest in more than one bank, except with prior approval from the CBN.
Furthermore, the regulation requires that in cases where the central bank objects to any acquisition, the bank must be notified. The bank, in turn, has 48 hours to notify the investor(s) concerned. This ensures transparent communication and accountability in the acquisition process.
The protection of shareholders’ rights provision also extends to government ownership of banks. The regulation stipulates that the government’s direct and indirect equity holding in a bank should not exceed 10% (direct and indirect) for a maximum of five years. Furthermore, the government is required to divest its holdings to private investors within this five-year period. For existing investments that have surpassed the five-year mark, the CBN has granted a two-year grace period from the effective date of the Guidelines for compliance.
The regulation also addresses Financial Holding Companies (FHC) and activities related to mergers and acquisitions. It mandates that no director, shareholder, or agent of an FHC can change control of a bank without prior approval from the bank. Additionally, the transfer of 5% or more of a bank’s shares to any shareholder is not permitted without prior approval from the CBN.
The implementation of this new regulation by the CBN underscores its commitment to fostering a robust banking sector in Nigeria, promoting transparency, and protecting the interests of shareholders. By requiring prior approval and a “no objection” for the acquisition of 5% stakes in Nigerian banks, the central bank aims to ensure a sound and stable financial system in the country.