The Central Bank of Nigeria (CBN) has taken a significant step to enhance dollar liquidity by authorising representatives of foreign banks in Nigeria to work with their parent companies in providing foreign currency-denominated loans (dollar loans) to Nigerian firms.
According to the Guidelines for the Regulation of Representative Offices of Foreign Banks in Nigeria signed yesterday by the Director of Financial Policy and Regulation Department, Muhammad Musa, the move aligns with CBN’s mandate to promote financial system stability and is supported by Sections 6(1) and 8(1) of the Banks and Other Financial Institutions Act 2020 (BOFIA).
The act stipulates that no foreign bank can operate in Nigeria without the prior approval of the CBN.
Institutions covered by the guidelines include any bank licensed under foreign law, whose primary business includes the receipt of deposits, granting of loans, and/or provision of current and savings accounts, as well as any foreign-owned operating bank/financial holding company that is foreign-based, that owns controlling interest in one or more banks or institutions, whose primary business includes the receipt of deposits, granting of loans, and provision of current and savings accounts.
Representatives of foreign banks in Nigeria are also authorized to market the products and services of their foreign parent or affiliate, carry out research activities on behalf of the foreign parent, serve as a liaison between the foreign parent and local banks, private institutions in Nigeria, and other customers of the foreign parent based in Nigeria.
In addition, the banks are permitted to connect banks and other financial institutions to their parent company, assist Nigerian exporters with finding new markets through their international offices, and assist exporters in Nigeria with information related to the laws and markets of target countries in which the foreign parent or any of the Group’s affiliates has a subsidiary.
However, the banks are prohibited from engaging in any commercial or trading activity that may lead to the issuance of invoices for services rendered, as well as providing services designated in Nigeria as banking business.
The CBN also stipulates that in establishing a representative office in Nigeria, a Memorandum of Understanding (MOU) between the CBN and the applicant’s home regulatory supervisor is required.
Where such an MOU is non-existent, the CBN will work with the home regulatory agency to establish/execute an MOU as soon as possible.
Furthermore, the promoters of a proposed office must submit an application for the grant of a final license to the CBN not later than three months after obtaining the Approval-In-Principle.
