The CBN prohibits foreign banks from doing “banking business” in Nigeria

The Central Bank of Nigeria (CBN) recently prohibited foreign banks with representative offices in Nigeria from, among other things, providing services categorized as "banking businesses."

In its regulation of the representative office of foreign banks in Nigeria, the CBN made this disclosure. The apex bank claims that the guideline fulfills its regulation of the range of banking activities and related issues.

To outline the conditions for the licensing and operation of authorized representative offices of foreign banks in Nigeria, the CBN has issued the following guidelines: 

·        “Approved Representative Offices shall not engage in the following services/activities;

·        Provision of services designated in Nigeria as banking business;

·        Provision of any commercial or trading activity that may lead to the issuance of invoices for services rendered; and

·        Acceptance of orders on behalf of the foreign parent; and engage directly in any financial transaction.’’

·        Representative offices of foreign banks serve an important purpose of showcasing the brand and services of its parent company.”

The regulations prohibit an authorized representative office from conducting banking business in Nigeria.

This indicates that authorized representative offices of foreign banks are prohibited from receiving deposits or current accounts, savings accounts, or other similar accounts, from paying or collecting customer checks drawn on or paid into accounts, from providing financing, or from engaging in any other activity the CBN has identified as banking business.

Marketing the goods and services of its foreign parent or a subsidiary of the foreign parent that is authorized and based outside of Nigeria is among the permitted activities, according to the directive.

A representative office of a foreign bank is a liaison office of the foreign bank licensed by the CBN with the sole purpose of marketing the goods and services of its foreign parent bank as well as acting as a point of contact between its foreign parent bank and local banks, financial institutions, private firms, and the general public in a given country.

According to the CBN, foreign banks' representative offices are essential to promoting the parent company's services and brand. It continued by saying that by integrating capital to the myriad investment opportunities available in the host nation, they may help promote foreign direct investment.

The circular states that section 8 of the Banks and Other Financial Institutions Act of 2020 (BOFIA) gives the Central Bank of Nigeria (CBN) the authority to require foreign banks to obtain the CBN's prior clearance before they can conduct business in Nigeria.

It should be noted that the provision, along with inquiries from foreign banks, law offices, and financial consultants, regarding the conditions for operating foreign banks' representative offices in Nigeria, has made it necessary to create guidelines outlining the regulatory requirements.

The CBN outlined the financial conditions for foreign banks looking to open a representative office in Nigeria, stating that they must pay a total of N15 million, which includes a N5 million non-refundable application cost and a N10 million non-refundable licensing charge.

The guidelines were created as a result to offer direction to stakeholders, especially foreign banks looking to operate in the country. They are being released as an exposure draft for feedback and observations. The draft guidelines can be accessed on the apex bank's website. www.cbn.gov.ng.